What Is HAMP? Helping Homeowners Avoid Foreclosure

The Home Affordable Modification Program (HAMP) was designed to help homeowners who were struggling financially avoid losing their homes. It did this by modifying some aspects of the original mortgage to provide more affordable payments to eligible borrowers. Though the program is no longer active, there are other loan modification programs available. With rising interest rates and a tough real estate market, it’s a good idea to review past and current programs.

Understanding the Home Affordable Modification Program (HAMP)

HAMP was designed to help families remain in their homes, even if they were struggling financially. It helped homeowners avoid foreclosure by arranging for better loan terms that would lessen the financial burden of monthly mortgage payments. There was a set of criteria that homeowners needed to meet to qualify for the program as well as a thorough application process. According to the U.S. Department of the Treasury, families who were enrolled in the program typically reduced their monthly payments by a median of more than $530 per month.

How Did HAMP Start and End?

HAMP was created in response to the financial crisis of 2008 when rising interest rates increased the monthly payments for people with adjustable-rate mortgages. Because of the tight market, homeowners struggled to sell or refinance their homes to accommodate the rising prices. This put many families at risk for foreclosure. 

While the program was created with good intentions, it faced its fair share of criticism. The application process and requirements could be complex. A lack of lender participation also made it difficult for the program to thrive and make a lasting impact. HAMP officially ended at the end of 2016. 

How Did HAMP Work?

HAMP helped provide financial relief to eligible homeowners in several ways. Some homeowners received a reduced interest rate or the opportunity to extend the loan term. 

Homeowners could also receive temporary forbearance, which allowed them to delay mortgage payments. In some cases, a portion of the principal balance of the mortgage was forgiven entirely, lowering the total loan amount that had to be repaid. 

Who Was Eligible for HAMP?

Homeowners had to meet a specific set of criteria to be eligible for HAMP. This included having a home loan that originated on or before Jan. 1, 2009, with an outstanding balance that was no more than $729,750. The homeowner had to prove financial hardship by being in default or at risk of defaulting on their mortgage. They also had to have mortgage payments that were more than 31% of their monthly gross income. 

The homeowner also had to be able to afford the modified monthly payments to qualify for the program. In the first few years of HAMP, only primary residents were eligible. But from 2012 to 2016, second homes and investment properties could also be considered.

What Was the HAMP Application Process?

To apply for HAMP, homeowners had to start by contacting their mortgage loan servicer to express financial hardship and request assistance. From there, the mortgage servicer would guide homeowners through their options, which often included the HAMP. They would guide homeowners through the application process, which included questions about the home and the homeowner’s income. The mortgage servicer would also help homeowners navigate the required supporting documentation for the application.

5 Alternatives to HAMP

HAMP has been defunct for several years, but that doesn’t mean all hope is lost for homeowners who are struggling financially. Today, there are other options to choose from. 

1. Fannie Mae’s Flex Modification

The Fannie Mae Flex Modification can help homeowners who are facing financial hardship and struggling to keep up with their monthly mortgage payments. Eligible homeowners can receive relief in the form of a reduced monthly mortgage payment as well as an extended loan term. Some of the modified terms through this program can also result in principal forbearance or a lower interest rate. 

2. Freddie Mac’s Enhanced Relief Refinance

This program is exclusive to homeowners who have a mortgage that is backed by Freddie Mac. If these homeowners are unable to refinance through traditional Freddie Mac methods, such as the no-cash-out refinance option. For eligible homeowners, this program can benefit from lower interest rates and the possibility of lower monthly mortgage payments. 

3. In-house Modification Programs

Homeowners seeking financial relief should speak with their mortgage servicer to see whether there are any modification programs available. Programs will vary from lender to lender, but all modification programs are designed to help homeowners make their mortgage payments more affordable. 

4. Repayment Plans 

Homeowners who have missed a few mortgage payments may be able to work something out directly with their mortgage lenders. Lenders may be willing to offer repayment plans to help borrowers get caught up on their payments over time. Eligibility varies, so it’s important for anyone interested to speak directly to their lender to see whether they can negotiate a repayment plan. 

5. Short Sales

A short sale might be an option if a homeowner is facing the possibility of foreclosure. This is when a house is listed for sale at an asking price that is lower than the amount due on the mortgage. All of the proceeds of the sale go to the lender. In most cases, the lender will accept the proceeds as payment in full and forgive the remaining balance of the mortgage.

Know Your Options

Although HAMP is no longer available, it’s important for every homeowner to know about the program as well as the alternatives that are available today. The reality is that you never know what is around the corner. If you find yourself struggling to make your mortgage payments because of financial hardship, understanding these programs can help you quickly determine your next steps. 

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