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Matthew DeWeese

Loan Modifications (HAMP)

Wednesday, February 27, 2013 - Article by: Matthew DeWeese - Pacific One Lending and Real Estate - Message

Whether it's called a loan modification, mortgage modification, restructuring, or workout plan, it's when a borrower who is facing great financial hardship, having difficulty making their mortgage payments and is facing foreclosure, works with their lender to change the terms of their mortgage loan to make it affordable. The workout plan varied by lender, but changes could include temporary or permanent changes to the mortgage rate, term and monthly payment of the loan, the past due amount could be rolled into the loan, and the new balance re-amortized.

What is a loan modification under Obama's plan?

In February 2009, the government unveiled the Making Home Affordable Program, which is made up of two main programs: one for loan modifications and one for refinance loans. The loan modification portion is called the Home Affordable Modification Program (HAMP). It is designed to reduce mortgage payments struggling homeowners pay per month to sustainable levels. The refinance plan is called the Home Affordable Refinance Program (HARP).

According to the details of the HAMP plan:

  • The lender would first be responsible for bringing down interest rates so that the borrowers monthly mortgage payment is no more than 38 percent of his or her income.
  • Next, the initiative would match further reductions in interest payments dollar-for-dollar with the lender to bring that ratio down to 31 percent.
  • Lenders will also be able to bring down monthly payments by reducing the principal owed on the mortgage, with Treasury sharing in the costs.
  • Borrowers will be put on a trial modification at the new interest rate and payment for three months. If they make all their payments on time, the modification will be implemented at the new rate and be fixed for five years.

Under the HAMP, loan modifications will be standardized, with uniform loan modification guidelines used by Fannie and Freddie Mac, and then they will be implemented throughout the entire mortgage industry.

Who is eligible for a HAMP loan?

To qualify you must:

  • Have originated your mortgage before Jan. 1, 2009.
  • Be an onwer-occupant
  • Have an unpaid balance that is equal to or less than $729,750 (for a single-family home).
  • Have trouble paying your mortgage due to financial hardship. That could be because you have had an increase in your mortgage payments, or because your income was reduced or you suffered a hardship (like medical problems) that increased your bill, or, you can show that you soon will be unable to make your payments. You will be required to enter an affidavit of financial hardship.
  • Your monthly mortgage payment must also be more than 31% of your gross (pre-tax) monthly income.
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