The window of opportunity you have to take advantage of the Home Affordable Modification Program (HAMP) is rapidly closing. The program is due to end on December 30, 2016, and your completed application must be filed on or before that day. And, although there's likely to be a successor program, nobody at the time of writing knows in detail what that's going to look like. So, if you think you could benefit from the current offering, now is the time to act.
What is HAMP?
The Home Affordable Modification Program is a federal government initiative that's been going since 2009. As its name implies, it does not provide an opportunity to refinance, in the way, say, the Home Affordable Refinance Program (HARP) does. Instead, it modifies your existing mortgage in order to make your monthly payments smaller, and thus your loan more affordable and sustainable.
If you get help under the main program, you may also be eligible for the Second Lien Modification Program (2MP), which can offer similar benefits for any second mortgage you have – probably a home equity loan or home equity line of credit (HELOC).
Am I Eligible?
If you're really struggling financially, have a dire credit score, are no longer able to borrow from mainstream lenders and are behind (or soon will be) with your mortgage payments ... you're just the sort of person this program is designed to help. All the black marks on your credit report and payment record are unlikely to bar you from HAMP. Indeed, they may even help you get approved and see you with a better deal.
Here are some of the program's key personal eligibility criteria, but you only need to tick one or some of these (remember – they are positives that help your application):
- You can prove you're suffering from financial hardship
- You're 60 days or more delinquent on your mortgage OR
- You're not yet 60 days delinquent (you might still be current) but it looks likely you soon will be
- You're in foreclosure or you're due in court over your mortgage
- You're in an active bankruptcy
- You've previously undergone another form of mortgage modification – possibly multiple times
- You've previously undergone a HAMP modification – but you can only have had one of those prior to now
Are My Home and Mortgage Eligible?
In addition, there are some rules concerning your mortgage and the home that secures it:
- You closed on your existing mortgage on or before January 1, 2009
- Your mortgage is guaranteed by either Fannie Mae or Freddie Mac* OR
- Your mortgage company participates in the government's Making Homes Affordable program
- You want to modify your first (main) mortgage – but don't forget 2MP (above) if you need help with a second mortgage too
- The property on which your mortgage is secured is not currently vacant or abandoned, and hasn't been condemned
- That property is your primary residence (your main home) or a rental property
- That property is a single-family home OR a 1- to 4-unit dwelling OR an eligible manufactured home – eligible condos and cooperatives are fine
* Most homeowners don't know whether their mortgages are guaranteed by Fannie or Freddie because loans are bought and sold in secondary markets. And the company you make payments to may be a mortgage servicer that doesn't own the loan. The only way to be sure is to use the online look-up tools that are freely available on the Freddie and Fannie websites. Be sure to check on BOTH.
What Are the Benefits of this Modification?
For homeowners who are eligible, who thought they were beyond any help and who believed they were drowning in mortgage debt, the Home Affordable Modification Program can be a lifeline. Its main benefits include:
- A typical saving of about $500 a month, according to government figures
- The moment your mortgage is modified, you'll no longer be delinquent on that loan
- That should mean you can avoid foreclosure (even if proceedings are already underway) and stay in your home
- Your credit score may take a hit as a result of the modification, but it's likely to be much less damaged than if you'd been through a foreclosure or bankruptcy
- If you make on-time payments for long enough, you could in some circumstances earn up to $10,000, which will be used to pay down your mortgage
How Does It Work?
One of these modifications should be configured in the way that helps you most using one or more of these five methods:
- Extending your mortgage term. Suppose you now have a 30-year mortgage; you'll pay less each month if that's extended to 40 years.
- Rolling up your existing "arrears" (the excess you owe in interest and escrow due to late payments) into your principal debt, allowing you to pay them down in tiny monthly installments over the rest of your mortgage's "term" (the period your mortgage still has to run).
- Reducing your mortgage interest rate, in some cases temporarily, but in others permanently.
- Reducing your debt. If your loan is still well underwater (your mortgage balance today is at least 115 percent of your home's current market value), you'll automatically be evaluated to see if the amount you owe on that mortgage (the "principal") can be reduced.
- Turning an adjustable-rate mortgage (ARM) into a fixed-rate mortgage (FRM).
Should I Wait to Apply?
There's a good chance the federal government will replace the current program with a new one in January 2017. And it's possible that new one will be better.
That was certainly the intention back in July 2016 when the U.S. Department of the Treasury, the U.S. Department of Housing and Urban Development (HUD), and the Federal Housing Finance Agency (FHFA) published a white paper (discussion document) on a successor program. It talked of maintaining the principles underlying the existing program and learning lessons from its failures.
However, this is a time of particular political uncertainty, and a new Congress and administration will be installed soon after the current program ends. And they may take a different view on housing finance from that of the current players.
In any event, most people who are eligible for HAMP help need assistance fast, and can't afford to wait around to see what politicians decide months or weeks in the future. You may think getting your application in as quickly as possible is your best way forward.