In an effort to reduce growing number of foreclosures and bankruptcies, the federal government created the Housing Affordable Modification Program (HAMP). This program offers opportunities for you to reduce your monthly mortgage payments and keep your home. It expires at the end of 2015.
The program has recently been expanded to help homeowners who are unemployed or “underwater” (they owe more on their mortgage than their home is worth). It also provides options for homeowners who can no longer afford their home and are interested in a short sale or deed-in-lieu of foreclosure.
If successful, HAMP can reduce your monthly mortgage payment to 31 percent of your verified gross (pre-tax) income. That is great if you can do it. Like most government programs, you must fit into some pretty selective criteria to qualify for this program.
There are four main conditions you must meet to qualify for the HAMP program. They are:
- The loan you seek to modify must be for your primary residence, which can be up to a four unit home.
- You must have received your mortgage on or before January 1, 2009.
- You must have a mortgage payment (including principal, interest, taxes, insurance, and homeowners association dues) that is more than 31 percent of your gross (pre-tax) monthly income.
- You must owe an amount that is less than or equal to $729,750 on your first mortgage (for a single unit. There are higher limits for two to four unit properties).
There is no charge to apply for the Home Affordable Modification Program. There is an application and the bank will verify your claims. If you qualify for HAMP you must complete a trial period of three to four months in order to demonstrate you will be able to make your reduced payments on time. After a successful trial period, your mortgage will be permanently modified.
To create an affordable payment, your mortgage servicer applies a series of modification steps in the following order:
- Reducing your interest rate to as low as two percent;
- Extending the term of your mortgage up to 40 years; and
- Principal forbearance (or deferral).
A portion of the principal loan can also be forgiven, although that is optional on the part of the mortgage servicer. It is not required by law.
The modified interest rate you receive under the HAMP program will be fixed for a minimum of five years. Beginning in year six, the rate may increase no more than one percentage point per year until it reaches the Freddie Mac Primary Mortgage Market Survey rate (essentially the market interest rate) at the time your permanent modification agreement was prepared.
For every month you make a payment on your permanent modification on time, you can accrue an incentive of $1,000 each year to reduce the amount of principal you owe, up to a total amount of $5,000.
As you can see, if you do qualify for HAMP, and you do make your payments on time, this is a very good program for borrowers.
If you are not eligible for the HAMP program, most lenders will review the submitted application and supporting documents for an in-house modification. An in house modification can accomplish the same result you seek and looks to see if the borrower is eligible for any other programs that are offered specific to that lender.
However, you have to negotiate for this relief, and the bank has to give you relief of its own free will. They will do this if it is in their best interests, such as to keep you from filing a bankruptcy and saddling them with another foreclosure. You can learn about your bankruptcy options by clicking here to read our Free Legal Consumer Guide on Bankruptcy in Maryland.
Although you certainly do not need an attorney to apply for the HAMP program, we do offer a free consultation for loan modifications and bankruptcy cases. You should still meet with an attorney to get a detailed breakdown of your complete options before choosing one particular method to get back out of debt and on the road to a fresh start. It is always a good idea to know your options.