The Complete Guide to the Flex Modification Program

If you’re behind on mortgage payments and you have either a Freddie Mac or a Fannie Mae backed loan, their Flex Modification program may be a good option for you. 

What is the Flex Modification program?

The Flex Modification program is a popular Fannie Mae or Freddie Mac loan modification option that is being offered to homeowners who are transitioning off of their COVID-19 Forbearance plan.

Most commonly, a Flex Modification will do the following:

• Take all of the missed mortgage payments (including interest) and add them to your principal balance. This is sometimes referred to as “tacking the arrears on to the end of your loan” or “wrapping your arrears into your balance.” This makes it so you don’t have to pay your missed mortgage payments all at once. 
• Extend the term of your loan up to 40 years
• Lower your interest rate

It is also possible to receive a principal reduction (up to 20 percent) through a Flex Modification but this doesn’t happen frequently. 

If you get approved for a Flex Modification, you will be given new loan documents that have new terms.

To see if you have Fannie Mae as your investor, use their loan look-up tool here.

To see if you have Freddie Mac as your investor, use their loan look-up tool here.

As a reminder, your investor is the entity that owns your loans and makes decisions about it. Your servicer (or bank) is the entity that issues your mortgage statements and communicates with you on a daily basis.

Who is eligible for the Flex Modification program?

• You have Fannie Mae or Freddie Mac as your investor
• The mortgage is your FIRST mortgage (not a 2nd HELOC or a second mortgage)
• The mortgage is at least one year old
• You have demonstrated a valid financial hardship by missing payments. Or, you are able to show the bank that “imminent default” is unavoidable and about to happen (if you’re less than 60-days in default on the mortgage)
• The home is your primary residence (some investment properties are also eligible but you are required to be more than 60-days delinquent on the mortgage)

Applying for a Flex Modification after a Covid forbearance 

If you are a homeowner who meets the following criteria, you can apply for and be approved for a Flex Modification in a streamlined manner, meaning – you should NOT be required to submit any documents:

• Your investor is Fannie Mae or Freddie Mac
• You were current on your mortgage prior to March 2020
• You experienced financial hardship due to and caused by COVID-19
• You were placed on a COVID-19 Forbearance plan as a result of the hardship
• The hardship is now resolved and you are able to resume payments 

If you meet the above criteria, you are considered a “COVID hardship borrower” and can enter into a “streamlined” review. 

The streamlined review is done over the phone with a customer service representative from your bank. 

Once you are ready to transition off of your forbearance plan, call your bank’s loss mitigation department and tell them you would like to be reviewed for a Flex Modification. 

The bank will then ask you a series of questions that will sound something like this (the questions vary slightly depending on the servicer):

1. Has your hardship been resolved? (Say “yes” if it has)
2. Is this your primary residence? 
3. Are you able to resume your regular monthly payment at the same amount you were before COVID? (If you want to be reviewed for a Flex Modification, you should answer “no” to this question. If you answer this “yes,” the lender will likely try to offer you a payment deferral option, not a modification).
4. Are you able to resume payments but would like to see if there are any options for a lowered payment? (Answer “yes” to be reviewed for a Flex Modification).
5. Are you able to sign documents related to your home? 

You should be able to get your review open by answering these verbal questions.

Applying for a Flex Modification if you were NOT on a Covid forbearance 

You can still apply for a Flex Modification even if you are not a “COVID-19” hardship borrower. To do this, you will be required to send in a complete loss mitigation application and financial package. 

A basic financial package for a Flex Modification review will include the following documents:

• Your servicer’s loss mitigation application (you should ask them to mail you a copy of this document)
• Your income verification (pay stubs, SSI income, retirement income, VA income, self-employment income etc.)
• Your tax returns for the most recent two years
• 60-days worth of bank statements 
• A 4506C Form 
• Any income information from contributors in the household 

Once you submit this package, the lender will review your financial situation against Fannie Mae’s and Freddie Mac’s guidelines for the Flex Modification program to see if you qualify for a modification.

The review process takes 30-days to complete, from the moment your file is “deemed complete” regardless of whether you are a COVID homeowner or applying with a full financial package

After you apply for your Flex Modification, the bank will “deem the file complete” once they have everything they need. If you qualify for a streamlined modification, this process should only take a couple of days. If you submitted a document package, this process can take up to a few weeks. It is your job to follow up every 48 hours to ask your bank this question:

“Has my file been deemed complete and sent to the underwriting department?”

Stay on top of your lender by calling regularly until they say “yes” to the above question. If they need additional documents, send them in a timely manner.

Once the file has been deemed complete, your lender has 30-days to produce a decision.

***Right now, due to the high amount of homeowners trying to transition off of their COVID Forbearance plans, it may take a bit longer than the 30-days to get a decision back from your lender. If it’s taking longer than 30-days, consider opening an escalation with a supervisor and calling your bank daily***

If approved for a Flex Modification, you will be placed on a three month Trial Payment Plan (TPP)

If you get approved for a Flex Modification, the servicer will instruct you to make a trial payment for three consecutive months before they finalize the loan modification agreement. 

Your lender uses these trials to test the household income to ensure that the proposed, modified mortgage payment is affordable for you. 

The TPP is the first step in the approval process and not the finalized agreement.

The TPP agreement will tell you the due dates of your payments and the amount. 

To be successful with your TPP:

• Make the payments exactly when they are due – not earlier or later
• Read the TPP agreement carefully to ensure that you know HOW the lender wants you to send in your TPP payment (don’t assume your online portal will work for TPP payments. Most lenders want you to mail in TPP payments)
• Call the bank after you send in your TPP payment to confirm that the payment was received and applied to the trial 

After you make it through your TPP, you will be issued your final Flex Modification documents

After your TPP is complete, your bank will have 30-days to draft and mail you your final modification documents. These documents (unlike your TPP) will contain all the terms of your modification including the monthly payment, the new principal balance, your new interest rate, any principal reduction you received and the new maturity date.

You will be asked to sign and notarize these documents and mail them back to your bank. 

The bank will then review your signatures and the notary’s work to ensure there are no mistakes. They will send them through a “quality assurance process” and then they will sign the documents and record the modification.

At this point, you are considered current on your mortgage and will start receiving regular mortgage statements. 

If you get denied from a Flex Modification, you will be given a 30-day period to appeal your denial 

If you’ve made it through the Flex Modification review process and you get denied, this would be a good time to call with an attorney who can help you understand what’s going on. 

Common reasons why people end up denied from a Flex Modification are:

• You have had too many modifications over the life of your loan
• You haven’t been able to demonstrate that you have enough stable income to make a modified payment (it is common for banks to make mistakes when calculating your income that often cause erroneous denials so if you feel like you’ve been wrongly denied for this reason, call an attorney for help)
• You failed to complete your document package so the bank closed your review without looking at your financials 

Some denial reasons are legitimate and others are not.

If you’re considering an appeal, follow these best practices:

• Draft an appeal letter where you state all the reasons you believe you qualify for a Flex Modification and should not have been denied
• Your appeal letter should be one page or less, easy to read and easy to navigate
• Attach any supporting documentation related to what you’re claiming
• Make sure you follow the instructions about where and how to file your appeal (these instructions are listed within the denial letter your bank gives you)

Deferral Option vs. Flex Modification

If you’re a homeowner who had a COVID-19 Forbearance, you will need to understand the difference between a “Fannie Mae/FreddieMac Deferral Option” and the “Flex Modification” program before you contact your lender because you will be offered both of these options..

The deferral option takes the amount of payments you missed during your forbearance and “defers” or “moves” the due dates of this amount to the same maturity date of your existing mortgage. 

You don’t pay interest on the deferred amount. 

At the maturity date of your mortgage, the lump sum becomes due. Once the missed payments have been deferred, your monthly payment reverts back to exactly what it was before COVID and your original mortgage remains intact. 

A Flex Modification is a loan modification. A loan modification is a new agreement with new terms. Your bank writes you a new loan and the new loan’s terms replace the terms of your original mortgage. 

Why choose a Flex Modification over the Deferral Option? 

Flex Modifications are good options for people who weren’t totally comfortable with their original payment pre-COVID. Flex Modifications are also good options if your household income has not fully recovered from COVID yet.

If your original mortgage payment was already stretching the household income in an unaffordable way, a Flex Modification may help you get slightly better terms. It will likely lower your interest rate and your monthly payment. 

With that said, a Flex Modification will also likely extend the maturity date of your mortgage – meaning, it will take you longer to pay off your house. If this bothers you, you may be better off taking the payment deferral. 

It is also important to understand that the “lower” payment is usually not more than a $200 – $400 reduction so if this difference isn’t meaningful to your household, you may choose to take the deferral option. 

An attorney can be helpful if you’re applying for a Flex Modification

Some lenders have an easy system for helping homeowners apply for a Flex Modification. Unfortunately, most do not. The process can be confusing, time-consuming and filled with uncertainty. 

Below are the ways an attorney can be helpful if you’re considering a Flex Modification:

• Help you know whether you qualify for the streamlined COVID option or whether you will have to submit a document package
• Help you prepare your application for you and give you advice on how to best present your income and expenses to set you up for the best shot at approval 
• An attorney will know how to present any unusual or special information (related to your particular finances) in the right way to get your file deemed complete and reviewed in the fastest time possible
• An attorney will have the time and ability to do the consistent follow-up needed to push the review forward and avoid problems 
• An attorney (who does this type of work regularly) should have access to supervisors and escalation teams at your servicer to help move your file forward and avoid roadblocks 
• An attorney will track your foreclosure activity to keep you updated and advised of all your options should the Flex Modification not be available to you

Overall, the Flex Modification process can be complicated. There are several parties involved and several moving parts. If you are a homeowner in Washington State and need help with a loan modification, feel free to call me at (425) 654-1674.