Loan Modifications and the HAMP Program

by John Andrews

If you are a homeowner in jeopardy of losing your home, good credit standing and peace of mind… there is hope. There are several forces out there determined to help you stay in your home. By now, you have probably heard of loan modifications and the new HAMP Program, otherwise known as the “Obama Program.” This article will discuss, in general terms, what those avenues are, and how they may benefit you.

A loan modification is simply a renegotiation of the terms of a current mortgage between a homeowner and the mortgage holder, the end result being a “modified” mortgage that both parties can live with. A loan modification may lower an interest rate, change an adjustable rate to a fixed rate, reduce the principal amount, or forgive past-due amounts and fees, or a combination of any of these. Lenders are willing to negotiate with homeowners who are facing financial problems and cannot meet the terms of their current mortgage.

So how do you know if you qualify for a loan modification? Well, in short, you need to show that you, the homeowner, are going through a financial hardship that has reduced earnings and made it difficult or impossible to make your monthly mortgage payment. Additionally, you must verify that you have a consistent source of monthly income, state your desire to retain ownership and live in the home as your primary place of residence.

The Home Affordable Refinance Program, or HAMP, is a $75 billion program aimed at preventing foreclosures and helping responsible persons stay in their homes. The program is estimated to help 3 to 4 million at-risk homeowners modify their current mortgages to more favorable terms. The HAMP program also allows judicial modifications during bankruptcy when no other options exist.

The goal of the program is to lower a borrower’s monthly mortgage payment to between 31 and 38 percent of their gross monthly income. In this effort, lenders may reduce interest rates on the current loan to as low as two percent and, if needed, may extend the amortization period to 40 years. Under this program, modifications will be kept in place for five years. After the five-year period, interest rates can be increased by one percent each year to the conforming loan survey rate in place at the time of the modification.

Who is and is not eligible for the HAMP program? Those eligible are at-risk homeowners suffering from serious financial hardship, homeowners facing imminent default of their mortgage and high debt-level borrowers who agree to enter HUD-certified consumer debt counseling. Other qualifications include being an owner-occupied homeowner (no flippers), and having an FHA-conforming loan (no jumbo mortgages).

The good news is that if you are a homeowner facing serious financial difficulties, or are in imminent danger of losing your home, there are options to help keep you and your family in your home. However, the modification process is not simple, nor is it immediate. The typical loan modification process takes anywhere from 30 to 90 days to complete. There are professional companies and attorneys that can assist you with the entire process and negotiate the best possible terms. But be wary of fly-by-night companies or individuals offering loan modification services. Seldom do they have the knowledge or leverage to negotiate the best arrangement for you, nor do they have your best interests at heart. Your due diligence in seeking a loan modification company or attorney could save you far more money than the time involved.

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