HAMP Explained
In response to the nationwide real estate crisis, the Obama Administration unveiled the Homes Affordable Modification Program (HAMP) in 2009 as part of the more comprehensive Making Home Affordable (MHA) Program. HAMP was initially funded with $50 billion in Wall Street bailout money and $25 billion from taxpayer-owned Fannie Mae and Freddie Mac. According to the Freddie Mac website:
HAMP is a loan modification program designed to reduce delinquent and at-risk borrowers’ monthly mortgage payments.
By all accounts, the program has been a complete and utter failure with widespread borrower confusion as to whether they qualify and what type of relief is available in the event they do. Regardless of what Freddie Mac or any participating lender might say, most who finally achieve a temporary modification have been unable to make the trial period permanent. In some cases, borrowers are told they don’t qualify even when they do. In order to improve the process, the HAMP program was modified last summer to require additional income verification requirements before a trial period is approved.
Below I’ll address the various requirements to qualify for a mortgage modification in today’s crazy HAMP climate.
You Must Live in Your Home to Qualify
The HAMP program dos not offer assistance in modifying investment mortgages, in order to qualify, you must live in your home as your principal residence. Also note that the program only applies for mortgages originated on or before Jan. 1, 2009 and the unpaid principal balance must be no greater than $729,750 for single family homes.
Your Mortgage Payment Must be a Large Percentage of Your Income
HAMP draws the financial hardship line at mortgage payments that amount to 31% of the borrower’s monthly income. If your current payments exceed 31% of your gross income, you’ve passed another test in the quest for mortgage relief. Keep in mind that the HAMP mortgage payment to income ratio is calculated based on the income of all borrowers who signed for the loan. Under new rules implemented last summer, applicants will be required to prove their income qualifies for assistance before a trial mortgage modification period is approved.
Required HAMP Documents
The Obama Administration has claimed that one of the biggest reasons HAMP initially failed was inaccurate or incomplete financial statements submitted by borrowers who didn’t understand the process. In order to lend more credibility to the claims of financial hardship claimed by HAMP applicants, borrowers must prove their income. This is done by submitting three forms:
Request for Modification and Affidavit (provides the servicer with cause of hardship and financial information on borrower applicants)
IRS Form 4506 T or IRS Form 4506T-EZ (allows the servicer to order copies of the borrowers tax returns)
Evidence of income in the form of pay stubs may also be required.
You’re Not a Crook
In addition to the financial verification package described above, borrowers are also required to submit a certification form under the new Dodd-Frank legislation that essentially warrants you’re not a crook. If you are a crook, your mortgage modification is in trouble thanks to Barney Frank.
While some lenders might have document production requirements that vary slightly from the package described above, the documents I’ve listed will form the core of any HAMP submission.
I’ve Submitted My Documents, What Now?
Within 10 business days following receipt of an Initial Package (government speak), the loan servicer must acknowledge, in writing, the borrowers request for a mortgage modification. Within 30 days, the servicer is required to notify the borrower whether their package is complete. Completed packages will then be evaluated to determine whether they qualify. If you are eligible for HAMP, you’ll then receive a Trial Period Plan Notice. This document will evidence your trial period, during which your monthly mortgage payments cannot exceed 31% of your gross income.
The Trial Period
In an attempt to curtail dual tracking, the much maligned practice in which banks continue with foreclosure proceedings while loan modifications are being negotiated, HAMP now stops banks from foreclosing while a temporary loan modification is in place. Really sad commentary that you’d need legislation to accomplish that.
It is important not to celebrate once you enter into the trial period. If your permanent loan modification isn’t approved, you’ll owe the amount your payments were reduced at the end of the trial period. It’s this kick in the teeth that pushes many borrowers into foreclosure.
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