What is the Affordable Home Modification Program (HAMP)
The Affordable Home Modification Program (HAMP) was a federal government loan modification program introduced in 2009 to help struggling homeowners avoid foreclosure. HAMP’s goal was to help homeowners who paid more than 31% of their gross income into mortgage payments. The program expired at the end of 2020, but a sister initiative, the Home Affordable Refinance Program (HARP) replaces it and extends until 2020.
FAILURE Affordable Home Modification Program (HAMP)
The creation of the Home Affordable Modification Program (HAMP) was in response to the 2008 subprime mortgage crisis. Homeowners across America were unable to sell or refinance their homes during this period. In addition, the affordability of monthly payments has been caused by rising market rates on their variable rate mortgages (ARMs). Although taxpayers subsidized some of the loan modifications, the most significant contribution from HAMP was arguably the normalization of what had been a random loan modification system. HAMP encourages private lenders and investors to finance their loan adjustments.
Eligibility of the HAMP: the NPV test
Eligibility was determined by a calculation called the Net Present Value (NPV) test. The properties had to pass the NPV test and meet other eligibility standards. If the analysis showed that a lender, or an investor currently holding the loan, would earn more money by modifying the loan rather than forcing it, the property became eligible. In addition to the requirement that an owner prove financial hardship, the house had to be habitable and have an unpaid principal balance of less than $ 729,750.
How relief works
The Affordable Home Modification Program (HAMP) relief has taken several forms, all of which would reduce monthly payments.
- Eligible Homeowners May Receive Mortgage Principal Reductions
- Interest rate reductions
- Temporary deferral of mortgage payments, also called forbearance
- An extension of the current loan conditions
In many cases, the new modified loan was also eligible for the HAMP modification, further reducing the homeowner’s payment. Families in the program reduced their monthly payment by a median of more than $ 530.
Incentives for lenders
The government refers to the ratio of payments to gross income as the ratio of initial debt to income (ITD). The HAMP program, in collaboration with mortgage lenders, has helped encourage banks to reduce the debt-to-income ratio to 38% or less. The Treasury would then intervene to minimize the DTI ratio to 31% or less.
The mortgage counselors received an initial payment of $ 1,000 for each qualifying change they made. In addition, these lenders could receive up to $ 1,000 per year for each borrower in the program for up to three years.
The original affordable housing modification program was limited to primary residences. In 2020, the program was revised to include dwellings not occupied by the owner, households with several mortgages and owners whose DTI ratio was lower than the initial requirement of 31% or more.