Mortgage Modifications under HAMP: Hope for the Struggling Homeowner

As of the end of 2009, nearly a million homeowners were enjoying the benefits of a trial or permanent mortgage modification as a result of the Home Affordable Modification Program, one of the options integrated into the Obama Administration’s “Making Home Affordable Program.” HAMP specifically allows qualified applicants to apply for first and second modifications to their mortgages. The program was adopted in an effort to aid struggling homeowners who have a certain level of debt and can make regular, reduced payments on their mortgages. The Obama administration aims to aid three to four million homeowners through HAMP over the next three years.

What is a Mortgage Modification?

When a lender modifies a mortgage, it reworks the terms of the contract in order to make the payments more manageable. Under HAMP, lenders typically modify mortgages in at least one of the following ways:

  • Lowering the interest rate: The interest rate on the loan can be lowered as much as necessary, down to two percent, to get payments equal to 31 percent of the homeowner’s gross monthly income
  • Extending the loan term: If lowering the interest on the loan does not reduce regular payments to 31 percent of the homeowner’s gross monthly income, the lender may opt to extend the term of the payments up to 40 years
  • Forbearance: If lowering the interest rate and extending the loan term still fails to reduce payments to an affordable level, the lender may defer a portion of the principal to be paid at a later date
  • Reducing the principal: Lenders may opt to forgive a portion of the principal, but lenders are not required to offer forgiveness

Under HAMP, eligible homeowners are granted a trial modification of at least three months. Those who make all trial payments on time may be eligible for a “permanent” modification. Those who apply under HAMP but do not qualify for modification must be considered for other aid options including refinance and non-HAMP modifications.

What Lenders Offer HAMP Modifications?

All lenders owned or guaranteed by Freddie Mac and Fannie Mae are required to participate in the HAMP program. The federal government has provided lenders not guaranteed by Freddie Mac and Fannie Mae with incentives to participate, but may do so voluntarily.

While most lenders have begun processing eligible loans under the system, some lenders have responded more quickly and effectively than others. Statistics are compiled monthly that indicate the percentage of each lender’s eligible loans that have been modified on either a trial or a permanent basis. As of January, 2010, the following lenders have the highest and lowest rates of modified eligible loans:

  • Highest: Citimortgage (50 percent), GMAC Mortgage (50 percent), Saxon Mortgage Services (48 percent), Select Portfolio Servicing (40 percent), JP Morgan Chase (38 percent) and Wells Fargo (38 percent)
  • Lowest: American Home Mortgage Servicing (nine percent), Carrington Mortgage Services (eight percent), HomeEq Servicing (five percent), Wachovia Mortgage (three percent)

Who Qualifies for HAMP Mortgage Modifications?

Homeowners may qualify for a modification under HAMP if their primary residence has:

  • An unpaid principal balance of less than $729,750 (more for two to four unit houses)
  • A first mortgage executed on or prior to January 1, 2009 and
  • A monthly mortgage payment greater than 31 percent of their monthly gross income that is difficult to pay due to documentable financial hardship

Homeowners need not be behind on their mortgage payments to qualify for a modification if they meet all requirements and are very likely to default on their mortgage within a short period of time.

If homeowners meet the basic eligibility criteria, they will then need to submit the necessary forms and required documentation indicating proof of income, information about the home, and other important information. It should be noted that misrepresenting any of the requested information is a violation of federal law. Such a violation carries serious criminal consequences and will be grounds for rejection under the program.

For Further Reference

Mortgage modification may help homeowners avoid foreclosure and bring their financial situations under control. If you are experiencing difficulty paying your mortgage payments or have questions about the HAMP program, please contact an experienced attorney.

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