{"id":175377,"date":"2024-07-17T13:15:14","date_gmt":"2024-07-17T19:15:14","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=175377"},"modified":"2024-07-17T13:34:48","modified_gmt":"2024-07-17T19:34:48","slug":"new-loan-modifications-bring-three-percent-rates-back","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/new-loan-modifications-bring-three-percent-rates-back","title":{"rendered":"Loan Modifications Are Bringing 3% Interest Rates Back, Even for Residential Real Estate"},"content":{"rendered":"\n<p><span data-preserver-spaces=\"true\">If it sounds too good to be true, it probably is. That was likely your reaction when you read this headline.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">However, loan modifications are not a relic from a bygone era but have surged in recent months due to the number of <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/what-is-a-mortgage\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">mortgages<\/span><\/a><span data-preserver-spaces=\"true\"> that have become unsustainable, with rates as low as 2% touted. Here&#8217;s what you need to know to see if your investment property qualifies.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">What Are Mortgage Loan Modifications?<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">According to commercial mortgage analytic company <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/cred-iq.com\/blog\/2024\/06\/21\/loan-modifications-swell-195-in-12-months-cred-iq\/#:~:text=Approximately%20$22%20billion%20in%20loans,that%20was%20modified%20in%202023.\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Creed iQ<\/span><\/a><span data-preserver-spaces=\"true\">, loan modifications are set to skyrocket in 2024, surpassing the record set in 2023. A loan modification can often include:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span data-preserver-spaces=\"true\">Lowering the interest rate<\/span>.<\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Extending the loan period<\/span>.<\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Forbearing or reducing your principal balance<\/span>.<\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Various combinations of these<\/span>.<\/li>\n<\/ul>\n\n\n\n<p><span data-preserver-spaces=\"true\">Approximately $22 billion in loans <\/span><span data-preserver-spaces=\"true\">were modified<\/span><span data-preserver-spaces=\"true\"> in the past 12 months ending May 31, with over $9 billion in loans modified in 2024 through May. The average CRE loan modification volume per month has been $1.8 billion.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">While the loan modification data quoted by Creed iQ concerned large <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/commercial-real-estate-fundamentals\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">commercial<\/span><\/a><span data-preserver-spaces=\"true\"> buildings, such as high-rise office buildings or sprawling complexes, smaller residential assets are also eligible for modifications.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Types of Loan Modification Programs<\/span><\/h2>\n\n\n\n<p><a class=\"editor-rtfLink\" href=\"https:\/\/www.fhfa.gov\/news\/news-release\/fhfa-announces-enhancements-to-flex-modification-for-borrowers-facing-financial-hardship\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">The Flex Modification program<\/span><\/a><span data-preserver-spaces=\"true\"> is <\/span><span data-preserver-spaces=\"true\">one of<\/span><span data-preserver-spaces=\"true\"> the most common for homeowners and investors with conventional mortgages owned by Fannie Mae or Freddie Mac. For investors, the mortgage must be 90 days or more past due. Your lender must determine that your loan is in imminent danger of default, even if it\u2019s current or you haven&#8217;t yet surpassed the 90-day delinquent mark.&nbsp;&nbsp;&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">The Flex Modification program is an offshoot of the HAMP program (Fannie Mae Home Affordable Modification Program), which you may remember from the 2008 financial crash. According to the<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/singlefamily.fanniemae.com\/media\/9016\/display#:~:text=Fannie%20Mae%20has%20combined%20the,loan%20modification%20in%20a%20changing\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\"> Fannie Mae website<\/span><\/a><span data-preserver-spaces=\"true\">, the Flex Modification leverages components of HAMP, the Fannie Mae Standard, and Streamlined Modifications.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Highlights include:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span data-preserver-spaces=\"true\">The program can be applied<\/span><span data-preserver-spaces=\"true\"> to all mortgages (including commercial and those used on investment properties) per the Servicing Guide.<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">The program requires a complete loss mitigation application for borrowers less than 90 days delinquent and targets a 20% payment reduction and a 40% housing expense-to-income ratio.<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">The program targets a 20% payment reduction for borrowers who are 90 days or more delinquent and requires no borrower documentation.<\/span><\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Enhancements to the Program Make It Easier to Qualify<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">In May 2024, the Federal Housing Finance Agency (FHFA) announced<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.fhfa.gov\/news\/news-release\/fhfa-announces-enhancements-to-flex-modification-for-borrowers-facing-financial-hardship#:~:text=%E2%80%9CThe%20Flex%20Modification%20enhancements%20will,interest%20rates%20and%20home%20prices.%E2%80%9D\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\"> enhancements<\/span><\/a><span data-preserver-spaces=\"true\"> to the Flex Modification Program, including <\/span><span data-preserver-spaces=\"true\">principal and interest rate reduction by 20%. It<\/span><span data-preserver-spaces=\"true\"> also offers mortgage term extensions (up to 480 months) and principal forbearance.<\/span><span data-preserver-spaces=\"true\">&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">However, simply applying if you are late on your mortgage probably won&#8217;t be enough to qualify. An owner will have to clearly display difficulties in meeting their mortgage payment, which, aside from personal reasons (like divorce or loss of income), can also include housing costs that are outside your control\u2014which could potentially include higher mortgage rates, taxes, insurance, etc.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Applying for a Flex Modification<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">The program terms stipulate that lenders and mortgage servicers must reach out to borrowers who are 30 days or more delinquent on their home loans. <\/span><span data-preserver-spaces=\"true\">However, even if you are <\/span><span data-preserver-spaces=\"true\">not yet<\/span><span data-preserver-spaces=\"true\"> 30 days late, you can contact a lender or servicer to initiate an application known as a Borrower Response Package.<\/span><span data-preserver-spaces=\"true\"> It includes the following documentation:&nbsp;<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span data-preserver-spaces=\"true\">Borrower Assistance Form<\/span>.<\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Request for Individual Tax Return Transcript<\/span>.<\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Proof of financial hardship<\/span>.<\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Proof of income<\/span>.<\/li>\n<\/ul>\n\n\n\n<p><span data-preserver-spaces=\"true\">You don&#8217;t have to complete these forms if you are 90 days or more behind on the mortgage. You&#8217;re eligible for a streamlined Flex Modification, which doesn&#8217;t require proof of income.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Multiple Loan Modification Programs Are Available<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">According to <\/span><a class=\"editor-rtfLink\" href=\"http:\/\/modcenter.org\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Modification Center<\/span><\/a><span data-preserver-spaces=\"true\">, a company specializing in loan modifications, the Flex Modification is just one <\/span><span data-preserver-spaces=\"true\">type of<\/span><span data-preserver-spaces=\"true\"> modification program available to homeowners and investors. Their website lists 15 different types of modifications, and it cites <\/span><span data-preserver-spaces=\"true\">major<\/span><span data-preserver-spaces=\"true\"> banks such as Chase, Wells Fargo, and Bank of America as those they have modified loans for.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">A representative from <\/span><span data-preserver-spaces=\"true\">Modification<\/span><span data-preserver-spaces=\"true\"> Center told BiggerPockets:<\/span><\/p>\n\n\n\n<p><em><span data-preserver-spaces=\"true\">\u201cBanks don&#8217;t want you to modify your mortgage and lower your rate because they won&#8217;t make as much money, so they are not likely to give you the lowest rate if you deal with them directly. It&#8217;s not an easy process. A borrower might initially face calls from the servicing department before the service rep knows the modification is in process.\u201d<\/span><\/em><\/p>\n\n\n\n<p><em><span data-preserver-spaces=\"true\">\u201cThe borrower is on one side, and the bank is on the other, and the only way to make banks take notice is to be behind 90 days on payments. It can be nerve-wracking for clients. I hear it in their voices.\u201d&nbsp;<\/span><\/em><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">A Borrower\u2019s Credit Could Take a Hit<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">In these instances,<\/span> <span data-preserver-spaces=\"true\">Modification<\/span><span data-preserver-spaces=\"true\"> Center collects the payments in an escrow account, which is later applied to the mortgage once a modification has <\/span><span data-preserver-spaces=\"true\">been agreed<\/span><span data-preserver-spaces=\"true\"> upon.<\/span><span data-preserver-spaces=\"true\"> Naturally, giving mortgage payments to a third party is a cause for concern for those looking to modify their loan. However, the company insists that their loan modifications are legitimate and adhere to government programs.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">To put potential clients&#8217; minds at rest, <\/span><span data-preserver-spaces=\"true\">Modification Center<\/span><span data-preserver-spaces=\"true\"> does not charge an upfront fee, but <\/span><span data-preserver-spaces=\"true\">gets paid<\/span><span data-preserver-spaces=\"true\"> once the modification is complete.<\/span><span data-preserver-spaces=\"true\"> There is a possible hit on a borrower&#8217;s credit (depending on the entity the mortgage <\/span><span data-preserver-spaces=\"true\">is held<\/span><span data-preserver-spaces=\"true\"> under) after missing payments, which <\/span><span data-preserver-spaces=\"true\">Modification<\/span><span data-preserver-spaces=\"true\"> Center says will be shown as <\/span><span data-preserver-spaces=\"true\">being<\/span><span data-preserver-spaces=\"true\"> current once the modification is completed and will rise over time with regular payments.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Final Thoughts<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">Clearly,<\/span><span data-preserver-spaces=\"true\"> as evidenced by the volume of mortgages in the commercial sector, loan modifications are a proven tool to fight the <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/federal-reserve-stalls-as-inflation-numbers-improve-may-2024\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">rapid increase in interest rates<\/span><\/a><span data-preserver-spaces=\"true\"> we have seen since the pandemic. For owners of these large properties, the decision to modify their loan is likely a relatively easy <\/span><span data-preserver-spaces=\"true\">one<\/span><span data-preserver-spaces=\"true\">. It could mean the difference between staying in business and not.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">For smaller investors, the decision could be more fraught. There is a big issue of trust. Will the bank agree to modify your loan? Will your escrow money be safe <\/span><span data-preserver-spaces=\"true\">if you use<\/span><span data-preserver-spaces=\"true\"> a third party to handle the modification? How badly will your credit be affected? Could you lose your investment if the bank forecloses?&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Investors must ask these questions, see testimonials, and speak to previous clients before deciding. The lure of a 2% or 3% interest rate makes a loan modification very hard to resist.<\/span><\/p>\n\n\n\n    \n  <div id=\"visibility-group-block_0f039b1d2416917b1bcfaedec1fc9d34\" class=\"visibility-group  hidden\">\n        \n\n<div id=\"hero-block_48998b6785d48102c973c6e19eeccf13\" class=\"first:mt-0 hero-block py-4  alignwide   has-background has-theme-gold-light-background-color has-text-color has-theme-gold-color\">\n    <div\n        class=\" flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 w-full \">\n            <main class=\"py-4\">\n                \n\n<p class=\"has-theme-gold-color has-text-color has-large-font-size\" style=\"font-style:normal;font-weight:800\">Get the Best Loan Today<\/p>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-slate-900-color has-text-color\" style=\"font-size:16px\">Find trusted, <em><strong>investor-friendly<\/strong><\/em> lenders who specialize in your strategy. <\/p>\n\n\n\n<p><\/p>\n\n\n\n<div id=button-custom-event-block_8fdb842c08c2f66cc8d6fb025d14650f class='button-custom-event'>\n      <a href=\"https:\/\/www.biggerpockets.com\/business\/finder\/lenders\" x-on:click=\"window.analytics.track(&#039;Blog Block | B2C Marketplace Lender Finder&#039;, {\n      referrer: &#039;https:\/\/www.biggerpockets.com\/blog\/new-loan-modifications-bring-three-percent-rates-back&#039;,\n    });\" class=\" btn-shape inline-block no-underline has-background has-theme-gold-background-color has-text-color has-white-color\" target=\"_blank\">Find a Lender<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n                <div class=\" first:mt-0 relative h-full lg:flex lg:items-center\">\n            <img decoding=\"async\" class=\"object-cover w-full relative z-20 my-0  rounded-md hidden lg:block\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/08\/Marketplace-Blog-Blocks-Lender-v3.png\" alt=\"investor friendly lender, investor friendly real estate loans\" title=\"\">\n        <\/div>\n            <\/div>\n<\/div>\n\n  <\/div>\n  \n\n\n<div class=\"wp-block-group\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n    \n  <div id=\"visibility-group-block_64dd31c79f00f\" class=\"visibility-group  \">\n        \n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div id=\"hero-block_64dd2875dba9d\" class=\"first:mt-0 hero-block py-4    has-background has-slate-100-background-color has-text-color has-theme-slate-color\">\n    <div\n        class=\" flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 w-full \">\n            <main class=\"py-4\">\n                \n\n<h3 class=\"wp-block-heading my-0 tracking-tight font-extrabold has-theme-slate-dark-color has-text-color has-large-font-size\">Join the community<\/h3>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-theme-slate-color has-text-color\" style=\"font-size:16px;font-style:normal;font-weight:400\">Ready to succeed in real estate investing? Create a free BiggerPockets account to learn about investment strategies; ask questions and get answers from our community of +2 million members; connect with investor-friendly agents; and so much more. <\/p>\n\n\n\n<div id=button-custom-event-block_64dd2888dba9e class='button-custom-event'>\n      <a href=\"https:\/\/www.biggerpockets.com\/signup\" x-on:click=\"window.analytics.track(&#039;Blog Block | Acquisition | Free Membership Signup&#039;, {\n      referrer: &#039;https:\/\/www.biggerpockets.com\/blog\/new-loan-modifications-bring-three-percent-rates-back&#039;,\n    });\" class=\" btn-shape inline-block no-underline has-background has-theme-blue-background-color has-text-color has-white-color\" target=\"_blank\">Sign Up<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n            <\/div>\n<\/div>\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n  <\/div>\n  <\/div><\/div>\n","protected":false},"excerpt":{"rendered":"<p>Yes, investment properties can qualify for the program if they meet certain requirements.<\/p>\n","protected":false},"author":613725,"featured_media":173149,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":true,"footnotes":""},"categories":[8],"tags":[],"class_list":["post-175377","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate-trends"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/175377","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/613725"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=175377"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/175377\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/173149"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=175377"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=175377"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=175377"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}