Table of Contents
- What Is the Home Affordable Modification Program (HAMP)?
- Key Takeaways
- Understanding the Home Affordable Modification Program (HAMP)
- Special Considerations
- The Home Affordable Modification Program (HAMP) vs. the Home Affordable Refinance Program (HARP)
- When Was the Home Affordable Modification Program (HAMP) Active?
- Who Qualified for HAMP?
- How Much Money Could You Save on Your Mortgage Under HAMP?
- The Bottom Line
What Is the Home Affordable Modification Program (HAMP)?
Let me explain what the Home Affordable Modification Program, or HAMP, really was. It was a federal loan modification program launched in 2009 to assist homeowners who were struggling and at risk of foreclosure. If you were spending more than 31% of your gross income on mortgage payments, this program targeted you. Keep in mind, it ended at the close of 2016.
Key Takeaways
Here's what you need to know right away: HAMP came from the federal government in 2009 specifically to prevent foreclosures for those in financial trouble. It let homeowners cut their mortgage principal or interest rates, pause payments temporarily, or extend loan terms. The program wrapped up at the end of 2016 and hasn't been brought back.
Understanding the Home Affordable Modification Program (HAMP)
HAMP emerged under the Troubled Asset Relief Program (TARP) as a direct response to the 2008 subprime mortgage crisis. Back then, many homeowners couldn't sell or refinance due to tight credit markets after the crash. Adjustable-rate mortgages (ARMs) reset to higher rates, making payments unaffordable and pushing people toward foreclosure.
One important point: while taxpayers footed the bill for some modifications, HAMP's biggest impact was in standardizing a previously chaotic system of loan adjustments.
To qualify, your mortgage payments had to exceed 31% of your gross income. Properties also needed to meet requirements like passing the net present value (NPV) test and other standards. Essentially, if modifying the loan made more financial sense for the lender than foreclosing, it was eligible. You had to prove financial hardship, the home had to be livable, and the unpaid principal couldn't top $729,750.
The relief came in various forms to drop your monthly payments. You could get principal reductions, lower interest rates, temporary forbearance on payments, or even extend the loan term. In many situations, if your loan was already modified, you could apply for HAMP to reduce payments further.
A quick fact for you: families in the program saw their monthly payments drop by an average of over $530.
Special Considerations
The government calls the ratio of payments to gross income the front-end debt-to-income ratio (DTI). HAMP worked with lenders to incentivize dropping this to 38% or less, then the Treasury would help get it down to 31% or below.
Private lenders and investors got incentives to adjust loans: servicers received $1,000 upfront per eligible modification, up to $1,000 yearly per borrower for five years, and a $5,000 payment after year six.
Originally, HAMP was just for primary residences. But in 2012, it expanded to include non-owner-occupied homes, households with multiple mortgages, and those with DTI ratios outside the initial 31% threshold.
The Home Affordable Modification Program (HAMP) vs. the Home Affordable Refinance Program (HARP)
HAMP had a companion program called the Home Affordable Refinance Program (HARP), also from the federal government, but they differed slightly. HAMP targeted those nearing foreclosure, while HARP required you to be underwater or close to it on your mortgage—meaning your home was worth less than what you owed.
HARP let you refinance if your loan-to-value (LTV) was over 80%, but only for loans guaranteed or acquired by Fannie Mae or Freddie Mac before May 31, 2009. You had to be current on payments. Modifications could lower payments but might affect your credit score, and you'd benefit from switching to a stable product.
HARP's original end date was December 31, 2017, but it got extended to December 2018.
When Was the Home Affordable Modification Program (HAMP) Active?
HAMP ran from 2009 as a response to the 2008 subprime crisis and ended in 2016.
Who Qualified for HAMP?
From 2009 to 2011, only primary residences qualified. Starting in 2012, it included second homes, rental properties, multiple-mortgage households, and those who didn't meet initial financial criteria.
How Much Money Could You Save on Your Mortgage Under HAMP?
Under HAMP, you could get up to $10,000 in principal reduction for making on-time payments: $1,000 per year for five years, plus $5,000 at the end of year six.
The Bottom Line
In summary, HAMP modified mortgages for borrowers hit hard after the 2008 crisis, running from 2009 to 2016. It reduced principals effectively, lowering default risks.
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