HAMP Loan Modifications - A Critical Foreclosure Help Solution

Please read this section carefully because HAMP loan modifications have very specific guidelines which must be followed.  You must keep in mind that banks do not  want to approve loan modifications under this program, but they are forced to do so if you meet all the criteria that the Obama Plan has set forth.  

Critical information about HAMP that you must know:

HAMP or Home Affordable Mortgage Program, originated from President Barrack Obama's Home Affordability and Stability Plan that took effect in February 2009.  The program was created to help up to 9 million homeowners who are in financial distress and are in great need of foreclosure help.

Why banks are forced to perform loan modifications-HAMP is an offshoot of the Troubled Asset Relief Program (TARP) that was originated by the Bush Administration in late 2008.  In order to stop the failure of banks, the government had to step in and provide liquidity. 

This liquidity has been referred to certain banks as "TARP money", and was provided to banks who were in danger of failing.  When these banks received the TARP money, they were required by the government to sign contracts binding them to perform loan modification and refinancing programs.

How long will HAMP last-As long as the banks have the TARP money from the government (which essentially is from taxpayers), they are forced to follow the guidelines established by the Obama Plan.  For now, the government has stated that HAMP will be available until December 31, 2012.  

Once they repay the money, they are no longer under obligation to follow HAMP loan modification guidelines.  However, banks can't just pay the TARP money back to the government.  They must first pass a government required "stress test".  

This test calculates how deep into a recession the bank can keep afloat before they fail or go out of business.  Most banks have a long way to go before they can pass the government's stress test so that means most banks will more than likely continue to be forced to offer these loan modification programs until 2012, as specified by the central government.

How many times can you apply for a HAMP loan modification - Only ONCE...So don't blow it!  Follow these HAMP guidelines so the bank will have no choice but to grant you an approval!  Just a caveat:  Some banks are being very tricky about this rule.  They will be calling you once you start to miss payments or once you call them to inquire about modifying your loan, and they will ask you questions and start an application for you right away.  They've been known to use this trick with the intent to deny your application and they are not obligated to give you a second chance to resubmit (unlike with a traditional loan modification) so be careful not to let them take your application over the phone!

Best Way to Apply for HAMP?

There are two ways to apply for a HAMP loan modification that we recommend.  

***IMPORTANT*** HAMP is only for first mortgage loans.  If you want to learn how to modify your second mortgage loan, you can now do it with 2MP, also known as Second Lien Modification Program.

HAMP GUIDELINES

  1. The least known but most critical qualifier:   The investor who owns your loan or mortgage note must be a HAMP participant (meaning they received TARP funding).   The investor could be a banking institution which is different from the bank who is servicing your loan.  If your loan was part of a syndication that was sold to multiple investors and one or more of those investors do no participate in HAMP, you may not qualify for this loan modification program.  One way to find out is to call your bank/lender or servicing company (toll free number is on your mortgage statement) and ask them who is the investor who owns your loan and if they participate in HAMP.  

    But don't worry...you can still apply for the traditional loan modification program through your bank's guidelines even if you can't qualify for HAMP.

  2. Loan Origination Date - Your loan must have been originated on or before January 1, 2009.
  3. Type of Property - The loan modification must be on your owner-occupied, single family primary residence.  Also included are condos, co-ops, and manufactured homes on a permanent foundation and treated as real property under state law.   1-4 unit properties are also included as long as one of the units is owner occupied and is the primary residence.  The property may not be investor-owned and it may not be vacant or condemned.
  4. Loan Amount - The principal balance for your first mortgage must be less than or equal to $729,750 (1 unit), $934,200 (2 units), $1,129,250 (3 units), $1,403,400 (4 units).  
  5. Front End Debt-To-Income (Front End DTI) Ratio - The target is 31%.  To calculate this, take the sum of your principal, interest, property taxes, insurance, and association dues (aka PITIA), then divide it by your gross income (Note that any second or other junior liens/mortgages are not included in the Front End DTI).  The resulting number should not be lower than 31%.  Although there is no restriction for your bank to go lower than 31%, they have no incentive to do so because if they allow a modification where the DTI goes below 31%, any portion below that is not shared by the government.
  6. Back End Debt-To-Income  (Back End DTI) Ratio - This ratio is calculated by taking the Front End DTI components or the PITIA plus add all other monthly household obligationssuch as installment debts, montly payments on 2nd or other junior mortgages or liens, car payments or leases, alimony, child support, negative rental income on other investment properties, then divide the total with your gross income.  The target for this should be no greater than 55%.  If it is greater and your loan modification is approved, you will be required to work with a HUD approved counselor and the modification will not take effect until you provide a signed statement agreeing to counseling.
  7. Everything must be verifiable - You must be able to document your income information as well as your tax returns.  You will be required to sign a Form 4506-T which will allow the bank to request your tax returns.  By signing this form, you are signing under the penalty of perjury that all you disclose about your income is true.
  8. Household Income - This means the total income of all income-earning persons in the household.  Spouses who file joint tax returns must use both incomes even if only one spouse is on the loan.  All persons who are on the loan must include their income.  Others who live in the house but are not on the loan may or may not include their income depending on whether their income is needed or not.
  9. Gross Income - The Home Affordable Mortgage Program uses gross income (unlike traditional loan modification where net income is used).  This means you include all income before taxes and before any payroll deductions.  Income could include wages, salaries, overtime pay, commisssions, housing allowances, tips, fees, bonuses, Social Security payments, annuities, dividends, disability or death benefits, insurance policy payments, rental income -- basically any source of income that can be verified or documented.
  10. Unemployment Income - You may include unemployment income in your application as a source of income.
  11. Hardship - You must be going through a recent hardship including job loss, paycut, death in the family, medical condition, or your interest rate adjusting higher.  Any one or a combination of these situations must be shown to have decreased your income, making your existing mortgage payments unaffordable.  These must be documented in a hardship letter.
  12. Fannie Mae & Freddie Mac - Your loan does NOT have to be backed by either Fannie Mae or Freddie Mac.  This only applies to HARP (Home Affordable Refinance Program)
  13. Foreclosure in Process - If foreclosure is already in process, any further action by the bank to foreclose is temporarily stopped during the trial period, or while alternative options are considered.  In the unfortunate event that you are denied for HAMP or any other foreclosure help alternatives, the bank may resume their foreclosure action.

***IMPORTANT***
If you want to learn how to modify your second mortgage loan, you can now do it with 2MP HAMP, also known as Second Lien Modification Program.

What to Expect if your HAMP Loan Modification is Approved

If you've met all the qualifications and your loan modification request is approved...well, first of all, Congratulations!  Here's what you can expect to happen:
  1. You will be asked to sign a formal Loan Modification Agreement with a notary.  HAMP modifications have a 3-month trial period where your bank asks you to try out the new rate and terms of the approved modification.  If you stay current and pay as agreed, they should finalize your agreement and make your loan modification permanent after your trial period.  However, you might've heard on the news that some banks are not honoring the loan modification agreements after the trial period.  If this happens to you and you've done everything you were supposed to do during the trial period, you may want to retain an attorney to help enforce the permanent terms of your loan modification agreement with your bank.  Many homeowners have done this successfully.
  2. Your new monthly mortgage payment + property taxes + insurance + HOA dues (if any) will be anywhere between 31-38% of your gross monthly household income.
  3. Your new interest rate could be as low as 2%, fixed for the next 5 years.  Or, as seen more often, your interest rate could start as low as 2% fixed for the first year, then gradually increases every year until the fifth year.  After the fifth year, your interest rate will be fixed (for the rest of the loan term  -- whether for 30 or 40 years) at the rate where the 30-yr Freddie Mac mortgage rate was at the time your modification was signed and finalized.   
  4. You will receive $1000 at the end of every year for 5 years as a reduction to your principal if you make your new monthly mortgage payments on time.  This will give you a total incentive of $5000.   The federal government is giving you this added bonus to give you incentive to stay current on your mortgage payments.

If your HAMP Application is Denied

If your lender denies your application for this particular program, you can resubmit for a traditional loan modification.  Click here to compare the difference between a HAMP loan modification and traditional loan modification.

Have a Question about HAMP Loan Modifications?

Do you have additional questions you need answered regarding the Obama Plan's HAMP program? Ask your question here. I will post an answer within 24-48 hours.

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RELEVANT TOPICS:

2MP HAMP - Second Mortgage Loan Modification

Loan Modification Success Stories and Approved Loan Modification Agreements

No Upfront Fee Loan Modification

Traditional Loan Modification


Return to Mortgage Loan Modification Basics