What is HAMP?

The Home Affordable Modification Program (HAMP) is a federal program set up to assist eligible homeowners obtain loan modifications on eligible debt. It’s set up in response to the subprime mortgage crisis that ramped up in 2008.

The program seeks to facilitate loan modifications between servicers and approximately 7-8 million homeowners. The goal is to seek lower monthly mortgage payments for qualified homeowners. Participating servicers are given incentives, which lure them to work with the federal government to modify the homeowner’s loan. Furthermore, the US Treasury Department requires lenders to actively solicit participation in HAMP programs before commencing foreclosure proceedings.

Servicers that modify loans under HAMP guidelines are given $1,000 for each modification plus fees for still-performing loans of $1,000 per year. If the borrower is still current on mortgage payments, one-time bonus incentive payments of $1,500 to lenders and $500 to servicers are made.

HAMP also uses its own special valuation techniques to aid the lender in determining whether foreclosure or modification is the more financially efficient remedy. Where modification would prove to be less financially rewarding, a lender may proceed with foreclosure proceedings.

HAMP essentially requires participating servicers to make a more informed determination as to whether foreclosure is the best remedy prior to instituting those proceedings.

HAMP Eligibility Requirements:

1. Loan originated on or before 1/1/09;
2. First-lien loan;
3. Owner-occupied property (verified through borrower credit report and other documentation);
4. Unpaid principal balance of up to $729,750 (higher limits allowed for owner-occupied programs with 2-4 units);
5. Current principal, interest, property taxes, and homeowner’s insurance cost borrower over 31% of the gross monthly income;
6. Borrower must fully document income, including relevant IRS forms (4506-T) and sign an affidavit of financial hardship;
7. Must not be more than 5% underwater (i.e. $100,000 property must be worth at least $195,000)

Modifications are available through 12/31/2012 and only one modification is available under this program.

The FHA-HAMP Program

It is important to note that the general HAMP criteria do not apply to FHA, VA, or RHS loans. With FHA loans, however, HUD has introduced its own, rather flawed, FHA-HAMP program.

The distinguishing characteristic of this program is the hybrid of the modification and partial claim loss mitigation channels.

FHA-HAMP Eligibility Requirements:

• The homeowner must be at least one – but no more than twelve – monthly payments behind
• The current payment of interest, principal, taxes and insurance must take up at least 31% of the borrowers’ gross monthly income
• Other FHA options, such as special forbearance, loan modification and partial claim must not suffice as a means of preserving home ownership.

FHA-HAMP liens do not carry interest and have two constituent components:

1. Arrearage due on the mortgage;
   *arrearage – generally comprised of unpaid interest, principal, and foreclosure costs.
2. second lien.
   The second lien is created by lowering the interest bearing loan principal to an amount that falls under the 31% threshold of the household gross monthly income. Moreover, the interest free FHA-HAMP lien is satisfied either by a sale of the property or by a subsequent refinance.

The lien cannot exceed 30% of the outstanding principal balance at the time the lien is created. Similarly, like most mods, FHA-HAMP has a trial payment period of three months that must be completed before the modification can be made permanent.

Moreover, a foreclosure sale cannot take place where there is a pending review to determine eligibility for a modification. However, the case can still proceed – as there are no strict rules prohibiting the foreclosure case, just the sale.

If you have an FHA loan, be mindful of these rules and also make sure that your lender has sent you notice of all potential workout options. Failure of the lender to do this may trigger defenses that you can assert in your foreclosure case.