HAMP Has Expired — What Are the Alternatives?
The Home Affordable Modification Program (HAMP) was a government-backed program designed to help homeowners who were struggling with their monthly mortgage payments. The program ended on Dec. 30, 2016.
Though HAMP has ended, homeowners with conventional or government-backed mortgages still have alternative options. We’ll break down those programs and whether you should apply for a modification.
What is HAMP?
The Home Affordable Modification Program, known as HAMP, was a government-backed program designed to help homeowners with conventional mortgages who were at risk of foreclosure by offering them a chance to receive lower monthly mortgage payments. HAMP ended on Dec. 30, 2016, and is no longer available.
Unlike the Home Affordable Refinance Program, HAMP didn’t provide an opportunity to refinance a mortgage. Instead, it allowed borrowers to modify their existing mortgage to make their monthly payments smaller, making the loan more affordable and sustainable.
Homeowners who were eligible for the program had to have a documented financial hardship and show their ability to afford the mortgage after the loan modification. Other key criteria included:
- You were at least 60 days delinquent on your mortgage, or not yet 60 days delinquent but likely would’ve been soon.
- You were in foreclosure or due in court over your mortgage delinquency.
- You were in an active bankruptcy.
- You previously underwent another form of mortgage modification — possibly more than once.
Under HAMP, homeowners typically saved about $530 on their monthly mortgage payments, according to the U.S. Department of the Treasury.
Alternatives to HAMP
Although HAMP is no longer available, it doesn’t mean struggling homeowners don’t have options. On Dec. 14, 2016, Fannie Mae and Freddie Mac — the two major mortgage agencies backed by the federal government — introduced new options for mortgage borrowers looking to modify their loan and save their home. If you have a government-backed mortgage, such as a Federal Housing Administration (FHA) or Department of Veterans Affairs (VA) loan, there are also loan modification options available.
Fannie Mae’s Flex Modification
Fannie Mae combined elements from its standard and streamlined modification programs, along with HAMP, to create the Flex Modification program. This type of modification can be applied to all mortgage delinquencies and those loans that are in imminent default, which means the homeowner is current or less than 60 days late on payments.
The Flex Modification program aims to reduce mortgage payments by 20%. Also, depending on how long a homeowner is delinquent, the program would target a 40% front-end debt-to-income ratio, which is the percentage of gross monthly income used to make mortgage payments. It’s also referred to as a housing expense-to-income ratio.
To qualify for a modification, you’ll need to meet the following eligibility requirements:
- The mortgage must be a conventional loan.
- If the mortgage is secured by a principal residence, the loan must either be 60 days delinquent or in imminent default.
- If the loan is secured by a second home or investment property, it must be at least 60 days delinquent.
- The mortgage must have been originated at least 12 months before the loan modification.
- The mortgage can’t have previously been modified three or more times.
Full requirements can be found on Fannie Mae’s website.
Freddie Mac’s Flex Modification
Freddie Mac’s Flex Modification program pulls features from its standard and streamlined modification programs. Those with delinquent loans or ones in imminent default can benefit from the program.
For borrowers less than 90 days delinquent, Freddie Mac targets a 20% payment reduction and a 40% front-end DTI ratio. Borrowers more than 90 days delinquent can get a 20% payment reduction and aren’t required to submit documentation to support their eligibility.
Many eligibility requirements for Freddie’s Flex Modification program mirror those of Fannie Mae’s program, including:
- Borrowers must be 60 days delinquent or in imminent default.
- The mortgage must have been originated at least 12 months before the loan modification evaluation date.
- The mortgage must be a conventional loan.
For the complete list of guidelines, see Freddie Mac’s website.
Because Fannie Mae and Freddie Mac’s loan modification programs are similar, the best way to determine which program is right for you is to determine which agency owns your loan. You can use the loan lookup tools on the Fannie Mae and Freddie Mac websites.
Government-backed modification programs
The U.S. Department of Housing and Urban Development (HUD), U.S. Department of Agriculture (USDA) and VA also have loan modification programs for mortgage borrowers.
The FHA-Home Affordable Modification Program, which is overseen by HUD, allows struggling homeowners to modify their mortgage by reducing their interest rate, extending their loan term or adding late payments to the principal mortgage balance. There’s an option to reduce the unpaid principal balance by up to 30%, which is referred to as a partial claim.
To qualify, FHA borrowers must:
- Not qualify for any other mortgage assistance programs.
- Have a maximum front-end DTI ratio of 31% and back-end ratio of 55%.
- Complete a 3- or 4-month trial payment plan, depending on whether they’re already in default or in imminent default.
The VA loan modification program involves adding the past-due amount to the principal balance and calculating a new payment schedule. It could also involve an interest rate reduction and loan term extension to achieve a lower monthly payment.
To qualify, VA borrowers must:
- Demonstrate their ability to pay the mortgage and not go back into default.
- Have made at least 12 monthly payments since the mortgage closed.
- Not have any loan modification in the past 3 years.
- Not have more than 3 loan modifications since the mortgage closed.
For borrowers with USDA loans, a modification may include reducing the interest rate, adding the past-due amount to the outstanding loan balance and recalculating the loan’s amortization schedule, or extending the loan term.
USDA borrowers must meet these requirements:
- Be in default or imminent default. The USDA defines imminent default as being current or less than 30 days late on payments.
- Continue to occupy the home as their primary residence.
- Demonstrate the ability to afford the modified mortgage payments.
Should you apply for a modification?
Whether you have a conventional or government-backed mortgage, options exist for you to better manage your loan if you feel you’re on the verge of default and foreclosure. Check with your mortgage lender or servicer for guidelines on how to qualify for a mortgage modification, and apply sooner rather than later if you’re eligible.
Remember that a mortgage modification isn’t the same as a refinance. While a modification allows you to change some of the terms of your existing loan, a refinance is the process of replacing your loan with a new one.
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