The Home Affordable Modification Program (HMP) is part of President Obama’s Home Affordability and Stability plan that was announced on February 18, 2009.
The Home Affordable Modification Program (HMP) was designed to help up to 7 to 9 million American homeowners modifi or refinance their current loans to avoid foreclosure. This is a temporary program created to bring financial stability to the current housing and economic crisis.
With over 11 – 12% homes either in foreclosure or at least one payment past due, as reported on March 5, 2009 by the Mortgage Bankers Association, the Treasury Department hopes to help 3 – 4 million at-rist homeowners obtain more affordable monthly mortgage payments.
One of the objectives of the (HMP) is to create universal loan modification guidelines so that Fannie Mae and Freddie Mac servicers can quickly determine the eligibility of their borrowers and work towards preventing foreclosure by lowering monthly payments through a process of rate reduction, extended loan terms, or the HomeSaver Forbearance™ Program.
Simply put, a 31% Debt-to-Income ratio has been set as the standard target that banks need to hit to make the Home Modification Program work for homeowners who are in currently in default or facing imminent risk of going late on their mortgage due to a hardship.
Who is eligible for the Home Modification Program?
- Loans originated on or before January 1, 2009.
- First-lien loans on owner-occupied properties with an unpaid principle balance up to $729,750. Higher limits allowed for owner-occupied properties with 2-4 units.
- All borrowers must fully document income, including signed IRS 4506-T, two most recent pay stubs, and most recent tax return, and must sign an affidavit of financial hardship.
- Property owner occupancy status will be verified through borrower credit report and other documentation; no investor-owned, vacant, or condemned properties.
- The mortgage loan has not been previously modified under the HMP.
- The mortgage loan is delinquent or default is reasonably foreseeable; loans currently in foreclosure are eligible.
- A borrower actively involved in a bankruptcy proceeding is eligible for the HMP at the servicer’s discretion. Borrowers who have received a Chapter 7 bankruptcy discharge in a case involving the first lien mortgage who did not reaffirm the mortgage debt under applicable law are eligible, provided the Home Affordable Modification Workout Plan and Home Affordable Modification Agreement are revised.
- A borrower in active litigation regarding the mortgage loan is eligible for the HMP. The servicer may not require a borrower to waive legal rights as a condition of the HMP.
- The borrower agrees to set up an escrow account for taxes and insurance prior to the beginning of the trial period if one does not currently exist.
- The mortgage loan is not insured or guaranteed by a federal government agency (FHA, HUD, VA, and Rural Development).
- Regular servicing option MBS pool mortgages and portfolio mortgage loans are subject to lender recourse are ineligible for the HMP.
- Borrowers may be accepted into the program if the HMP Workout Plan is fully executed and returned to the servicer prior to the expiration of the program on December 31, 2012.
- The borrower’s total monthly house payment, including mortgage, property taxes, house insurance, and homeowner’s fees, is more than 31% of the household’s gross monthly income.
- The Borrower’s loan is not affordable due to a financial hardship and insufficient liquid assets to continue making monthly payments at the current amount. The hardship can be a decrease in income, an increase in expenses, a jump in mortgage payments, illness, or other crisis situation.
- If the borrower’s total monthly expenses (modified mortgage, second mortgage, credit card debt, car loans, student loans, child support, etc.) are very high compared to the monthly income, they must agree to get homeowner counseling from a HUD-approved counseling agency prior to being approved for a Home Affordable modification.
*Any mortgage provider that accepts bailout money from the U.S. Treasury is required to participate. For other lenders, participation is voluntary. However, all major lenders are expected take part because of the financial incentives they will get.
What are the main benefits of the Home Modification Program?
- A new monthly mortgage payment (total of mortgage principal, interest, taxes, insurance, and homeowner association fees) that is equal or less than 31% of the borrower’s gross monthly household income.
- A lower interest rate as low as 2% with a gradual increase for 5 years. This new below market rate will increase 1% for 5 years and can never go higher than the market interest rate that was in effect when the loan was modified.
- If lowering the interest rate still does not bring the total DTI under 31%, then the lender may also extend the loan up to 40 years, defer payment on a portion of the loan with no interest (forbearance), or forgive a portion of the debt.
- There is a 3 month trial period to see if the borrower can make the new payment on time.
- For each mortgage payment that is made on time, the borrower will earn a Pay-for-performance Success Payment from the government which will lower the principal balance. The government will pay up o $1000 per year for up t 5 years, for a total of $5000. However, the borrower must stay in the program for one year before the payments are applied to the loan.
- In some cases where there is a second mortgage, the government will make a cash offer to the lien holder to forgive the debt.
- Any unpaid late fees are waived.
Related Articles
- What is a Loan Modification?
- How Much Will My Payment Decrease With A Loan Modification?
- Will A Loan Modification Affect My Credit?
- Getting Approved For A Loan Modification – It’s All In The Packaging
- Required Documents For A Loan Modification
- Writing A Loan Modification Hardship Letter
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