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- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
What is the Home Affordable Modification Program (HAMP)?
To help struggling homeowners avoid foreclosure in 2009, the federal government introduced a loan modification program called the Home Affordable Modification Program (HAMP).
According to the program, the focus was to help homeowners who paid more than 31% of their gross income toward mortgage payments. But the program expired at the end of 2016 and never got renewed.
The HAMP program allowed homeowners to reduce their mortgage principal and/or interest rates, temporarily postpone payments, or get loan extensions.
Understanding the HAMP Program
In response to the subprime mortgage crisis of 2008, HAMP was created under the Troubled Asset Relief Program (TARP).
After the market crashed because of tighter credit markets many American homeowners during this period, found themselves unable to sell or refinance their homes.
When higher market rates kicked in on adjustable-rate mortgages (ARMs) the monthly payments became unaffordable, as a result leaving plenty of people at risk of foreclosure.
In order to qualify, the borrower needed to make more than 31% of their gross income on their monthly payments.
There was the enforcement of property requirements, along with other eligibility standards they had to pass the net present value (NPV) test.
The lender or investor currently holding the loan would make more money by modifying the loan rather than foreclosing, so then the property becomes eligible.
It required the homeowner to prove financial hardship, the home had to be habitable and have an unpaid principal balance below the amount of $729,750.
All reliefs would have the effect of reducing monthly payments. Like an eligible homeowner could receive reductions in his mortgage principal and interest rate.
A temporary postponement of mortgage payments is also the possibility which is known as forbearance.
And, if relief was favorable, then the homeowner was able to extend their existing loan terms.
Many times, an already modified loan was eligible for HAMP modification, too, so the homeowner’s payment was further reduced.
Special Considerations
The ratio of payments to gross income is referred to by the government as the front-end debt to income ratio (DTI).
The HAMP program, when worked in collaboration with mortgage lenders, helped provide incentives for banks to reduce the debt-to-income ratio to less than or equal to 38%.
To minimize the DTI ratio to 31% or less the Treasury would then step in.
Another initiative complemented HAMP, and it was called the Home Affordable Refinance Program (HARP). HARP too was offered by the federal government like HAMP. With just a few subtle differences.
While people who were on the verge of foreclosure were helped by HAMP, to qualify for HARP homeowners needed to be underwater or close to that point.
If the value of the home is less than their outstanding balance then the program allowed people to refinance their mortgages, also homeowners with an LTV of more than 80%—up to 125% could refinance their loan.
If the loans were guaranteed or acquired by Fannie Mae or Freddie Mac prior to May 31, 2009, then only those loans were eligible.
Eligibility was subject to change depending on whether the homeowner was up-to-date on their mortgage payments or not.
In addition, borrowers should have been able to benefit from lower payments or from switching to a more stable mortgage product.
Originally the deadline for HARP was intended for Dec. 31, 2017, but that date was extended, further to December 2018.
Conclusion
The Home Affordable Modification Program (HAMP) was the largest program within MHA.
The goal of HAMP was to offer reduced monthly mortgage payments that are affordable and sustainable over the long-term to homeowners who were at risk of foreclosure.
HAMP was designed to help families who were struggling to remain in their homes by showing documents of their financial hardship and also showing that they had the ability to make their monthly mortgage payments after a modification.
HAMP while protecting taxpayers’ interests, was a voluntary program that supported servicers’ efforts to modify mortgages.
MHA housing initiatives had incentives called pay‐for‐success to protect taxpayers.
The funds were spent only when transactions are completed and only as long as those contracts remained in place.
Therefore, funds would be disbursed over many years But the program closed in December 2016.
