Home Affordable Modification Program (HAMP)
While everyone thought we would have seen the last of the HAMP program in 2017, the program received a reprieve, at least until 2020. This means borrowers have not missed out on the opportunity to avoid foreclosure by modifying their existing home loans to levels that are not only affordable but also sustainable for the duration of their loans.
What Is the Home Affordable Modification Program?
The home modification program came about in response to the subprime mortgage crisis that decimated home values and left many homeowners facing foreclosure, jobless, and upside down on their home loans.
It was a frightening place to be and the HAMP loan modification program offered a small silver lining to desperate homeowners. The HAMP modification may feel like a get out of jail free card to some homeowners. It does not, however, come without a price to pay. It is a loan modification and not loan forgiveness.
Participation in the HAMP mortgage program does offer a wide range of benefits as long as borrowers are aware of their obligations and the risks this type of modification presents.
What Does a HAMP Modification Do for Homeowners?
The Home Affordable Mortgage Program, HAMP for short, offers multiple ways to help homeowners reduce their mortgage payments to maintainable levels in a variety of ways, including the following:
- Reducing interest rates.
- Fixing interest rates.
- Reducing principles.
- Issuing forbearances.
- Extending loan terms.
With clear home modification program guidelines in place, the program offers a win-win situation for borrowers, servicers, and investors to consider. Initially, the program was only available for the owner-occupied home. Those homes are now considered for Tier 1 HAMP modifications. Homes that are not owner-occupied are now eligible for Tier 2 modifications according to HAMP guidelines.
What Makes the HAMP Mortgage Program Attractive to Homeowners?
Desperate homeowners at risk of losing their homes often view the home affordable modification program as something like a miracle. It offers them instant relief (allowing them to begin repaying their mortgage at the adjusted rate during the trial period) and promises them long-term solutions that are affordable to them.
For many borrowers, it does represent an attractive solution to an unattractive problem. One huge benefit to consider for borrowers is that they can earn $1,000 per year for the first five years of the loan modification toward forgiveness of principal. However, after the five years of greatly reduced interest rate (some reduced to as low as two percent) the interest rates increase one percent or less per year for the next three to four years until reaching the current market rate. In other words, the HAMP loan modification is not a permanent reduction of interest rates and some borrowers will be better served, long-term, by refinancing the loan at a lower interest rate.
What Are the Home Modification Program Guidelines?
Eligibility remains confusing for some borrowers. The HAMP program guidelines, though, are quite clear that only borrowers who meet the following criteria are eligible for the home affordability mortgage program.
- Loan origination must have occurred prior to January 1, 2009.
- Only available for first-lien loans with unpaid principal balances of $729,750 or less.
- Property must be habitable and cannot be condemned.
- Debt-to-income ratio of borrower must meet certain standards indicating a financial hardship.
- Borrowers must have no convictions for real estate fraud within the past 10 years.
- Borrowers must be able to demonstrate financial hardships that render them unable to honor their original mortgage agreements.
- Borrowers must be behind on payments and at risk of foreclosure.
- Borrower income must be documented.
- Borrowers must sign affidavits of financial hardship.
In addition to meeting all the HAMP guidelines, lenders require borrowers to go through a trial before they will offer an official modification agreement. This trial period requires them to make timely payments at the new payment level for three months. Understanding the HAMP program guidelines and what they mean to them is a borrower’s best defense for getting the modification and continuing to remain in good standing with lenders.
Before signing, borrowers should study the agreement carefully to make sure they understand the full terms and home modification program guidelines. This is especially true when a forbearance was issued that may require a balloon payment in the future. It is important for borrowers to understand when the balloon payment becomes due and how much that payment will be.
Who Benefits Best from the Homes Affordable Modification Program?
Homeowners at risk of losing their homes are the obvious beneficiaries of a program like this. It offers them an opportunity to salvage their credit, save their homes, and reduce their lifetime interest payments for their home loans. The homes affordable modification program does just that. It makes the home affordable for people who have fallen on hardships after obtaining a mortgage.
More importantly, it provides homeowners with the satisfaction of honoring their commitment to repay their home loans while remaining in their homes. The self-respect that comes with climbing out of a situation with their homes and pride intact is no small thing and should not be discounted when weighing the pros and cons of the home affordability mortgage program.
What Difference Can a HAMP Loan Make?
A home modification program is no small thing. In fact, it can make an enormous difference in a borrower’s ability to retain his or her home. The home affordable mortgage program doesn’t solve all your financial problems, but it can provide you with a little extra breathing room, so you can get your head above water for a little while.
Is the Home Affordable Modification Program the right solution for everyone who is struggling to make mortgage payments? Absolutely not! For some borrowers, though, it is the perfect solution that can mean all the difference in the world for saving their homes from certain foreclosure. The key is for borrowers to take their time, read the small print, and ask if there are other options available to them before diving in.
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