Remember loan mods? Here’s an update on HAMPby Michele Lerner
Back in the spring of 2009, President Obama introduced the Home Affordable Modification Program (HAMP) with promises to help three million to four million homeowners who were struggling with their mortgage payments. Loans could be modified with a lower interest rate, an extended loan repayment period or a principal reduction all in an effort to avoid foreclosure.
Three years later, the Treasury Department announced that the number of active permanent modifications has reached 782,609. While 13,836 modifications were completed in February alone, the total number of homeowners assisted by HAMP remains far short of the announced goal.
“Probably the main reason HAMP has not been as successful as it was hoped is that most of the people who were behind on their mortgages were also far underwater on their loans,” says Fred Melgaard, executive vice president and chief operating officer of DRI, a default management company in Newport Beach, Calif.
Another reason that the HAMP numbers aren’t as high as the administration would like, is because many lenders have adopted their own modifications programs in lieu of HAMP. For example, Wells Fargo recently announced that as of the end of February, they have completed 740,359 loan modifications. That said, 623,737, or 84 percent, of those were done through Well Fargo’s own modification program.
HAMP extended and expanded
In an effort to help more homeowners stay in their homes, the HAMP program has been extended until the end of 2013 and expanded to help more borrowers participate.
“The expanded HAMP program encourages lenders to write off more of the principal by tripling the incentives the government will pay them for each loan,” says Melgaard. According to The Huffington Post, lenders will receive 18 cents to 63 cents on the dollar if they do a principal reduction. Under the previous guidelines, lender incentives were limited to between 6 cents and 21 cents.
Lenders are still not required to reduce borrower principal, a subject that’s currently under intense debate.
Participating borrowers now may have an overall debt-to-income ratio as high as 55 percent and as low as 25 percent. Also, investors are now allowed to participate, and borrowers who did not successfully complete a HAMP trial or who fell out of a HAMP modification because of missed payments will be eligible to reapply.
“Non-owner-occupants need to be at least two payments delinquent in order to be eligible for a loan modification,” says Melgaard. Owner-occupants are eligible for a HAMP loan modification as long as they are either delinquent on their mortgage or are in imminent danger of default, explains Melgaard.
What to do if you fall behind
“If you are behind on your loan or you just lost your job and know you don’t have enough savings to make your mortgage payment for more than a month, you should call your lender immediately,” says Melgaard. “An avoidance strategy never works.”
Individual lenders can discuss loan modification options as well as other strategies that may reduce your monthly payments and keep you in your home.
The earliest borrowers can apply for the expanded HAMP program will be sometime in June 2012, according to Making Home Affordable.