To help up to four million U.S. homeowners who are current on their mortgage payments but owe more than their home is worth, the federal government recently made revisions to two programs designed to helping struggling homeowners: the Federal Housing Administration (FHA) program and the Home Affordable Modification Program (HAMP). These program adjustments are intended to provide equity to homeowners who are “underwater” and who may be tempted to leave their homes or who may default in the future.
Previous federal mortgage assistance programs offered a reduction in the mortgage rate for qualified homeowners. The new guidance calls for reducing the amount of principal owed on a primary residence so that the new mortgage is an accurate reflection of the home’s current market value. Because refinancing means a loss to the lender, the federal government will insure the new loan with assets from the Troubled Asset Relief Program (TARP).
Who is eligible for principal reduction?
The revised HAMP principal reduction program is designed specifically for the approximately four million American homeowners who are responsible borrowers with reasonable mortgages. It offers no protection for million dollar mortgage holders, speculators and vacation home owners. It is recognized that some foreclosures are unavoidable for those who simply bought a home that was more expensive than they could afford. Homeowners who intend to apply for a HAMP loan modification must meet several requirements:
• Must be able to demonstrate financial hardship
• Must live in the home
• The house must consist of no more than four units
• Your mortgage balance must be less than $729,750 for a one-unit home. If the house has more than one unit, this limit amount increases
• You must have taken out your first lien mortgage on or before January 1, 2009
• Your monthly mortgage payments must be more than thirty-one percent of your income.
• The home must be worth at least fifteen percent less than the amount of your first mortgage
unemployed owners
Unemployed homeowners may qualify to have their monthly mortgage payments reduced or eliminated for three to six months while they look for work. To qualify they must:
• Submit proof that they are receiving state unemployment insurance benefits
• Within the first ninety days of the mortgage delinquency the homeowner must apply for temporary assistance
• Meet HAMP eligibility guidelines, including being below the maximum loan balance and owner-occupied home
When the temporary assistance period ends, homeowners whose mortgage payment is more than thirty-one percent of their monthly income and have found employment are eligible for a HAMP loan modification. The modified loan must pass a net present value test, and the homeowner must verify qualifying income and be current on their forbearance plan payments.
Bankruptcy
If the borrower or the borrower’s bankruptcy attorney requests help, the new guidance requires trustees to consider a bankrupt borrower for HAMP principal reduction.
What should homeowners do?
If you believe you qualify for a HAMP loan modification because your primary residence is worth less than your mortgage and you are experiencing financial hardship, contact your lender immediately. You should be aware that the lender’s participation is voluntary; With the exception of loan servicers owned or guaranteed by Fannie Mae and Freddie Mac, your lender is not required to participate. If you’re not sure if your loan servicer is a participant, check the federal government’s list at makinghomeaffordable.com/contact_servicer.html. If your lender or servicer is not part of the program, ask them about other options that may be available.
