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FHA - Home Affordable Modification Plan (FHA-HAMP) 

 



This program, which has taken a long time to be put in effect will be boosted under the expansion of the Making Home Affordable program announced on March 26, 2010.  FHA-HAMP allows holders of mortgages insured by the Federal Housing Authority (FHA) to modify their loans so that their monthly payments are affordable, while enable the owners of the mortgage to potentially receive the full amount of the existing balance on the original mortgage at the time of the sale of the property.  In addition, the Treasury Department is now providing incentives for lenders to reduce the principal of mortgages that are current (homeowner has continued making her/his regular payments), but are underwater (the value of the mortgage exceeds the value of the home - see our FHA Underwater Refinance page for details.

Who qualifies for an FHA-home affordable modification (FHA-HAMP)? 
  • Homeowners whose mortgages are insured by the FHA - according to the government there are 4.8 million insured single family mortgages.
  • Homeowners whose mortgage payment (including taxes, insurance, and homeowners/condo fees) exceeds 31% of their gross income (their income before deductions);
  • People who are delinquent on their mortgages at least 1 month (NOTE: the holder of the loan needs to be delinquent in order for him/her to be eligible, unlike the HAMP provision) - according to LPS Applied Analytics 14.2% of all FHA loans are at least 30 days past due;
  • Only owner-occupied homes qualify (i.e. no speculators, or "house flippers") - homes can range from 1 to 4 unit homes;
  • Homeowners whose unpaid principal on their homes is less than $729,500 ($934,200 for 2 units; $1,129,250 for 3 units and $1,403,400 for 4 units);
  • Homeowners are only eligible to participate in the program once; if after modification the borrower fails to stay current, the borrower is no longer eligible to apply for a modification under this program.

 

What kind of mortgage modification do they get? 
In short, the mortgage modification program will provide: lower monthly payments through a reduction in principal owned under the primary lien (the amount reduced turns into a second lien), incentive payments, and in some cases a reduction in the principal owed - financed by taxpayers and the lending institutions (which themselves are receiving government aid, so ultimately the taxpayer is footing most if not the whole bill).

How does the FHA - Home Affordable Modification Plan (FHA-HAMP) works? 

The plan will be similar to the Home Affordable Modification Plan; however, loan modifications will be the vehicle used to aid the homeowner.  "The program permanently reduces a family's monthly mortgage payment through the use of a partial claim, which defers the repayment of mortgage principal through an interest-free subordinate mortgage that is not due until the first mortgage is paid off."

 

  • Lenders/servicers will ask for proof of income and residence from the homeowner to ascertain whether the individual meets the plan's requirements;
  • Unpaid interests, taxes, and insurance will be capitalized (e.g. will be added to the principal owed); in addition delinquency charges to third parties and escrow advances by the servicers will also be capitalized, but not late fees or other default charges;
  • Lenders will compute the amount of principal reduction on the first lien that will reduce monthly payments to no more than 31% of the borrowers gross income.  The highest amount of principal reduction will be 30%.
    • An interest free subordinate loan will then be made equal to the amount of principal reduction plus any unpaid mortgage payments;
    • The subordinated loan is due with the modified first mortgage is paid off.

What are the terms of the FHA - home affordable modification plan (FHA-HAMP)? 

  • The mortgage modification is permanent and valid through the life of the mortgage.
  • The interest-free subordinated mortgage will be due either when the modified mortgage matures or when the property is sold - this payment will be in the form of a balloon payment - the deferred principal on the modified mortgage will not accrue any interest.


How does the Treasury support the FHA - home affordable modification plan (FHA-HAMP)? 

  • Services will receive an incentive fee of up to $1,250 to modify these loans.

Anything else? 
  • All financial stability plan recipients will have to follow the guidelines for loan modifications;
  • Unlike the Home Affordable Modification Plan (HAMP), the FHA-HAMP only allows modifications once the homeowner has defaulted on its mortgage obligation - this was done to satisfy legal requirements on the mortgages.
  • You should contact your loan servicer or HUD's National Servicing Center (888-297-8685) to find out whether you are eligible.


NOTE: Just to be clear - we are NOT a government sponsored site, and we try to keep the information on the site accurate and up-to-date.  Nevertheless, there may be errors, and you should check the information on qualifications and other details for the plans with your mortgage agent.  For homeowners the government provides a simple self-assessment test at: http://www.makinghomeaffordable.gov.