The Home Affordable Modification Program (HAMP) was announced on February 18, 2009. The first set of details were published by the Treasury Department on March 4, 2009. Those details were revised and republished on April 21, 2009 and updated on June 8, 2009.
The mission of the HAMP is to save risky home mortgages from foreclosure. The means is to reduce the homeowner’s monthly mortgage payments to a manageable amount. The HAMP features a sharing of the reduction by the lender and the Treasury Department. The HAMP also offers incentives to the lender, the loan servicer and the borrower.
The monthly mortgage payment reduction may be accomplished in one or a combination of ways: lowering the mortgage loan interest rate or extending the term of the mortgage loan or freezing some of the principal of the mortgage loan. The HAMP is supposed to be available to homeowners who are at risk of defaulting on their home mortgage. It is not supposed to matter whether the problem is caused by a serious family hardship, a sudden drop in income or a decline in market value of the home to a level below that of the principal balance of the mortgage loan.
The HAMP relies on mortgage servicers to promote a loan modification. Each servicer must first qualify and sign a contract with Fannie Mae. To date more than thirty servicers have qualified. However, some media have complained that the level of understanding among the servicers varies widely. In turn, that uncertainty has slowed the process in some cases.
The homeowner must satisfy the requirements for the Program. A Hardship Affidavit form must be completed by the homeowner and backed up by appropriate proof (showing income and other financial information). Then, with the assistance of the lender and the Treasury, the homeowner can arrange to have the monthly mortgage payment reduced to no more than 31% of the homeowner’s monthly income. This 31% level is supposed to be low enough to allow homeowners to make their monthly payments and avoid foreclosure. Once a homeowner has qualified, there is a 3-month trial period to make sure that the homeowner can satisfy the new, lower payment obligation.
Late in June, the Treasury Department announced a nationwide campaign to promote the HAMP and to let homeowners know that the HAMP might be able to save their home from foreclosure. The campaign is supposed to utilize housing counselors, community organizations and public officials to publicize the Program. A nationwide bus tour has been organized to bring the word to the hardest-hit cities suffering a high number of foreclosures.
A July 28 meeting was held at the U.S. Treasury in Washington to discuss ways to speed up the process. Twenty-five loan servicers attended the meeting and reportedly promised to ramp up the rate of modifications substantially. The Treasury Department announced that the new goal is to reach 500,000 home loan modifications by November 1, 2009.
On August 4, the Treasury Department issued its first report on modifications under the HAMP. The report confirms the perceived difficulties in the ramp-up, but does suggest that many servicers are beginning to understand the complicated process and are accelerating their responses to home loan modification requests. In addition to continuing these monthly reports, the Treasury Department announced that Freddie Mac will implement an audit procedure to test applications that have been declined.