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Loan Modification Resource Center
Getting Started
General Information
Home Affordable Modification Program
Home Affordable Modification Program
Federal Legistration Now in Effect
In response to the crisis in the housing market, the White House put into effect the $75 billion Home Affordable Modification Program (“HAMP”), which provides financial incentives to lenders and loan servicers to work with borrowers to provide mortgage loan modifications to those borrowers who qualify. HAMP provides a uniform guideline for modifying mortgage loans on terms that result in a monthly payment that a borrower can afford. In addition, HAMP provides up to five annual $1,000 payments to borrowers who remain current on their modified mortgage loan to be used to pay down the principal on the borrower’s mortgage loan. While not every distressed mortgage will qualify for a loan modification, HAMP is expected to benefit between 3 – 4 million households.
HAMP Guidelines

Benefits to the Borrower

  • The goal is to get the borrower’s monthly front-end debt down to 31% of his or her monthly income. Front-end debt is defined as payments on the principal, interest, taxes, insurance (not including mortgage insurance) and home owner’s association/condo fees.
  • First, the servicer is to lower interest rates in increments of 0.125% (to no lower than 2%) to get to the desired 31% front-end debt-to-income ratio.
  • If lowering the interest rate does not generate the desired result, then the servicer can extend the term of the loan to a maximum of 40 years, to begin as of the date of the modification.
  • If these actions still have not the generated the desired result, then the servicer is to forbear principal, however, if the servicer forbears principal, then a balloon payment will be due on the maturity date.
  • Borrowers who stay current on the payments under the modified mortgage loan will receive payments of up to $1,000 a year for the first five years, with the payment used to reduce the principal on the loan.
  • The modified interest rate will stay in place for five years, after which time it will increase by no more more than 1% (100 basis points) per year until it reaches the Interest Rate Cap.
  • There are no modification fees to the borrower.
  • Unpaid late fees will be waived.
  • The program provides incentives to extinguish second mortgages.

HAMP Eligibility Requirements

  • The mortgage loan must have originated on January 1, 2009, or earlier.
  • The home must be an owner-occupied, single family 1-4 unit property.
  • The home must be a primary residence, not an investor-owned property.
  • The home may not be vacant or condemned.
  • Borrowers in bankruptcy are not automatically eliminated from consideration.
  • Borrowers in active litigation regarding the mortgage loan can qualify for a modification without waiving their legal rights.
  • First mortgage loans must have an unpaid principal balance equal to or less than:
    • Single-unit property: $729,750.
    • Two-unit property: $934,200.
    • Three-unit property: $1,129,250.
    • Four-unit property: $1,403,400.
  • There is no minimum loan-to-value ratio for eligibility purposes.
  • Second mortgages are not included in the qualifying calculation, but are included in the final modification calculation.
  • Owing more on one’s mortgage loan than the house is worth does not affect eligibility.
  • Borrowers must provide certain financial information, including a signed Form 4506-T (Request for Transcript of Tax Return), their most recent tax return on file, 2 most recent pay stubs and an “affidavit of financial hardship”.
  • Borrowers must represent and warrant that they do not have sufficient liquid assets to make their monthly mortgage payments.
  • If a borrower is in foreclosure, the foreclosure process will be temporarily suspended while the borrower is being considered for the program (or for any alternate foreclosure prevention option).
  • Borrowers who otherwise qualify for the program, but have an overall debt-to-income ratio greater than or equal to 55% must sign a letter indicating that they will work with a HUD-approved counselor before the modification will take effect.

Incentives to Lenders and Servicers

  • Servicers will receive a payment of $1,000 for each loan modification that meets the established guidelines.
  • Servicers will also receive $1,000 a year for each year a borrower stays in the program, for up to three years.
  • A one-time incentive payment of $1,500 to lenders and $500 to servicers will be paid for loan modifications made while the borrower is still current on mortgage payments.
  • First, lenders will have to reduce payments to no greater than 38% front-end debt-to-income ratio, after which the Department of the Treasury will match further reductions in monthly payments dollar-for-dollar down to a 31% front-end debt-to-income ratio.

Other HAMP Guidelines

  • Servicers must have entered into the program no later than December 31, 2009.
  • New borrowers will be accepted into the program until December 31, 2012.
  • Servicers must apply a net present value test on each loan that is in danger of immediate default or is already delinquent by at least 60 days – comparing the net present cash flow expected from a modification to the net present cash flow without a modification.
  • If this test generates a positive result, the servicer is required to offer the borrower a Home Affordable Modification. If it generates a negative result, the Home Affordable Modification is optional.
  • If the test generates a negative result, and the lender does not pursue a Home Affordable Modification, then the lender/investor must seek other foreclosure prevention alternatives, including alternative modification programs, deed-in-lieu and short sale programs.
  • When feasible, loan servicers must consider a borrower for refinancing into the Hope for Homeowners program.
  • If the loan does not pass the net present value test, and a modification is pursued, the modified loan cannot be lower than the current property value.
  • The Interest Rate Cap is the lesser of either (a) the original contract rate or (b) what the market rate was (as determined by Freddie Mac) on the day the mortgage loan was modified.
  • Borrowers may have their mortgage loans modified only once under HAMP.
  • Each borrower will be subject to a three-month trial period – if the borrower makes all payments on time, then the lower rate will be locked in for five years.
  • A loan will be considered to have re-defaulted when the borrower reaches a 90-day delinquency status. Re-defaulted loans will be terminated from the program, but should be considered for other loss mitigation programs.
Considering a Loan Modification?  Contact Us.
If you live in California and are now having difficulties making your mortgage loan payments, or if you now owe more on your mortgage loan than your house is worth, contact JPS to discuss whether a loan modification might be the right choice for you. Whether or not you meet the HAMP eligibility requirements, Lenders and loan servicers are more willing than ever to work with borrowers to modify their existing mortgage loans. Up to this point, however, borrowers who try to negotiate their own loan modifications have had a failure rate of over 80%. With a short time frame for obtaining a loan modification before foreclosure, a borrower is wise to enlist the aid of an attorney before his or her options run out. The Law Offices of John P. Skowronski can help you avoid foreclosure and save your home by working with your lender to modify your existing mortgage loan and agree to new terms and a monthly payment that you can afford.

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Resource Center
United States Courts − Bankruptcy
A brief overview of the structure and function of bankruptcy courts.
United States Courts − Bankruptcy
Chapter 7Liquidation Under the Bankruptcy Code.
United States Courts − Bankruptcy
Chapter 13Individual Debt Adjustment
HUD − Loan Modification Frequently Asked Questions
FHA Loan Articles − What You Should Know About Obama Loan Modification
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