HAMP Program – Home Affordable Modification Program

What is HAMP Program?

The Home Affordable Modification Program, also known as HAMP, is a federal program of the United States, set up to help eligible home owners with loan modifications on their home mortgage debt.  It is being set up in the context of the ongoing sub-prime mortgage crisis in the debt markets, continuing from 2008.

The target of the program is 7 to 8 million struggling homeowners at risk of foreclosure by working with their lenders to lower monthly mortgage payments.  The program is part of the Making Home Affordable Program which was created by the Financial Stability Act of 2009.  The program was built as collaboration with lenders, investors, securities, mortgage servicers, the FHA, the VA, FHLMC, FNMA, and the Federal Housing Finance Agency, to create standard loan modification guidelines for lenders to take into consideration when evaluating a borrower for a potential loan modification.

Which mortgages are eligible for HAMP?

To qualify for the HAMP, mortgages must meet the following requirements:

The mortgage must be a first mortgage encumbering a 1-4 unit residential property that serves as the borrower’s current primary residence.

The borrower must have had a change in circumstances that causes financial hardship, or be facing a recent or imminent increase in the amount of the borrower’s monthly payment that is likely to create a financial hardship.

The unpaid principal balance of the mortgage must be no more than $729,750 (this amount increases proportionately for multiple unit properties.)

The mortgage cannot have been previously modified under the HAMP.

The mortgage must have been originated on or before January 1, 2009 (mortgages are eligible to be modified until December 31, 2012)

How are loans modified pursuant to the HAMP Program?

1. Interest rate reduction.  First, a servicer must attempt to reduce the interest rate for the mortgage in increments of 0.125% (subject to a floor of 2%) until a mortgage debt-to-income ratio (Front-End DTI Ratio) of 31% is reached.

2. Extension of term or amortization. If a Front-End DTI Ratio of 31% cannot be reached by lowering the interest rate to 2%, servicers may extend the term of the mortgage to up to 40 years.

3. Forbearance of principal. If the above steps still do not result in a Front-End DTI Ratio of less than 31%, servicers may forbear principal, which would then become due upon the maturity or other termination of the loan.

4. Trial period.  After the modified interest rate is determined, the borrower engages in a trial period lasting 90 days, or 3 payment periods, during which the borrower must make payments at the modified terms.  If the borrower is current at the end of the trial period, the modification is then effective.

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