What Is the Home Affordable Modification Program?
The Home Affordable Modification Program—also called HAMP—is one of a suite of programs that President Obama introduced to stabilize the housing market and improve the economy. HAMP is designed to help struggling homeowners reduce their monthly mortgage payments and avoid foreclosure. Unfortunately, HAMP has not been as resoundingly successful as many people hoped.
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Creation of HAMP
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When President Obama took office in 2009, he initiated a variety of programs designed to get the ailing economy back on track. One of the programs—called the Making Home Affordable Program—specifically aimed to reduce future foreclosures. Making Home Affordable included several sub-programs, including the Home Affordable Modification Program (HAMP). HAMP is due to expire on December 31 2012.
Purpose
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HAMP is specifically designed to help homeowners who face a serious risk of foreclosure. Since 2006, home values have dropped dramatically in many areas of the U.S. Adjustable rate mortgages have caused many homeowners to become trapped in unaffordable loans and risk foreclosure. HAMP allows such homeowners to modify their mortgage so that their monthly payments are more affordable, and thus, they are more likely to be able to keep their home.
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Eligibility
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HAMP targets struggling homeowners, therefore not everyone is eligible for a loan modification under HAMP. To be eligible, a homeowner must owe less than $729,750 on a one-unit property, have established the mortgage prior to January 1, 2009, and have monthly payment greater than 31 percent of his monthly gross income. Also, a homeowner must be able to provide documentation indicating that he is facing a serious financial hardship as a result of his mortgage.
Program Details
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HAMP modifies mortgages of eligible homeowners. A mortgage modification reduces the amount of principal the homeowner owes on the property. For example, if a homeowner owes $250,000, HAMP can reduce the mortgage amount to only $242,500 (which is 97% of the original amount). This reduction in principal causes the monthly payment to be lower. The government pays any fee associated with setting up the modification. It is important to note, however, that a loan modification can temporarily hurt a person’s credit, since such modifications are designed only for homeowners who are underwater on their mortgage and are close to filing for foreclosure.
Success of the Program
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Despite lots of anticipation, HAMP has not attracted many participants. According to The Atlantic, HAMP loan modifications account for only 7% of all mortgage modifications at five of the nation’s largest banks. In fact, in May 2010, far more people dropped out of the HAMP program than entered into it. The majority of borrowers are opting for regular mortgage modifications as they do not find many advantages to HAMP. Some industry experts, including Daniel Indiviglio, argue that the government wasted $75 billion on HAMP since it has not greatly affected the foreclosure crisis.
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