Loan Modification / Home Affordable Modification Program (HAMP)

February 10, 2015
Royal United

HAMP is designed specifically to help homeowners impacted by financial hardship. With HAMP, the loan is modified to make the monthly mortgage payment no more than 31% of the Borrower’s Gross (pre-tax) Monthly Income. If eligible, the modification permanently changes the original terms of the mortgage.

A modification may be an option if:

Borrower is NOT eligible to refinance
Borrower is facing a long-term hardship, behind on their mortgage payments or likely to fall behind soon
If the loan was originated on or before January 1, 2009
If loan is owned by Fannie Mae or Freddie Mac – or serviced by a participating mortgage company
- It is a 1 to 4 unit property
- Must have Total Monthly Expenses (after modification PITIA + revolving debt) that are under 55% of Gross Income

Servicer will attempt to do the following:

Extend loan out to 30 years, bringing the interest rate down to a minimum of 2% to see if the mortgage payment (PITIA*) will be reduced to 31% of Gross Income. (*PITIA – Principal, Interest, Taxes, Insurance, and prorated monthly Association Dues).
If loan is still not affordable, Servicer can extend to 40 years (may not be applicable if investor-owned).
If loan is still not affordable, Servicer can defer part of the principle balance – a Set-Aside – and place it at the back of the loan as a balloon payment (may not be applicable if investor-owned). Important: The maximum principal balance deferment is restricted to the difference between mortgage balance and fair market value of the property.
If, however, the maximum allowable “Set Aside” doesn’t bring the payment to 31% of Gross Income, the Servicer can’t offer the loan modification program (HAMP) to the Borrower.

Expect the Servicer to give Borrower a trial modification for 3 months. If Borrower will make the payments on time all 3 months, the Servicer will then create a permanent loan modification agreement.

Pros:

This program helps the Borrower with making their mortgage payment affordable, bringing their mortgage current and avoiding foreclosure
When the Borrower makes their payments on time they can earn $1,000 each year for the first 5 years and could benefit from a total of $5,000 in principal forgiveness

Cons:

After 5 years at the greatly reduced interest – for many as low as 2% – the interest rate increases 1% or less per year for 3-4 years, but will never exceed the market rate at the time of the Borrower’s modification
After all of the interest rate increases, most will have a final interest rate at or below 5%, considerably better than their pre-modification rates
Sometimes law offices or 3^rd party companies will offer to do a loan modification for the Borrower and will charge the Borrower for their services, however, paying that fee doesn’t guarantee that the Borrower is going to be approved for the loan modification/HAMP because it’s still going to be up to a Servicer to approve or deny the Borrower for the loan modification. The Borrower can call their mortgage company and handle this on their own for free.

Who / what doesn’t qualify for HAMP:

Has to be owner occupied (2^nd home and investment properties are not eligible most of the time)
If Borrower previously filed Bankruptcy they are certain restrictions on whether they will qualify for a loan modification/HAMP
If Borrower defaulted on a loan modification previously Borrower will not qualify for loan modification/HAMP again
If Borrower is Unemployed/receiving unemployment benefits Borrower will not qualify for loan modification/HAMP
If Borrower is receiving a short term disability Borrower will not get approved for loan modification/HAMP and might be placed on a temporary hardship instead
Borrower usually will not qualify for the loan modification/HAMP if they are current on their mortgage right now.

Looking for more information?

Whether you have questions or are ready to move forward, we’re here to help.