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 [1] is part of the Making Home Affordable program (MHA),[2] established in concert with the Hardest Hit Fund program (HHF) [3] under the Troubled Asset Relief Program (TARP), a part of the Emergency Economic Stabilization Act of 2008.[4] 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.

Purpose

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.

Rules

The MHA Handbook,[5] the industry bible, 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 [6] 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.

Eligibility requirements

HAMP abides by the following eligibility and verification criteria:

Problems

It has taken the past seven years since HAMP began in 2009 for the rules to become constant and workable, and for the Servicers to understand how to apply them. The Borrower, however, still is left out in the dark. The biggest problem is that the income and expense rules are inordinately complex. While the Servicer has a template to deal with this difficulty, the Borrower does not. The result is that the Servicers are taking Borrower's financials and treating them as oranges but they are really apples because different definitions are used.

The HAMP application, known as the Request for Mortgage Assistance (RMA):

1. Asks for gross income. For a self-employed person, adjusted gross income must be used; otherwise, Borrower's income is far too high since the business expenses on Schedule C must first be deducted. The Borrower is not aware of this.

2. When calculating expenses of rental properties, the RMA asks specifically for "mortgage payments, other properties" which is incorrect. "all expenses" of the rental property must be considered, not just the mortgage payment, which are then deducted from gross income for a net income or deficit.

3. For the all-important debt-to-income ratio which usually means the difference between a mod and no mod, the debt for the property with the loan to be modified must be correctly calculated. The Rules state that this 'housing debt' must include the monthly escrow shortage, yet there is no box on the form requesting this information.

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." [7]

Tools for Borrowers

There are several tools to aid Borrowers in applying for HAMP:

  1. The all-important Net Present Value Test which determines whether a loan is modified at https://www.checkmynpv.com/bnpv-ui/pages/workflow.xhtml
  2. Making Home Affordable, the Government's website for MHA and HAMP which includes several tools to help struggling Borrowers decide how to proceed. https://www.makinghomeaffordable.gov/steps/pages/step-1-identify-situation.aspx
  3. Hire a Housing Counselor, https://www.makinghomeaffordable.gov/get-answers/pages/get-answers-how-to-find-housing-counselor.aspx
  4. Contact your Mortgage Company, https://www.makinghomeaffordable.gov/get-answers/Pages/get-answers-how-contact-mortgage-company.aspx
  5. Fannie Mae has a tool available where you can check to see if your loan is owned by Fannie Mae and thus potentially eligible for the program Fannie Mae Loan Look Up
  6. Freddie Mac has a tool available where you can check to see if your loan is owned by Freddie Mac and thus potentially eligible for the program Freddie Mac Loan Look Up

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.

See also

References

  1. ↑ https://www.hmpadmin.com/portal/programs/hamp.jsp
  2. ↑ "Home". www.makinghomeaffordable.gov. Retrieved 2016-03-18.
  3. ↑ "State-By-State Information". www.treasury.gov. Retrieved 2016-03-17.
  4. ↑ 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
  5. ↑ "MHA Handbook and Guidance".
  6. ↑ "HOME AFFORDABLE MODIFICATION PROGRAM BASE NET PRESENT VALUE (NPV)MODEL SPECIFICATIONS" (PDF). U.S. Treasury. Retrieved October 26, 2015.
  7. ↑ http://www.fhfa.gov/Media/PublicAffairs/Pages/Prepared-Remarks-FHFA-Director-at-Greenlining-Institute-22nd-Annual-Economic-Summit.aspx

External links

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