HAMP Adjustments May Help Struggling Homeowners
The Obama administration on Friday announced adjustments to the Home Affordable Modification Program (HAMP) and to the Federal Housing Administration (FHA) program to assist homeowners struggling to meet their mortgage obligations. The program adjustments target three groups: Unemployed homeowners who are unable to make their mortgage payments; underwater homeowners; and homeowners behind on their payments and seeking loan modifications.
Unemployed homeowners may qualify for three to six months of reduced payments while searching for new employment. During this time, payments will be reduced to 31 percent of their current gross monthly income. To qualify, borrowers must, among other things, be living in their homes, have loan balances less than $729,750, provide verification of unemployment benefits, and request assistance within 90 days of delinquency on the mortgage.
Underwater homeowners—those who owe more than their home currently is worth—may be eligible for a new FHA refinance option that will allow those who are current on their mortgage payments to refinance their mortgages into new FHA-insured loans equal to no more than 115 percent of their home’s current value. The difference between the original loan balance and the new balance gradually will be forgiven if the homeowner remains current on payments for three years.
Homeowners seeking mortgage modifications under HAMP may be eligible for mortgage principal reductions. Although lenders always have had the option to do so, many have chosen instead to reduce interest rates. However, under the new guidelines, lenders reducing mortgage principal may receive higher financial incentives. The incentives will be paid jointly by the private sector and the federal government through a $50 billion allocation from the Troubled Asset Relief Program (TARP).
The program changes are expected to go into effect in the fall. However, a measure to offer larger incentives to lenders who facilitate short sales or deeds-in-lieu of foreclosure, as well as assistance for unemployed homeowners, will be in place within a few weeks or months, according to the administration.
Unemployed homeowners may qualify for three to six months of reduced payments while searching for new employment. During this time, payments will be reduced to 31 percent of their current gross monthly income. To qualify, borrowers must, among other things, be living in their homes, have loan balances less than $729,750, provide verification of unemployment benefits, and request assistance within 90 days of delinquency on the mortgage.
Underwater homeowners—those who owe more than their home currently is worth—may be eligible for a new FHA refinance option that will allow those who are current on their mortgage payments to refinance their mortgages into new FHA-insured loans equal to no more than 115 percent of their home’s current value. The difference between the original loan balance and the new balance gradually will be forgiven if the homeowner remains current on payments for three years.
Homeowners seeking mortgage modifications under HAMP may be eligible for mortgage principal reductions. Although lenders always have had the option to do so, many have chosen instead to reduce interest rates. However, under the new guidelines, lenders reducing mortgage principal may receive higher financial incentives. The incentives will be paid jointly by the private sector and the federal government through a $50 billion allocation from the Troubled Asset Relief Program (TARP).
The program changes are expected to go into effect in the fall. However, a measure to offer larger incentives to lenders who facilitate short sales or deeds-in-lieu of foreclosure, as well as assistance for unemployed homeowners, will be in place within a few weeks or months, according to the administration.
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