HAMP 101 (Federal Home Affordable Modification Program)

How the Government Can Lower Your Mortgage Payments

HAMP 101 (Federal Home Affordable Modification Program)
January 29, 2014

The Home Affordable Modification Program (HAMP) is one of the government programs attempting to help people who are having difficulty with their mortgage payments and are in danger of losing their homes. Created by the Financial Stability Act in 2009 to address the subprime mortgage crisis, the program was originally limited to those who use the mortgaged home as a primary residence, but it has been expanded to some investment property situations.

HAMP is similar to the HARP (Home Affordable Refinancing Program) but HAMP is for those in more desperate situations. HARP is for homeowners who have kept current on payments, but can't secure refinancing at lower rates because of the reduced value of their home. HAMP requires delinquency of payments (in most cases) and an imminent danger of foreclosure.

The essence of HAMP is to lower mortgage payments by convincing lenders to modify terms through incentive payments, making refinancing more attractive to the lender than foreclosing. Mortgages owned by Fannie Mae and Freddie Mac are often eligible. Homes purchased under FHA or VA loans may be HAMP eligible as well.

General guidelines for HAMP qualification are:

  • Your home was purchased on or before January 1, 2009.
  • You owe up to $729,750 on a single unit (first mortgage), with escalating scales for up to four rental units.
  • Your property has not been condemned.
  • You have a demonstrated financial hardship and are delinquent on your mortgage payments, or in imminent danger of being delinquent (delinquency is required in the case of rental units).
  • Your total mortgage costs (principal and interest, property taxes, and insurance) are over 31% of gross (pre-tax) income for the household on a monthly basis. (This requirement was relaxed recently to attempt to bring more people into qualification, but at lower costs, it may be harder to show the necessary financial hardship.)
  • You can provide sufficient documentation that you have sufficient steady income to support a modified payment.
  • You have not been convicted of various crimes within the last ten years

If you qualify for HAMP, the lender will attempt to modify your loan to drop your monthly payment below the 31% threshold. Some possible solutions are:

  • Changing the Loan Type – For example, moving a loan from an adjustable-rate to fixed rate or vice-versa.

  • Altering Terms - Reducing the interest rate and/or expanding the term.

  • Adjusting Principal Balance – Adding past-due debt (for example, interest) to the unpaid principal, then re-amortizing the new total under different terms.

The difficulty here is to show sufficient hardship, yet provide documented proof that you can continue to pay the modified terms. Even so, some situations are ready-made for this program.

If you have a steady but low-paying job, you may be able to convince your lender that a lower interest payment, with or without a lengthened term, is a better deal for them than a foreclosure. Perhaps a one-time, significant debt such as an uncovered medical expense threw you off of a regular payment schedule, and you can show that you can recover from this debt with an easing of your interest rate. These are two potential scenarios where HAMP may be right for you.

Be advised that not all lenders participate in HAMP. Your lender may have alternate relief programs for you if they do not participate in HAMP (or if they do participate in HAMP but you don't qualify). The bottom line is that if you find yourself dealing with imminent foreclosure, you should check all of your alternatives — including HAMP — to see what offers the best chance to help you retain your home.

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