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A no-fuss way to help homeowners avoid foreclosure

(MoneyWatch) Starting this month, some lenders are offering certain homeowners loan modifications -- without even being asked.

Under a new plan created by the Federal Housing and Finance Administration, mortgage servicers must offer homeowners who are three to 24 months behind on their payments a plan to help them avoid foreclosure. The Streamlined Modification Initiative helps delinquent homeowners modify their mortgage and lower their monthly payments, similar to the Home Affordable Modification Program.

But unlike HAMP, which has been around for more than four years, the new program allows borrowers to qualify for mortgage relief without submitting piles of financial and other paperwork or proving a hardship. In principle, participants don't have to do anything to qualify.

Eligible borrowers will receive a letter in the mail with the following offer: make three on-time trial payments, and after that the mortgage will be permanently modified according to the new terms. The letter will spell out the dollar amount of the new mortgage payment based on a fixed interest rate, may extend the payment terms to 40 years and provide principal forbearance of some kind for certain underwater borrowers.

The program is intended to minimize losses to Fannie Mae and Freddie Mac, the government-sponsored enterprises that insure most U.S. mortgages, and to help troubled borrowers avoid foreclosure and stay in their homes, according to the FHFA.

While the amount saved will vary, the FHA is saying that that the program intends to create a 30 percent average savings for borrowers.

"This new option gives delinquent borrowers another path to avoid foreclosure," FHFA acting director Edward  DeMarco said in a statement, adding that borrowers will still be on the hook to provide documentation for other FHFA modification programs.

HAMP may still be better for some borrowers because the program might offer more savings than the new program, according to FHFA. Under HAMP, modification terms are based on payment plan that amounts to 31 percent of the borrower's monthly income. Because no paperwork is required under the streamlined program, the new monthly payment is based on a standardized formula.

Borrowers must not have more than 20 percent equity in their homes, which could be primary residences, second homes and investment properties. However, the plan is only offered to those with mortgages backed by Fannie or Freddie.

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