Created in 2009 to help out struggling homeowners, HAMP (Home Affordable Modification Program) has helped about 1.4 million homeowners modify their mortgages to avoid foreclosure. Originally set to expire at the end of 2012, HAMP has been extended until December 31, 2016. Both HAMP and HARP (Home Affordable Refinance Program) were launched in 2009 to provide homeowners with financial relief.
To be considered eligible for a HAMP loan modification, homeowners must meet the following conditions:
- The property must be the borrowers primary residence.
- The mortgage must have been originated before January 1, 2009.
- The mortgage can not be over $729,750.
- The borrowers total housing expense, including their mortgage payment principal, interest, taxes and insurance can not exceed 31 percent of their total income.
- The borrower must be struggling to make their mortgage payments on time due to financial hardship.
- The borrower must be delinquent, or in danger or falling delinquent soon.
- The borrower can not have been convicted of a crime related to a mortgage or real estate transaction for at least ten years.
These modifications are possible no matter what type of home mortgage a borrower might have. If they’re having trouble making their payments and their lender is a member of the program (most are) they might still he able to find relief with a HAMP mortgage modification. To qualify, the borrower’s mortgage must have been originated (started) on or before January 1, 2009. The mortgage may be for the borrower’s primary residence, or if the mortgage is for a rental property, they must have already been delinquent on it’s payments beforehand. If it’s for a primary residence, borrowers may still qualify if they’re only in danger of delinquency, rather than already delinquent. The amount of their unpaid mortgage balance is limited, depending on the area, and ranges from $417,000 to $729,750 on a single-family property to $1,403,400 for a 4-unit property. Also, either the borrower or co-borrower must be currently employed.
Loan Modification Process
The HAMP paperwork process is rather extensive and is conducted with the borrowers existing lender. They must verify a loss of income or increase in living expenses since their original mortgage and authorize transcripts of their tax returns to obtained. The real math comes in determining if they have ‘surplus income’ less than 15% of their total income or $300, whichever is greater, and, if they’re in a arrears, if 85% of that surplus is insufficient to cure that situation within 6 months. Also the modification must save them at least 10% of their monthly payment or $100, whichever is greater. Credit ratings do not factor into HAMP determinations.
Homeowners can apply for a HAMP once every 24 months, even if they have had their mortgage modified before. And they may reapply if they have formerly been turned down. New HAMP-modified loans will come with a three or four month trial period in which the borrower must not be delinquent in order to qualify for the permanent modification. If they’re delinquent, their financial circumstances must have changed before they can reapply.
The benefits of a HAMP mortgage modification are fairly significant. The most obvious being the the borrowers payments may be reduced to only 31% of their taxable monthly income. The unpaid balance of their mortgage will be amortized over 30 years, as if a borrower is starting over again, but with a lesser balance. Also delinquent payments may be capitalized (added to the loan balance) and a portion of their balance may undergo a process called ‘principal forbearance.’ Though this sounds a little scary, what it really means is that a part of their principal may be deferred to a balloon payment at the end of the loan.
Of course, for homeowners with a pre-2009 mortgage, chances are that the new lower interest rate alone will mean great savings. Also, their lender is required to forgive all previous late charges in recalculating their mortgage, and cannot charge you any fees for the modification. And, if borrowers keep current on your payments under the HAMP, they may receive a bonus of up to $1000 per year in principal reduction for the first five years.
So, if you or your co-mortgager are working but struggling to keep up, HAMP might be a good solution to your problem. You can consult your lender and get more information about HAMP and other homeowner assistance programs at www.hud.gov and www.makinghomeaffordable.gov. In looking for homeowner assistance programs, keep in mind that there is much free counseling available. You don’t have to pay for mortgage counseling. Beware of the many scams out there now that offer mortgage counseling for a fee.