Revised HAMP Guidelines: Helping Homeowners and Lenders
- HAMP program extended until December 31, 2013.
- The new proposals will allow for other more debt to be included in the DTI ratio.
- The new proposed HAMP guidelines will encourage more mortgage principal reduction.
New HAMP Guidelines Proposed by President Obama
President Obama released another White Paper on January 27, 2012 with a number of new ideas to help the housing market. Amongst these ideas was a proposed change in the HAMP loan modification program. To help distressed borrowers and the ailing housing market, the new proposed HAMP guidelines will do the following:
- Help the struggling borrower qualify
- Make more properties eligible
- Create more incentives for the lenders to make a mortgage principal reduction.
Background: HAMP Eligibility
Generally, you must meet the following conditions to qualify for the HAMP program:
- The home must be your primary residence
- The loan was signed before January 1st 2009
- Your monthly mortgage payment must exceed 31% of your gross monthly income
- Be able to provide evidence of a hardship or an inability to maintain current payments
For more information regarding your HAMP eligibility read HUD’s (the Department of Housing and Urban Development) Making Home Affordable (MHA) Web site about the HAMP program.
The proposal by President Obama and the Treasury Department included changes to make the HAMP program accessible to more borrowers. The original expectations were that 3-4 million borrowers would benefit from the program. Only about 1 million have benefited from the HAMP loan modification program, and there are about 75,000 applications per month.
The proposed changes in the HAMP guidelines include the following:
- Debt-to-Income Ratio
- Property Qualification
- Mortgage Principal Reduction
Debt-to-Income (DTI) Ratio
To increase the number of borrowers who are eligible the proposal will expand the DTI ratio. This will allow more struggling homeowners to qualify for the HAMP program.
- Currently: The HAMP guidelines require a DTI ratio of over 31% based on the first mortgage only.
- Proposed: Expand the DTI to include 2nd mortgage and medical debt payments
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In an attempt to stabilize the housing market, prevent foreclosures, and help renters stay in the property, the new HAMP guidelines will qualify rental property.
- Currently: Only owner-occupied primary residents.
- Proposed: Allow for tenant occupied property, or property the homeowner intends to rent.
Mortgage Principal Reduction
Two key components to the success of the program are to make the loan more affordable and provide an incentive for the homeowner to get back on the track, and pay down the mortgage. One tool used is for the lender to make a mortgage principal reduction (or as the program calls it a principal write-down).If the lender writes off part of the loan and thereby rescues the loan from foreclosure, then its position will be improved. The new proposed HAMP guidelines call for an increase in the amount paid to the lender for each dollar of principal reduction. This helps the lender rescue the loan from foreclosure and improve its overall position.
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- Currently: The lender is paid between 6-21 cents on the dollar, depending on the LTV.
- Proposed: Triple the payment to the lender to 18-63 cents on the dollar.
The new proposed HAMP guidelines also looks to increase the amount of loans to be included in the mortgage principal reduction program by including Fannie Mae and Freddie Mac loans as eligible for a principal write-down.
When Will the New HAMP Guidelines be Available?
That is the big question for homeowners waiting to do a HAMP loan modification. According to the US Treasury Department, the HAMP program has been extended until December 31, 2013, just like the HARP mortgage plan. According to the MHA Web site:
Making Home Affordable is planning enhancements to the HAMP Program. Detailed information will be available for mortgage servicers in February 2012. The expanded program for homeowners is expected to be available in June 2012. We will update this site as more details become available.
Bills.com will continue to keep you updated on the HAMP program, along with other new events, such as the HARP refinance program and the Obama refinance plan.