The target of the program is 7 to 8 million struggling homeowners at risk of foreclosure by working with their lenders to lower monthly mortgage payments. The Program is part of the Making Home Affordable Program which was created by the Financial Stability Act of 2009. The program was built as collaboration with lenders, investors, securities, mortgage servicers, the FHA, the VA, FHLMC, FNMA, and the Federal Housing Finance Agency, to create standard loan modification guidelines for lenders to take into consideration when evaluating a borrower for a potential loan modification.
Purpose
HAMP is authorized by sections 101 and 109 of the Emergency Economic Stabilization Act of 2008, which has been amended by 7002 of the American Recovery and Reinvestment Act of 2009 (collectively “The Acts”). Congress has several enumerated purposes under the Acts. The main purpose is to provide the U.S. Treasury Department with the authority and mechanisms necessary to restore stability to the United State’s financial system—which includes—(1) protecting home values, college funds, retirement accounts, and life savings, (2) preserving homeownership, (3) promoting jobs and economic growth, and (4) protecting the interests of taxpayers.
As a result of the authority it received under the Acts, the U.S. Treasury Department developed HAMP. Under HAMP, mortgage servicers (those who are commonly referred to as the mortgage lenders) are provided with the opportunity to enter into contracts with the Federal Government (the U.S. Treasury) to modify homeowners’ mortgage loans in a particular and uniform fashion and receive incentive payments in return.
In an attempt to require mortgage servicers to modify mortgages in a particular and uniform fashion, the U.S. Treasury has taken several actions. First, the U.S. Treasury Department not only describes HAMP and its related programs on its own publicly-accessed website (www.hmpadmin.com), but it also provides a step by step guide on how mortgage servicers are supposed to be performing the HAMP modifications. For example, in the HAMP Handbook for Servicers of Non-GSE Mortgages, the U.S. Treasury requires these servicers to actively solicit borrowers to participate in HAMP before referring a loan to foreclosure or conducting a scheduled foreclosure sale.
Second, the U.S. Treasury require servicers to use a particular net present value calculation developed specifically for HAMP (“ HAMP NPV”). The HAMP NPV was developed specifically for HAMP by a group of experts taken from the U.S. Treasury, the Federal Deposit Insurance Corp., the Federal Housing Finance Agency, Fannie Mae, and Freddie Mac. The HAMP NPV attempts to predict whether the lender/investor will make more money by modifying the mortgage or foreclosing. Under HAMP, if the lender will make more money entering into a HAMP modification with the borrower (resulting in a positive HAMP NPV)--and assuming the mortgage loan is otherwise eligible under HAMP (which is discussed below)--the lender must offer a HAMP modification and cease all current efforts to foreclose. However, if the lender will lose more money entering into a HAMP modification with the borrower (resulting in a negative HAMP NPV), the lender may proceed with foreclosure.
Thus, under HAMP, lenders and/or mortgage servicers are required to make a conscious and calculated determination as to whether the pursuit of a foreclosure will be financially beneficial for the lender/investor before the foreclosure is actively pursued--which presumptively should result in fewer foreclosures--thereby providing more stability to the U.S. economy and achieving the purpose intended by the United States Congress.
Eligibility requirements of program
The program abides by the following eligibility and verification criteria:
Loans originated on or before January 1, 2009
First-lien loans on owner-occupied properties with unpaid principal balance up to $729,750
Higher limits allowed for owner-occupied properties with 2-4 units
The current principal, interest, property taxes and homeowner's insurance payments are costing the borrower(s) over 31% of their gross monthly household income.
All borrowers must fully document income, including signed IRS 4506-T, proof of income (i.e. paystubs or tax returns), and must sign an affidavit of financial hardship
Property owner occupancy status will be verified through borrower credit report and other documentation; no investor-owned, vacant, or condemned properties
Incentives to lenders and servicers to modify at-risk borrowers who have not yet missed payments when the servicer determines that the borrower is at imminent risk of default
Must not be more than 5% underwater - Example: 200k must be worth at least 190k.
Modifications can start from now until December 31, 2012; loans can be modified only once under the program
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