The Trouble With HAMP

HAMP, The Home Affordable Modification Program, was implemented during the darkest hours of the economic crisis. The program’s intent was to standardize the criteria under which lenders consider granting mortgage modifications to homeowners. These modifications would reduce monthly mortgage payments and allow folks to avoid foreclosure and stay in their homes.

This may have been well-intentioned, but in practice, it has proven to be a mess. The first issue is that the criteria weren’t made clear to homeowners. For example, in order to qualify for a HAMP modification, the homeowner’s current principal, interest, property taxes and homeowner’s insurance payments must be more than 31% of their gross monthly household income. Many people applied for the program without realizing that their payments were below the 31% threshold. By the time they were notified that they didn’t qualify, they were thousands of dollars in arrears to their lenders.

Perhaps the biggest downfall of the program is that lenders would not consider granting modifications on loans that were current. Homeowners who had been struggling to make their payments would call their lender and be told that the only way to qualify for a modification was to fall behind on their mortgages.

The typical HAMP story we hear from clients goes something like this: The homeowner is struggling (a family member has lost a job or an Adjustable Rate Mortgage (ARM) has reset and the mortgage payment has increased dramatically). She contacts her lender who tells her that she must miss a payment in order to qualify for HAMP. She doesn’t make a mortgage payment for a month and then calls the lender back. The lender offers her a three-month “trial modification” and asks her to send in a large packet of documents including a hardship letter, bank statements, and other proof that she’s having financial trouble. Under the trial modification, her mortgage payment goes from $1900 a month to $1200. The homeowner starts to breathe a little easier and uses the $700 to pay down some other debt. After a few months, the lender says it cannot yet make a decision on the modification and offers another 3 month trial modification. Oh, and it has lost the homeowner’s paperwork, so she needs to send it again. This goes on until the lender makes a decision one way or another (usually the other).

We’ve heard of people being offered as many as four trial modifications, before being told that they don’t qualify for HAMP. In that instance, the homeowner has now missed one mortgage payment and made twelve payments that were “short.”  Using the numbers above, the homeowner is now $10,300 (plus fees) behind on their mortgage. The lender is threatening foreclosure and the homeowner is in a worse spot than they were before they’d ever heard of HAMP.

Some people do qualify for HAMP and receive permanent modifications. The trouble is that many more do not. If you are going to attempt to qualify for a modification, we recommend doing as much research as you can to determine if you meet the criteria BEFORE you contact your lender. If you make the decision to skip a payment, put the money in the bank. Same goes for the difference between your regular monthly payment and your trial payment. We understand that you could really use the money for something else, but having the cash on hand to get caught up on your mortgage if you’re rejected for a modification could be the difference between remaining in your home and being foreclosed upon.

Everyone’s situation is different. If you’re having trouble making your mortgage payment, call us anytime. We’ll give you a free consultation and let you know what your options are.

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