HAMP Basics

The Home Affordable Modification Program (HAMP) is a government program that provides incentive payments to residential lenders for modifying your mortgage. This means that the bank may actually decrease your monthly mortgage payment in return for government money. To get a modification under this program your bank must participate in the program (most do), you must be eligible and the modification must meet the NPV test.

1. Does Your Bank Participate?

While the vast majority of United States banks participate in this program, some banks have decline. To check the most updated list of which banks participate go to www.MakingHomeAffordable.gov/contact_servicer.html.

2. Are You Eligible?

In order to be eligible for HAMP you do not need to be behind on your mortgage. The eligibility requirements are as follows:

(1) You must be the owner-occupant of a 1-4 family home

(2) The unpaid balance on your mortgage must not exceed

a. 1 Unit Home - $729,750.00

b. 2 Unit Home - $934,200.00

c. 3 Unit Home - $1,129,250.00

d. 4 Unit Home - $1,403,400.00

(3) Your first mortgage must have been originated on or before June 1, 2009

(4) Your currently monthly mortgage payment must exceed 31% of your pre-tax income (Note: This includes all household income).

(5) Something bad must’ve happened to you that is now making your monthly mortgage payment difficult or impossible to pay

3. Does the Modification Pass the NPV Test?

Assuming the bank participates and you are eligible for HAMP the bank will do a few things to reduce your monthly mortgage payment to 31% of your household’s pre tax income. First they will reduce your interest rate by an eighth of a percentage point at a time. They may go all the way down to 2% (this will remain fixed for 5 years and then can increase). Second they will extend the length of the loan. Third they will put a certain amount of the principal balance to the end of the loan interest free. Finally, they may erase a certain amount of principal (incredibly rare).

The bank will then evaluate the present value of all expected payments and add that together with the government incentive money. If that value is equal to, or better than, the present value of the current mortgage they will offer you a modification. If it’s not they will reject you.

Applying for a HAMP modification can be a difficult and time consuming process. A decent bit of paperwork is involved and it is important to stay on top of the lender, as they may take months to review everything. It you feel up to the task it is possible to apply for and receive a modification on your own. If you would rather go with an expert there are many people out there who can guide you through the process.