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How To Qualify For The Home Affordable Modification Program (HAMP)
Qualifying for the Home Affordable Modification
The housing bust of 2008 created big changes in the mortgage market. A significant percentage of homeowners who made financing plans which depended on their properties increasing in value were left hanging. Many faced becoming unable to pay their mortgage bills due to built in rate or payment increases. As an attempt to assist these borrowers, the Making Home Affordable Program was developed. This program tries to help those whose homes are now worth significantly less than they originally paid for them.
The Making Home Affordable Program contains four different subsidiary programs which cover a variety of circumstances. These subsidiary programs are the Home Affordable Refinance Program (HARP), the Home Affordable Unemployment Program (HAUP), the Home Affordable Foreclosure Alternatives Program (HAFA) and the Home Affordable Modification Program.
The Home Affordable Refinance Program was enacted to assist borrowers refinance their current homes when they owe too high a percentage of the home’s current value to qualify for a regular mortgage refinance.
The Home Affordable Unemployment Program was developed to provide temporary assistance to unemployed homeowners. This program is not as widely known as some of the others, but can be indispensable given current high unemployment rates.
The Home Affordable Foreclosure Alternatives Program is designed to help provide alternatives to foreclosure when no refinance option is available. This program is seldom used since it's qualifications are difficult to satisfy.
The Home Affordable Modification Program provides incentives to lenders if they agree to modify the terms of borrowers' mortgages without having to go through a formal refinance.
The Home Affordable Modification program helps borrowers obtain modifications in the terms of their mortgages if they are behind on their mortgage payments or even if they are current. Before this program was put into place lenders would often only offer loan modifications such as lowering the interest rate or payment to borrowers who were behind in their payments. This meant many people hoping to get their payment lowered had to ruin their credit trying to do so.
There are a few basic criteria home owners must fulfill in order to be eligible for the Home Affordable Modification Program. First, they must be owner occupant of a 1 to 4 unit home and the unpaid principal balance must be equal to or lower than current conforming loan limits.
The loan must have been obtained on or before January 1, 2009. The monthly payment must be equal to or exceed 31% of their gross monthly income. In addition, the borrower must be able to show a financial hardship which makes paying the current mortgage payment very difficult. Borrowers who can meet these criteria need to contact their current lender or mortgage provider before attempting to refinance.
Due to the time deadlines involved, fewer people meet these criteria as time passes, but if you do meet the criteria, then don’t accept a no until you have pushed the issue further.
Often, the first customer service representative you'll speak to is not familiar with the guidelines. However, all lenders who service loans owned or guaranteed by Fannie Mae or Freddie Mac are actually required to participate in HAMP. They are not supposed to refer your home to be foreclosed upon until they have investigated to determine whether you are eligible for the HAMP program and offered you a trial modification if you qualify.
If you do qualify for the Home Affordable Modification Program, your mortgage provider will have three primary options to help lower your payment below 31% of your gross income.
The first and easiest choice is lowering your interest rate. The U.S. Treasury pays incentives to lenders who lower the interest rates to as low as 2%, if that reduces payments below the 31% ratio. This doesn't mean that the lender will always lower your interest rate to 2%. They will lower it to whatever rate will get your payment below 31% of your gross income.
If they cannot get below 31% of your gross monthly income by lowering the interest rate, the next option is to increase the term of loan. They can go as high as 40 years. Again, they will extend it just enough to get your payment under the 31% barrier.
If neither of those options or some combination of them lowers your payment below 31% of your gross income, the loan servicer can “forbear” part of the principal amount of your loan. You'll still owe that amount but you will not make payments or accrue interest on it until after your loan matures. The servicer can also actually write off a portion of the loan, but this will only occur as a very last resort.
If you meet these requirements and the lender can get your payment below the threshold then the loan servicer will put you on a “trial modification” program. Officially, the terms of your loan will remain the same, but you will make payments under the terms of the proposed modification. By making these payments on time, the lender will officially and permanently modify your loan.
If you think you may meet the criteria for this program, then you should contact a HUD housing counselor to investigate further and begin the process. You can also find more information about avoiding foreclosure and personal finance at PfTown.com.