The HAMP program was created as a result of the economic climate of the last few years. It can help struggling homeowners modify their mortgage payment so they don't lose their home.
There are two primary goals of the HAMP (Home Affordable Modification Plan) program:
• Assist homeowners who are at risk of going into foreclosure when their mortgage costs are substantially increased
• Improve the overall financial position of these homeowners
The HAMP modification program does not work for everyone because of the conditions that must be met to be eligible for the program. Read on to gain an understanding of HAMP loan modification programs and eligibility.
1HAMP Program Eligibility
- You must be the occupying owner of a 1-4 unit home
- You must have an outstanding principal balance equal to or less than:
- Your first mortgage must originate on or before 1st January 2009
- Your monthly mortgage fees must exceed 31% of your monthly pre-tax (gross) income. These fees includes insurance, taxes, and dues for home owners association.
- Your mortgage fee should be unaffordable to you because of a financial difficulty that can be documented.
2Actions Taken By Your Loan Servicer
If you believe you meet the requirements for HAMP eligibility, you should contact your loan servicer. This is the company you make your payments to and they are the only one who can confirm your eligibility for the HAMP program.
Your loan servicer can implement any of the following in order to reduce your payment to 31% of your gross income:
- Lower the interest rate - Treasury is providing incentives to servicers so that they can get the interest rates lowered to as little as 2% if necessary. However, the interest rate for each homeowner will only be lowered until the 31% is reached, so the likely interest rate will be between your current rate and 2%.
- Term extension – If the maximum 2% rate reduction is not enough to make your payments affordable, the length of your loan will be extended up to 40 years.
- Principal deferment – If the two options mentioned above are still insufficient, a portion of the principal amount you owe can be deferred until the loan matures. This is a principal forbearance, which essentially means that the principal is still owed but its repayment is rescheduled to a future date.
- The servicer may also decide to forgive a bit of the principal. However, this decision depends soley on the servicer and there’s no obligation for it to be done.
3Does Eligibility for HAMP Loan Modification Require You To Be Behind?
Many other programs require the homeowner to be behind in payments, however that is not the case with a HAMP modification.
Homeowners who are committed to remaining current with their mortgage payments are eligible if they have reason to believe they’ll default soon. This is referred to as ‘imminent default’ by loan servicers.
In these situations, homeowners are required to contact their servicers, document their incomes and expenses, and provide evidence of their hardships or circumstances that have resulted in their financial difficulties.
The reasons for imminent default may include:
• Payment adjustment or upward interest rate adjustment that cause mortgage payments to significantly increase
• Substantial reduction in income due to unemployment
• Financial difficulties that make it hard to meet mortgage payments
4Homeowners Facing Foreclosure
Servicers taking part in this program are prohibited from starting, or continuing the foreclosure process until homeowners have been evaluated for HAMP eligibility and have completed the trail period. Servicers are obligated to use sensible efforts to get in touch with homeowners facing foreclosure to determine their eligibility.
Foreclosure sales cannot be completed as long as loans are being considered for HAMP modification, or in the trial period. Also, once homeowners are into the trial period after submitting their first trial period payments, servicers are prohibited from taking the first legal actions to initiate new foreclosures.
5Insurance, Property Taxes and HAMP Program Eligibility
Insurance and property taxes are considered part of the HAMP loan modification program.
All loans that have been modified due to the HAMP program must, unless not allowed by state law, include escrow accounts set up to pay hazard insurance and property taxes.
Existing loans that don’t feature escrow accounts will have these established.
6The Cost of HAMP Loan Modification
Any homeowner who has qualified for a HAMP modification won’t be required to pay past-due late fees or a modification fee.
For any costs associated with the modification, servicers will provide the option of adding those fees to the amount that is owed on the mortgage, or settling the expenses in advance. The latter option will reduce the new monthly payment and provide a cost savings over one’s loan life.
7Financial Incentives to Homeowners Via HAMP
Success incentives will be awarded to homeowners who make timely payments on their modified loans. An incentive is accrued each month that a timely payment is made. This will eventually reduce the principal balance of the loan.
These incentives, up to $1000 annually, are to be directly applied to the loan balance. In five years the total principal reduction may amount to $5000. These incentives are intended to help homeowners gain equity faster.
Additional Resources
- Learn more about the HAMP program here.
- HAMP loan FAQ's
What Do You Think?
Do you have any experience with HAMP modifications that might help someone else?
