If you are in foreclosure the Court will direct the Bank to first review you for a HAMP (Home Affordable Modification Program) Modification. If you are not in foreclosure a bank that is part of the HAMP program is supposed to review your mortgage for a HAMP modification upon request. Many of the larger banks (Bank of America, Chase, OneWest, etc.) are part of the HAMP program and offer HAMP modifications where possible. Some smaller banks are not part of the HAMP program and while they will consider you for other modifications, they will not review you for a HAMP modification.
In order to be considered for HAMP you must live in the mortgaged premises and have a mortgage below a certain threshold amount (for one family homes the threshold amount is $729,750.00). Your current mortgage payment (including taxes and insurance) must exceed 31% of your pre tax monthly income and you must pass an NPV (Net Present Value Test).
31%
To calculate this percentage, add up all of the monthly income your household earns before taxes are removed. This includes additional income such as pension or Social Security income. Contribution income that live-in relatives give you monthly and 75% of rental income is included as well. A HAMP mod will decrease your monthly mortgage amount to 31% of that number. If your mortgage payment (along with taxes and insurance) are less than the 31% figure then you are likely ineligible for a HAMP modification.
NPV
Assuming your current mortgage amount is greater than the 31% figure, the bank will then run the NPV (Net Present Value) test. Under this test the bank determines whether the value of foreclosing on your property is greater than the value of giving you a modification. This test is extremely complicated and it is normally difficult to predict whether this test will come out in your favor or not.While the banks that take part in this program are forced to consider you for a HAMP modification they are only obligated to give you a modification if the modification benefits them more than a foreclosure.
If everything goes well you will be placed on a 3 month trial plan where you will pay a monthly figure of 31% of your gross monthly income. After the trial plan you will be reviewed for a permanent modification. Keep in mind that many homeowners remain on a trial plan for far longer than 3 months and it is still possible to fail the NPV test after making all 3 trial payments.
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