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Home Affordable Modification Program (HAMP): Overview
The Making Homes Affordable Program, announced in March 2009, offers strong options for homeowners seeking alternatives to foreclosure and is part of the Obama Administration’s broad, comprehensive strategy to get the economy and housing market back on track. There are many individual programs that make up the larger Making Homes Affordable initiative; the first one to be implemented by the government was the Home Affordable Modification Program (HAMP).
The Home Affordable Modification Program (HAMP) is designed to help as many as 3 to 4 million financially struggling homeowners avoid foreclosure by modifying first mortgage loans to a level that is affordable for borrowers now and sustainable over the long term. The program provides clear and consistent loan modification guidelines that the entire mortgage industry can use.
If a homeowner has a second mortgage loan that also needs modification, the homeowner will also need to apply for the Second Lien Modification Program (2MP).
For HAMP, borrower eligibility is based on meeting specific criteria including:
- borrower is delinquent on their mortgage or faces imminent risk of default
- property is occupied as borrower's primary residence
- mortgage was originated on or before Jan. 1, 2009 and unpaid principal balance must be no greater than $729,750 for one-unit properties.
After determining a borrower's eligibility, a servicer will take a series of steps to adjust the monthly mortgage payment to 31% of a borrower's total pretax monthly income:
- First, reduce the interest rate to as low as 2%,
- Next, if necessary, extend the loan term to 40 years,
- Finally, if necessary, forbear (defer) a portion of the principal until the loan is paid off and waive interest on the deferred amount.
Homeowners agree to enter a three-month trial period, in which they need to make the adjusted lower payments on time. If that’s done successfully, the homeowner is granted a permanent mortgage modification for 5 years – with lower monthly interest payments and longer principal forbearance.
Note: Loan Servicers may elect to forgive principal under HAMP on a stand alone basis or before any modification step in order to achieve the target monthly mortgage payment.
The Home Affordable Modification Program includes major financial incentives for borrowers, loan servicers and investors to participate.
Many critics of the HAMP program who argue the program has not been successful as it could often point out one thing that is currently missing from the program. Currently, HAMP only has a provision to forbear (defer) a portion of the principal until the loan is paid off and waive interest on the deferred amount. As of Aug. 2010, There is no provision in HAMP to reduce the principal amount owed on the mortgage. While many are discussing this as a possible program modification in the future that would certainly increase the number of permanently modified loans, this feature is not available yet.
The HAMP program expires on December 31, 2012.
HAMP Frequently Asked Questions (FAQ’s)
How do I know if I am eligible for a modification under the Home Affordable Modification Program (HAMP)?
To apply for a modification under HAMP, you must:
- Be the owner-occupant of a one- to four-unit home.
- Have an unpaid principal balance that is equal to or less than:
- 1 Unit: $729,750
- 2 Units: $934,200
- 3 Units: $1,129,250
- 4 Units: $1,403,400
- Have a first lien mortgage that was originated on or before January 1, 2009.
- Have a monthly mortgage payment (including taxes, insurance, and home owners association dues) greater than 31% of your monthly gross (pre-tax) income.
- Have a mortgage payment that is not affordable due to a financial hardship that can be documented.
If you answered YES to all of these questions, you may be eligible for a modification under HAMP. Contact your loan servicer to determine for sure if you qualify.
Do I need to be behind on my mortgage payments to be eligible for a modification under HAMP?
No. Responsible homeowners who are struggling to remain current on their mortgage payments are eligible if they reasonably believe they are very likely to default on their mortgage soon (often referred to by loan servicers as "imminent default"). This might be because a homeowner has had (or will have) a significant increase in the mortgage payment (due to a payment adjustment or rate adjustment upwards); unemployment or some other significant reduction in income; or some other financial hardship that will make the mortgage unaffordable. If you are facing a similar situation, contact your servicer. You will be required to document your income and expenses and provide evidence of the hardship or change in your circumstances.
My loan is scheduled for foreclosure soon. What should I do?
Contact your servicer immediately and ask to be considered for HAMP. Servicers participating in the HAMP program are not allowed to proceed with a foreclosure sale until you have been evaluated for a modification under HAMP, and, if eligible, offer you a trial modification.
Participating servicers must use reasonable efforts to contact homeowners facing foreclosure to determine their eligibility, including in-person contacts at the servicer’s discretion. Foreclosure sales may not be conducted while the loan is being considered for a modification or during the trial period. Additionally, once a homeowner has entered into a trial period plan by submitting the first trial period payment, the servicer may not take the first legal action to initiate a new foreclosure.
You may also contact a HUD-approved housing counselor for help by calling the Homeowner’s HOPETM Hotline at 888-995-HOPE (4673).
How do I apply for a modification under HAMP?
If you meet the general eligibility criteria for a modification under HAMP, you should gather the financial documentation that your servicer will need to determine if you qualify (See “What information and forms will I need in order to be considered for HAMP?”). Once you have this information, you should contact your servicer and ask to be considered for a modification under HAMP. The servicer's phone number and email address is on your monthly mortgage bill or coupon book. Please be patient yet persistent. Your servicer may be handling a large volume of inquiries about the program and it may take some time before your servicer is able to process your application.
If you would like to speak to a housing counselor, call 888-995-HOPE (4673). HUD-approved housing counselors can help you evaluate your income and expenses and understand your options, and apply to your servicer for HAMP. This counseling is FREE.
If you have already missed one or more mortgage payments and have not yet spoken to your servicer, call your servicer immediately.
What information and forms will I need in order to be considered for HAMP?
Recently, Treasury announced a more streamlined homeowner evaluation process. Now, in order to apply for a Home Affordable Modification, homeowners can submit proof of income (See “What proof of income will I be required to provide with my HAMP application?”) plus the following two forms:
The MHA Request for Modification and Affidavit Form (RMA). This Form captures information on borrower income, expenses, subordinate liens on the property, and liquid assets. It includes a Hardship Affidavit, fraud notice, and information about the Trial Period Plan.
The Internal Revenue Service (IRS) Form 4506T-EZ (Short Form Request for Individual Tax Return Transcript). This form gives permission for your mortgage servicer to request a copy of the most recent tax return you have filed with the IRS. After you have completed the form, print two copies—one for your records and one to send to your mortgage servicer.
Visit the “Request a Modification” section of MakingHomeAffordable.gov for more detailed information.
What proof of income will I be required to provide with my HAMP application?
Be prepared to submit a copy of your two most recent pay stubs that show year-to-date earnings. If you are self-employed, you must provide your most recent quarterly or year-to-date profit/loss statement. Visit the “Request a Modification” section of MakingHomeAffordable.gov for more detailed information. If you cannot find the required documentation, or have questions about the paperwork required, please call 888-995 HOPE (4673) and ask for “MHA HELP.”
What happens after I submit my HAMP application?
Within 10 business days following receipt of an Initial Package the loan servicer must acknowledge in writing the borrowers request for HAMP participation.
The loan servicer must review the Initial Package within 30 calendar days of receipt to make sure it is complete. If the documentation is incomplete, the servicer is supposed to immediately contact the borrower. But, if the package is complete, then the servicer must either send the borrower a Trial Period Plan Notice, or decide the borrower is not eligible.
What will the servicer do through HAMP to get my new modified payment down to 31% of my gross income?
Lower the interest rate. Treasury is providing incentives to your servicer to write the interest down to as low as 2%, if necessary to get to a payment that you can afford. Each homeowner's interest rate will only be reduced to a point sufficient to get the modified payment to equal 31% of the homeowner's gross monthly income. Not all homeowners will need a rate reduction to 2% in order to achieve a monthly mortgage payment that is affordable.
Extend the term. If a 2% interest rate does not result in a payment that is affordable (no more than 31% of your gross monthly income), your servicer will extend your payment term. At the servicer's option, the term of the loan could be extended up to 40 years.
Forbear (defer) principal. If your payment is still not low enough, your servicer may defer a portion of the principal amount you owe until the maturity of the loan. This is called a principal forbearance. With a forbearance, you will still owe the principal; but repayment is deferred until a later date.
I owe more than my house is worth. Will a modification under HAMP reduce what I owe?
The primary objective of the HAMP is to help homeowners avoid foreclosure by modifying troubled loans to achieve a payment the homeowner can afford. Servicers may, but are not required to, offer principal reductions. This is optional on the part of the servicer. There is no requirement for principal reduction or forgiveness, and there is no guarantee that your servicer will offer principal reduction or forgiveness. It is more likely that your servicer will use interest rate reductions, term extensions and/or forbearance in order to make your payment more affordable.
How do I know if my servicer is participating in HAMP? Are all servicers required to participate?
Participation in HAMP is mandatory for servicers of loans owned or guaranteed by Fannie Mae or Freddie Mac (these are Government Sponsored Enterprises or GSEs).
If your loan is not owned or guaranteed by Fannie Mae or Freddie Mac, then you have what is known as a non-GSE or Treasury loan. Participation in HAMP is voluntary for servicers of non-GSE loans. However, since substantial incentives are available to servicers and investors who complete modifications under HAMP, most major servicers already have committed to the Program. A current list of participating servicers is available at www.MakingHomeAffordable.gov/contact_servicer.html. Servicers not currently listed have until December 31, 2009 to opt into the Program.
So how do servicers of non-GSE loans opt into the program? These servicers sign a contract with Fannie Mae, as Treasury's financial agent, through which they agree to review every potentially eligible homeowner who asks to be considered for the Making Home Affordable Program. To ensure that a homeowner currently at risk of foreclosure has the opportunity to apply for a modification under HAMP, participating servicers may not proceed with a foreclosure sale until the homeowner has been evaluated for a HAMP modification and, if eligible, a trial modification offer has been made.
What will my servicer do to determine if I qualify for HAMP?
Determine whether your loan meets the minimum eligibility criteria (i.e., owner- occupied; originated on or before January 1, 2009; unpaid principal balance equal to or less the loan limit for the number of units involved, mortgage payment greater than 31% of gross income; and financial hardship).
If your loan meets the minimum eligibility criteria, the servicer will ask about current income, assets and expenses, as well as any specific hardship circumstances to determine if you are unable to make your mortgage payment. Your servicer may initially accept verbal income and expense information; however, you will need to provide verifying documentation before a final modification is approved.
Determine if your monthly first lien mortgage payment is greater than 31% of your gross or pre-tax monthly income.
Apply a Net Present Value (NPV) test to determine whether the value of the loan to the investor will be greater if the loan is modified (factoring in the government's incentive payments). If the modified loan is not of greater value, the investor and servicer may still modify the loan. However, modification in such cases is not required. Please note: Your servicer may re-run the NPV test before the modification becomes official if they receive new information that could affect your NPV score.
If the modified loan is of greater value, the servicer must offer you a modification under HAMP, and, if you accept the offer, will put you on a trial modification (typically three months) at the new payment level.
If you successfully make all of the required trial payments during the trial period and the income and expense information you provided is determined to be accurate, your servicer will execute an official modification agreement.
You will be required to sign the modification agreement and other documents and attest that all of the information you provided to your servicer was true and accurate. Misrepresenting any information required for the Home Affordable Modification is a violation of Federal law and has serious legal consequences.
I am unemployed. Can I still get a mortgage modification?
If you are unemployed, ask your servicer immediately for consideration through the Home Affordable Unemployment Program (UP). (See “Home Affordable Unemployment Program (UP)”) for eligibility criteria and for more information.
If you are currently in a HAMP trial period and just lost your job, you may request to be considered for UP as long as you entered the trial period plan before missing three full consecutive mortgage payments.
If you are unemployed and were previously determined ineligible for a HAMP modification, you may be eligible for UP.
If you are currently in a permanent HAMP modification and just lost your job, you will not be eligible for UP. You may still be eligible for other foreclosure alternatives, including the Home Affordable Foreclosure Alternatives (HAFA). Please contact your servicer right away for more information. (See “Home Affordable Foreclosure Alternatives Program (HAFA)”) While you are being evaluated for UP, servicers who have signed a HAMP Servicer Participation Agreement (SPA) are not permitted to refer you to foreclosure or conduct a foreclosure sale. Visit www.MakingHomeAffordable.com/contact_servicer.html to find out if your servicer is a program participant.
What is a HAMP trial period?
The trial period is typically a three month period to see if the new payment plan will work for you, while providing you immediate relief and preventing any possible foreclosure sales from occurring. You should remember that during the trial, the terms and conditions of your original loan remain unchanged and only after you make all of your trial payments on time and send in all required documentation can your loan be officially modified.
Could my payment change in or after the HAMP trial period?
Your payment will be based on 31% of your verified income. Your monthly payment could increase if property taxes, homeowner’s insurance, or homeowner’s association fees increase after the trial period.
What happens if I am unable to make payments during the HAMP trial period?
Homeowners who are unable to make the required payments by the end of the trial period are not eligible for a permanent modification under HAMP. However, you may be eligible for other foreclosure prevention options offered by your servicer.
Will the terms and conditions of the HAMP permanent modification remain fixed for the life of my loan?
Once your loan is modified, your interest rate and monthly principal and interest payment will be fixed for the life of your mortgage unless your initial modified interest rate is below current market interest rates.
If the servicer lowered your mortgage interest rate to make your payments more affordable, your initial modified interest rate could be below current market interest rates. In that case, the initial interest rate will be fixed for five years, and the amount you pay each month for principal and interest will not change for those five years or 60 months.
After five years, your interest rate will increase by 1% per year until it reaches the cap, which would equal the market interest rate being charged by mortgage lenders on the day your official modification agreement was prepared (the Freddie Mac Primary Mortgage Market Survey Rate for 30-year, fixed-rate conforming mortgages).
Once your interest rate reaches that cap, it will be fixed for the life of your loan. Like your trial period payment, your new monthly payment will also include an escrow for property taxes and hazard insurance.
Could I end up with a balloon payment through HAMP?
Yes. If your servicer determines that a principal forbearance is required to get your monthly mortgage payment to an affordable level, the principal forbearance amount, say for example this was $20,000, would be subtracted from the amount used to calculate your monthly mortgage payment, but you would still owe the money. You would have a $20,000 balloon payment that accrues no interest and was not due until you pay off your loan, refinance or sell your house.
Will a modification under HAMP include property taxes and homeowners insurance?
Yes. All loans modified under HAMP must include an escrow account for payment of future property taxes and hazard insurance, unless prohibited by state law. If your existing loan does not include an escrow account, one will be established. A new escrow account may require collection of a sufficient reserve to pay the taxes and insurance on or before they are next due. The reserve amount cannot be added to the modified loan amount. The servicer may give you the option of paying the reserve amount at the time the loan is modified or the option of spreading the amount over a period of 60 months and including it in the monthly escrow payment.
How will the HAMP modification affect my credit?
Accepting a loan modification can affect your credit score, but the actual effect will depend on a variety of factors.
Each month, servicers must describe to the credit reporting agencies the exact status of each mortgage. If you are current with your mortgage payments prior to the trial period and you make each trial period payment on time, your servicer must report you as current and also identify the loan as “modified under federal government plan.”
If you are delinquent (at least 30 days past the due date) prior to the trial period and the reduced payments do not bring the account current, your servicer must report the level of delinquency and also identify the loan as “modified under federal government plan.”
How much will a HAMP modification cost me?
Homeowners who qualify for a modification under HAMP will never be required to pay a modification fee or pay past-due late fees. If there are costs associated with the modification, such as payment of back taxes, your servicer will give you the option of adding them to the amount you owe on your mortgage or paying some or all of the expenses in advance. Paying these expenses in advance will reduce your new monthly payment and save interest costs over the life of your loan.
If you would like assistance from a HUD-approved housing counseling agency or are referred to a HUD-approved counselor as a condition of the modification, you will not be charged a counseling fee. Homeowners should beware of any organization that attempts to charge an upfront fee for housing counseling or modification of a delinquent loan, or any organization that claims to guarantee success.
I heard the government is providing a financial incentive to homeowners through HAMP. Is that true?
Yes. Homeowners who make timely payments on their modified loans will receive success incentives. For every month you make a payment on time, you will accrue an incentive that reduces the principal balance on your loan. If your loan ceases to be in good standing (three monthly payments are due and unpaid on the last day of the third month), no further success payments will be paid, including accrued but unpaid amounts. The incentive will be applied directly to your loan balance annually—$1,000 each year—and over five years the total principal reduction could add up to $5,000. This contribution by the Treasury is designed to help you build equity faster.
I do not live in the house that secures the mortgage I'd like to modify. Is this mortgage eligible for a modification under HAMP?
No. If you own a house that you use as a vacation home or that you rent out to tenants, the mortgage on that house is not eligible to be modified under HAMP. If you used to live in the home but you moved out, the mortgage is not eligible. Only the first lien mortgage on your primary residence is eligible. The servicer will check to see if the dwelling is your primary residence. Misrepresenting your occupancy in order to qualify for this program is a violation of Federal law and may have serious legal consequences.
I have a mortgage on a duplex. I live in one unit and rent the other unit. Will I still be eligible for HAMP?
Yes. Mortgages on two, three and four-unit properties are eligible as long as you live in one unit as your primary residence.
Can FHA or VA loans be modified under HAMP? Are all loans eligible?
Most conventional loans including prime, subprime and adjustable loans, loans owned by Fannie Mae, Freddie Mac and private investors, and most loans in mortgage backed securities are eligible for a modification under HAMP.
In July 2009, FHA launched the FHA-Home Affordable Modification Program to provide assistance to borrowers to modify their mortgages to provide more affordable payments. FHA-insured first lien mortgage loans that are modified under FHA-HAMP are eligible for certain incentive payments under HAMP. The Administration is working with FHA and VA on a program that would provide for modifications consistent with the Making Home Affordable Program. Currently, loans insured or guaranteed by VA are being modified under other programs.
How long will modifications under HAMP be available?
HAMP expires on December 31, 2012. Your trial modification must be in place by that date.
FHA HAMP Loan Modification
Your mortgage holder needs to be FHA-Approved to modify under FHA-HAMP. The majority of lien holders that offer FHA mortgage loan programs are qualified. The greatest way to answer whether or not your bank can modify your loan under FHA-HAMP is to call and ask if they take part in the initiative! If your “mortgagee” (lender) is eligible, your next step is to make sure that you are eligible!
Your present mortgage must be an existing FHA-backed single family home loan, and the current home mortgage must be delinquent, meaning that you are 1 payment past due more than 30 days, but less than 12 full mortgage loan payments behind.
Your home must be a FHA insured single family home (1-4 units), home loans previously amended under HAMP do not qualify, you must have had the loan for 12 months, and here’s a great piece of information: There is no net present value (NPV) test for eligibility!
(The NPV investigation is exercised to resolve whether it is amenable for your lien holder to change your home mortgage. Under this process, it doesn’t matter if it is financially optimal for your servicer to modify your mortgage loan or not! If you qualify, your mortgage holder should change your loan, despite the amount of equity you have in the house!)
There is no upper limit on home loan amount for loans eligible for loans modifications, and it is not important what your credit score is! There is no valuation needed, and your FHA – HAMP modified mortgage is required to be at a decreased interest rate and payment than what you already have!
For supporting documentation, you will need to present the following:
- Hardship Letter
- Income Documentation – Paystubs & W-2s, or Profit & Loss Statements & Full Tax Returns if you are Self-Employed.
- 3 Months Bank Statements
- Financial Worksheet of Income & Expenses
- Hardship Affidavit
So what is going to take place when you get a loans modifications through FHA – HAMP? First, you will be placed in a temporary loan modifications payment plan, and after you make the first 3 payments under your new plan, FHA-HAMP can be fixed for the life of the loan.
Your loan will be changed to a 30 year fixed rate to a (proposed) front end DTI of 31%. You must verify that your back end (proposed) DTI is below 55%.
What precisely does this denote? Your “front end” DTI can be computed by dividing your mortgage loan payment by your gross income. Your “back end” DTI can be calculated by adding all of the monthly payments that show up on your credit report by your gross income – e.g. – credit cards, car loans, and additional loan payments.
Equally, to figure out what your new payment will be, simply multiply your gross income by 31 percent!
Here is a list of things for you to review:
- Make sure that you possess an FHA loan, and that your Mortgagee (mortgage lender) is FHA – Approved.
- Your mortgage loan must be at least 1 payment late, but not more than 12 payments late.
- Make sure your home is 1-4 units, that it is your primary and only residence, that you’ve had the loan for 1 year, and you haven’t previously modified under HAMP.
- Write out the hardship affidavit, write a hardship letter, document your income, completed a financial worksheet, include bank statements and submit the package to your mortgage servicer!
- Get your loan modified!
The remainder of the information out there on FHA – HAMP is germane, but not necessarily stuff that has to be understood to get a loan modifications through the government program. For example; your mortgage holder will mold how to get to the goal 31% payment by giving you a 30 yr or 40 yr fixed term and the calculated fixed rate, and may have to lower your principal to help you qualify for the payment you need to be financially stable.
What is an SFR?
The complex details involved with short sales and foreclosures are unique calls for specialized expertise. Contact an agent such as myself that has earned the Short Sale and Foreclosure Resource (SFR) Certification through the National Association of Realtors and who is committed to guiding you through the process, setting realistic expectations, and helping you make the right decision to avoid foreclosure.
If you are in a situation where your home is “underwater” due to falling home prices, you are unable to make your current mortgage payments and you are considering pursuing options such as a short sale, deed in lieu of foreclosure, strategic default or even foreclosure, there could be drawbacks that I, as a real estate agent, cannot advise you on. For your protection, I suggest that all homeowners:
- Obtain legal advice from a competent real estate lawyer regarding deficiency judgments
- Call an accountant or CPA to discuss short sale and foreclosure tax ramifications
Except for certain conditions pursuant to the Mortgage Forgiveness Debt Relief Act of 2007, be aware the I.R.S. could consider debt forgiveness as income, and there is no guarantee that a lender who accepts a short sale or foreclosure will not legally pursue a borrower for the difference between the amount owed and the amount paid. In some states, this amount is known as a deficiency. A lawyer can determine whether your loan qualifies for a deficiency judgment or claim.
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