Home Affordable Modification Program
The Home Affordable Modification Program (HAMP) is a government program introduced in 2009 to respond to the subprime mortgage crisis. HAMP is part of the Making Home Affordable program (MHA), established in concert with the Hardest Hit Fund program (HHF) under the Troubled Asset Relief Program (TARP), a part of the Emergency Economic Stabilization Act of 2008. HHF provides targeted aid to home owners in states hit hardest by the economic crisis and works in tandem with HAMP and most MHA programs.
HAMP (and the entire MHA Program) is set to expire December 31, 2016, the last day to submit applications, and the Modification Effective Date must be on or before September 30, 2017. HHF has been extended to 2020.
The Home Affordable Modification Program (HAMP) is 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. This is done by interest rate reduction, fixing the interest rate, principal reduction or forbearance, and term extension. The program provides clear and consistent loan modification guidelines and includes incentives for borrowers, servicers and investors.
In earlier years, the property with the loan to be modified had to be your primary residence. In June 2012, HAMP was significantly revised to expand the scope of the program and clarify some troubling issues. A Tier 2 modification program was initiated permitting modifications for loans on properties not owner occupied and also allowing multiple loans on multiple properties to be modified. Pre-existing rules for owner occupied properties now come under the umbrella of Tier 1 modifications.
The MHA Handbook is a consolidated reference guide outlining the requirements and guidelines for the Making Home Affordable (MHA) Program and particularly HAMP, its most popular component. A complex calculation called the net present value (NPV) test is the foundation of the HAMP program. Tier 1 and Tier 2 have their own NPV test. The NPV test predicates modification on whether the investor will make more money by modifying the mortgage rather than foreclosing.
HAMP abides by the following eligibility and verification criteria:
- Loans originated on or before January 1, 2009
- First-lien loans with unpaid principal balance up to $729,750
- Higher limits allowed for properties with 2-4 units
- The property cannot be condemned or uninhabitable
- The borrowers' debt (housing debt for the loan to be modified) to income ratio must meet certain standards showing financial hardship. For many years the ratio had to be over 31% of gross income, but now it varies based on whether you are eligible for a Tier 1 or Tier 2 modification.
- All borrowers must document income, including signed IRS 4506-T, provide proof of income (i.e. paystubs, profit and loss statement, etc.), and sign an affidavit of financial hardship.
Sunset of the program
At the Greenlining Institute 22nd Annual Economic Summit on May 8th, 2015 Mel Watt announced that the program would cease end of year 2016. The Director of the FHFA had this to say regarding the program:
"Although the number of new borrowers entering these two programs continues to decline, in part because many eligible borrowers have already taken advantage of them and in part because of recovering house prices, lenders and servicers are continuing to approve new HAMP modifications and HARP refinances. Extending HAMP and HARP through the end of 2016 will provide real relief for borrowers who continue to face challenges either paying their mortgage or refinancing their loan."
Modifications of second loans
Once the first loan is modified under HAMP, if the second loan is eligible (and in most cases it is), it too is either modified or partially or fully extinguished. This program too will expire December 31, 2016.
- "Home". www.makinghomeaffordable.gov. Retrieved 2016-03-18.
- "State-By-State Information". www.treasury.gov. Retrieved 2016-03-17.
- Treasury, "Housing," Initiative, TARP, http://www.treasury.gov/initiatives/financial-stability/TARP-Programs/housing/pages/default.aspx; and Emergency Economic Stabilization Act, Public Law 110-343, 122 Stat. 3765, October 3, 2008, http://www.gpo.gov/fdsys/pkg/PLAW-110publ343/html/PLAW-110publ343.htm
- "MHA Handbook and Guidance".
- "HOME AFFORDABLE MODIFICATION PROGRAM BASE NET PRESENT VALUE (NPV)MODEL SPECIFICATIONS" (PDF). U.S. Treasury. Retrieved October 26, 2015.