Home Affordable Modification Program (HAMP)


If you are struggling to make payments on your home, then you should know about HAMP.


One of the federal government’s flagship programs to help struggling homeowners is the Home Affordable Modification Program (HAMP).


HAMP, which took effect in 2009, helps homeowners who are facing default by modifying the terms of their loan so that monthly payments are lower.  The goal is to lower monthly payments to a level that will allow homeowners to avoid foreclosure.  Since 2009, over 1.2 million homeowners have participated in HAMP with participants having their monthly payments lowered an average of $538.


The opportunity to participate in HAMP begins when a homeowner is in default or is reasonably likely to be in default within the foreseeable future.  Under HAMP, default means that a homeowner is over 60 days delinquent.  Default reasonably likely within the foreseeable future means that even if the homeowner is less than 60 days delinquent, the lender believes that the homeowner is likely to pass the 60 day threshold without becoming current.  Under either scenario, the process is initiated when the homeowner contacts their lender for an evaluation of whether HAMP can help avoid the foreclosure process.


During the evaluation phase, the lender will collect information on the homeowner.  This information includes any income, debts, loans, or living expenses, and is used to determine whether the homeowner can afford to make payments under a new, modified loan.


If the homeowner is approved for HAMP, the lender and the homeowner will then work on modifying the terms of the loan in order to lower monthly payments.  This is primarily done through interest rate reduction, term extension, or principal forbearance.  For instance, by extending the term of the loan, monthly payments will be lowered because the loan is now spread out over a longer period of time.  Regardless of which method is used, however, the goal of HAMP is to make your monthly payments roughly equal to 31% of total income.


After a payment reduction plan is worked out, homeowners are placed in a “Trial Period Plan.”  The TTP is simply a trial period, lasting about three months, whereby the homeowner must demonstrate that he or she can pay the new, agreed-upon amount.  Failure to make any of the trial payments will result in the homeowner being unable to continue under HAMP.


If the trial period is successful, however, then the homeowner’s loan modifications are made permanent—as long as the homeowner remains current on payments.  If three or more payments are missed, then participants will be kicked out of HAMP and lenders will be allowed to proceed with foreclosure.


Below are some basic eligibility criteria for HAMP


1) Documented financial hardship

2) Your loan is in default or default is reasonably foreseeable

3) Your monthly mortgage payments are greater than 31% of your income


HAMP is one of the best government programs available for struggling homeowners.  It can temporarily halt the foreclosure process when homeowners apply, and can help fend off foreclosure permanently by making monthly payments affordable. 


Of course, HAMP isn’t perfect.  To begin with, it’s targeted at homeowners who currently have mortgage payments that exceed 31% of their income.  At the same time, lenders want to make sure you can afford to pay the new rate under a loan modification.  Thus, the lenders seek to use HAMP in helping people who are in financial trouble, but not too much trouble.  Another criticism is that banks aren’t making enough effort to reach out to homeowners and approve them for HAMP.


Despite these shortcomings, HAMP remains a powerful tool for homeowners who are struggling with mortgage payments.  If you are in this category, you should contact your lender to find out if HAMP is right for you.


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