HAMP Explained

If you paid attention to the news a few years ago, you might have heard the term HAMP. Read on to find out what is HAMP and whether you are eligible to take advantage of its provisions.

History of HAMP

Knowing a little about what is HAMP’s history will help you understand some of the financial aspects of the program. Home Affordable Modification Program (HAMP) was a division within the Making Home Affordable Program (MHA), which was set up by the Treasury Department and the Department of Housing and Urban Development in 2009.

MHA was designed to help homeowners who were at risk of foreclosure after the 2008-2009 recession and housing crisis. Its primary objective was to reduce monthly mortgage payments by offering incentives to mortgage servicers and lenders if they did so.

The housing crisis occurred when home values dropped, leaving homebuyers owing more on their home than it was worth. When coupled with the economic recession, many homeowners could not meet their mortgage payments. Once they defaulted on their loan, the mortgage holders began foreclosure proceedings.

Priorities of HAMP

Understanding what is HAMP’s priorities will help you see how this program worked. HAMP focused on homeowners who were paying a mortgage of more than 31% of their gross income. Qualifying homeowners reduced their monthly mortgage payments an average of $530 through a variety of options. Some homeowners received a reduction in their mortgage principal or interest rates.

Some borrowers were able to postpone mortgage payments for a time through forbearance. Others could extend the current loan terms, thereby reducing the monthly payments. There was also the option to change from an adjustable-rate to fixed-rate mortgage. This change reduced the payment amount fluxuations that caused so many problems in the first place.

Application Process

To qualify for the HAMP Program, homeowners had to:

  • Pass the net present value test (NPV)
  • Prove financial hardship
  • Be paying more than 31% of their gross income on a mortgage
  • Demonstrate the structure was habitable, not condemned
  • Show that the lender would make more money by modifying the loan repayment rather than foreclosure
  • Have an unpaid principal balance less than $729,750
  • Financed your mortgage before January 1, 2009
  • Have no real estate fraud convictions in the prior 10 years

If the homeowner met the above qualifications, the next step was to contact the lender and ask for a Request for Mortgage Assistance (RMA) Form, an Income Verification Form, and an IRS form 4605T-EZ. These were submitted to the mortgage servicer for approval.

If a lender approved the application for HAMP, the borrower was often placed on a three-month trial plan. If payments were made promptly, then usually the mortgage company made an official modification agreement, lowering your mortgage payments through one of the above-mentioned manners.

Benefits of HAMP

You may wonder what is HAMP’s benefit to lenders. HAMP worked with mortgage lenders by providing incentives to banks that reduced the debt-to-income ratios of home loans to less than 38%. The Department of Treasury then entered the equation to minimize the DTI ratio to less than 31% through payments of $1,000 for each modification mortgage servicers made and $1,000 for lenders each year for three years.

Although the initial Home Affordable Modification Program was restricted to primary residences, in 2012, it was revised to include rental properties. Households with multiple mortgages and homeowners with a DTI that was higher or lower than 31% also became eligible.

Although HAMP helped so many homeowners, it wasn’t an automatic get-out-of-debt-free card. Some homeowners ended up defaulting again or losing their homes in foreclosure. Still, others now have a more extended loan period with more interest accruing over the life-time of the loan.

Closing of HAMP

Realizing what is HAMP’s closure period, will assist you in determining whether you have a mortgage that can be modified under this program. HAMP expired on December 31, 2016. It wasn’t entirely a surprise. The Director of the Federal Housing and Finance Agency (FHFA) had announced in May of 2015 that there would be no more extensions to the program.

The government felt that the fewer applicants and overall increase in property values throughout the country made HAMP an unnecessary setup. If you did not apply for a HAMP mortgage modification before December 2016, you would not be eligible to receive one.

HAMP resulted in developing a standard approach to how loan servicers or investors could assist homeowners who wanted to keep their homes but required some sort of mortgage assistance. These standards have helped make more affordable private loan modifications, such as the elimination of eligibility screening.

Even though HAMP is no longer available, homeowners in need can still apply for loan modification programs through their lender or mortgage servicer. These options can mean the difference between losing your home to foreclosure or finding a way to get through times of economic hardship with a roof over your head.