In its original form, the federal government's Home Affordable Mortgage Program (HAMP) met with considerable criticism. The program was designed to give incentives to banks and other lenders and servicers that hold mortgages, in return for lowering the mortgage rates of qualified homeowners.
But lenders did not actually agree to very many mortgage modifications and the program did relatively little to keep people in their homes and prevent foreclosures.
The Obama administration has revised the program, however, to better target relief for homeowners who are experiencing unemployment.
HAMP Requirements
To qualify for interest rate reductions under HAMP, a homeowner must:
- Live in the home in question
- Have a first mortgage on the home of $729,750 or less
- Have obtained the mortgage before January 1, 2009
- And have a monthly payment greater than 31 percent of the homeowner's gross income
For those homeowners who qualify, lenders will take steps to lower the monthly payment so that it is less than 31 percent of the homeowner's gross income. This is done by either lowering the interest rate, extending the term (giving more time to pay, up to 40 years), or forbearing (deferring) a portion of the principal so that it is not due until much later.
Many lenders and servicers are participating in the program, and all lenders whose loans are guaranteed by Fannie Mae or Freddie Mac (which guarantee over half of all loans in the country) are required to participate.
To apply for HAMP, homeowners will need two Treasury Department forms. One is the MHA Request for Modification and Affidavit Form, which details the homeowner's income, expenses, liquid assets and property details. The other is IRS Form 4506T-EZ, which gives the lender permission to access the borrower's most recent tax return. In addition, borrowers should be prepared to submit two recent pay stubs to verify current income.
Relationship Between HAMP and Bankruptcy Law
Anyone facing foreclosure or considering bankruptcy should know the possible benefits of the HAMP program. Under HAMP, foreclosures cannot proceed until the homeowner has been considered for the HAMP program. Anyone in bankruptcy will be considered for the program upon request from the borrower, his or her attorney, or the bankruptcy trustee.
Although HAMP is a viable solution for some borrowers who are having trouble meeting their mortgage payments, for many it will still not be enough. If you have questions about HAMP and whether it would be a good fit for you, talk to an experienced bankruptcy attorney.
