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HAMP Is Gone — Here Are Other Loan Modification Programs
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The federal government created the Home Affordable Modification Program (HAMP) to help struggling homeowners afford their monthly mortgage payments by modifying the terms of their loan.
Though HAMP has ended, other mortgage modification programs are available for those on the verge of falling behind on their loan.
What is HAMP?
HAMP was a government-backed program designed to help struggling homeowners with conventional loans owned by Fannie Mae or Freddie Mac who were at risk of foreclosure, by offering them a chance to receive lower monthly mortgage payments. HAMP expired on Dec. 30, 2016.
To qualify for the program, homeowners needed a documented financial hardship and proof they could afford their modified mortgage payments. The typical homeowner saved more than $530 on their monthly mortgage payments under HAMP, according to the U.S. Department of the Treasury.
Although HAMP is gone, homeowners facing financial hardship still have options to receive assistance. Mortgage modification programs are available to borrowers with conventional and government-backed mortgages, such as those insured by the Federal Housing Administration (FHA) or the U.S. Department of Veterans Affairs (VA) loan.
|Loan modification program||How it helps||Who it’s for|
|Fannie Mae/Freddie Mac Flex Modification||Reduces mortgage payments by 20% and potentially gets you to a 40% front-end debt-to-income (DTI) ratio||Conventional mortgage borrowers with a Fannie Mae- or Freddie Mac-owned loan|
|FHA loan modification||Lowers interest rate, extends loan term or adds past-due amount to loan balance||Current FHA loan borrowers|
|VA loan modification||Adds past-due amount to loan balance and/or extends loan term||Current VA loan borrowers|
Fannie Mae and Freddie Mac Flex Modification
Fannie Mae and Freddie Mac, two major agencies that buy and sell mortgages, offer the Flex Modification program to conventional mortgage borrowers looking to modify their loan and save their home.
The goal of the Flex Modification program is to reduce mortgage payments by 20%. The program also gets the borrower to a 40% front-end debt-to-income (DTI) ratio — depending on how long they’ve been behind on payments. The front-end DTI ratio is the percentage of gross monthly income used to make housing payments.
The program can be applied to all mortgage delinquencies and loans that are in imminent default, meaning the homeowner is current or less than 60 days late on payments.
Some key eligibility requirements for the Flex Modification program include:
- The mortgage must be a conventional loan.
- The mortgage must either be 60 days or more delinquent, or in imminent default.
- The mortgage originated at least 12 months before the loan modification.
- The mortgage can’t actively be in any other foreclosure prevention program, such as forbearance.
- The mortgage wasn’t previously modified three or more times.
- The borrower didn’t fail a Flex Modification trial period within a year of being evaluated for a new modification.
FHA loan modification
The FHA Home Affordable Modification Program helps struggling homeowners modify their mortgage by reducing their interest rate, extending their loan term or adding late payments to the principal mortgage balance. There’s also a “partial claim” option, which reduces the unpaid principal balance by up to 30%.
FHA mortgage loan modification requirements include:
- Not qualifying for any other mortgage assistance programs.
- Having a maximum front-end DTI ratio of 31% and back-end DTI ratio of 55%. (The back-end ratio is the percentage of gross monthly income used to make all monthly debt payments, including your mortgage payment.)
- Completing a three- or four-month payment plan trial, depending on whether you’re in default or imminent default.
VA loan modification
The VA loan modification program involves adding the past-due amount to the outstanding principal balance and calculating a new payment schedule. It may also involve a loan term extension to reduce the monthly payment amount.
The program’s requirements include:
- Demonstrating your ability to pay the mortgage and not go back into default.
- Making at least 12 monthly payments since your mortgage closing.
- Not having any loan modifications in the past three years.
- Not having more than three loan modifications since your mortgage closing.
Mortgage modification vs. refinance
A mortgage modification program allows you to modify your mortgage, as the name suggests. Your lender changes the original terms of your mortgage — by extending your loan term or reducing your mortgage rate, for example — but you keep the same loan.
On the other hand, a mortgage refinance involves replacing your existing mortgage with a new loan that has better terms, such as a lower mortgage rate and monthly payment or a more stable loan type, such as switching from an adjustable-rate to a fixed-rate mortgage.
Other mortgage relief programs
If you don’t qualify for one of the HAMP alternatives mentioned above, consider one of the below mortgage relief programs to help you better manage your mortgage:
- High-LTV refinance. If your loan-to-value (LTV) ratio is too high for a standard refinance or if you’re underwater, you could qualify for a high-LTV refinance through Fannie Mae or Freddie Mac, depending on which agency owns your conventional loan. The minimum required LTV ratio for both programs is 97.01%.
- Forbearance. Mortgage forbearance is an agreement between you and your lender to temporarily suspend or reduce your mortgage payments when you’re facing financial hardship. Once your forbearance term ends, you’ll typically repay what’s owed in a lump sum, pay a portion of it monthly until it’s paid in full or modify your loan.
- Repayment plan. Another mortgage relief option is a repayment plan, which works best in situations where you’re already behind on your mortgage payments. Under a repayment plan, you agree to repay your past-due amount over a set period of time to bring your mortgage current. The balance owed is divided up and added to your monthly mortgage payments.