Home Affordable Modification Program: Overview
The Home Affordable Modification Program (HAMP) is a government subsidized program designed to help financially struggling homeowners avoid foreclosure by modifying loans to a level that is affordable for borrowers now and sustainable over the long term. The program provides consistent loan modification guidelines that the mortgage industry can use.
Not all banks and lenders participate in the HAMP program, however, those that do, may take advantage of the government subsidies associated with the program.
Borrower eligibility is based on meeting specific criteria including:
1) borrower is delinquent on their mortgage or faces imminent risk of default
2) property is occupied as borrower’s primary residence
3) mortgage was originated on or before Jan. 1, 2009 and unpaid principal balance must be no greater than $729,750 for one-unit properties.
After determining a borrower’s eligibility, a servicer will take a series of steps to adjust the monthly mortgage payment to 31% of a borrower’s total pretax monthly income:
- First, reduce the interest rate to as low as 2% (the adjustment of interest is usually temporary, up to five years).
- Next, if necessary, extend the loan term up to 40 years,
- Finally, if necessary, forbear (defer) a portion of the principal until the loan is paid off and waive interest on the deferred amount. (This almost never happens in practical terms).
Note: Servicers may elect to forgive principal under HAMP on a stand-alone basis or before any modification step in order to achieve the target monthly mortgage payment.
The Home Affordable Modification Program includes incentives for borrowers, servicers and investors.