What Home Loan Modification Programs are Available in 2010?

by tammy on April 23, 2010

Although there may be some exceptions to the rule and very specialized programs for particular groups, the primary loan modification program applicable to the general public is part of the Making Home Affordable (MHA, www.makinghomeaffordable.gov) program and known as the Home Affordable Modification Program or HAMP. This program was initially implemented to help mitigate the drastic rise in foreclosures that began in 2008 and has continued since. This program is administered by the U.S. Department of Housing and Urban Development (HUD) on the borrower side and the Treasury Department on the lender side. Although it remains voluntary – meaning that there is no guarantee that anyone will get a loan modification regardless of whether or not they qualify – there are some significant incentives on the lender side.

There are five primary conditions that the borrower has to meet in order to qualify for loan modification under HAMP:

(a) The house in question has to be the borrower’s primary residence. This means that borrower’s cannot apply for loan modification for rental properties or for vacation homes. This primary residence requirement has to be substantiated according to the Treasury Department’s definition of a primary residence (similar to that used by the Internal Revenue Service for tax credits related to home improvements).

(b) The amount owed on the standing mortgage has to be less than $729,750. The idea for this restriction was to prevent people that purchased luxury mansions or other properties well beyond their price range from taking advantage of the program. Many politicians argued that many of the foreclosures were the borrower’s fault because they bought homes that they could not afford and some graphic examples of this resulted in this restriction.

(c) The borrower has to be able to show a serious financial hardship to qualify for loan modification under HAMP. In general, all loan modification agreements are detrimental to the lender, so it is essential for someone asking for a loan modification to detail precisely why this is needed. The normal reasons are a significant increase in the amount of monthly payments, a significant decrease in the amount of monthly income, or some sort of financial disaster, like a medical emergency.

(d) The mortgage in question had to have been obtained prior to January 1, 2009. By this date, anyone purchasing a home should have known precisely what they were getting into for better or for worse, so these people are excluded from assistance. Further, anyone that has been approved for a mortgage since January 1, 2009 must have been in a much stronger financial position than the people HAMP is for.

(e) The borrower must be paying – and be able to document that they are paying – more than thirty-one percent of their monthly income on their mortgage payment. Bringing the borrower’s monthly payment down to at least thirty-one percent of their monthly gross (not net) income is the key feature of HAMP, so if the person is already paying this amount or less, they do not qualify for assistance under HAMP.

There are some additional loan modification programs or assistance offered by different government agencies for specific groups of people (people with HIV/AIDS, the elderly, and so on), but HAMP is the only program readily available to anyone that qualifies. However, as noted above, meeting the requirements does not guarantee a loan modification, so applicants should tread carefully.

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