After criticism that the government’s Home Affordable Modification Program (HAMP) isn’t helping as many people as it should, the Obama administration this morning announced significant modifications to the program. The changes are intended to help responsible homeowners who are underwater and are in need of a more affordable mortgage, including those that are unemployed.
To help unemployed homeowners, the program will require loan servicers that participate in the program to reduce monthly payments so they are at or below 31 percent of the borrower’s income. If necessary, servicers would suspend monthly payments for a minimum of three months and a maximum of six months.
According to ABC News, to qualify for this program, out-of-work homeowners must be eligible for HAMP and be receiving unemployment benefits. The monthly payment would be no more than 30 percent of the homeowner’s unemployment benefits. However, the amount not paid each month would be tacked on to the end of the loan balance.
Additionally, the plan is chock full of financial incentives for lenders to help underwater borrowers. According to the Washington Post, incentives will be given to lenders who reduce the principal owed on a loan amount if the amount is 15 percent more than the home is worth; to those who modify second loans including piggyback loans (i.e. 80/20 loans) and home equity lines of credit; to those who find alternate ways to keep a homeowner out of foreclosure even if they do not qualify for mortgage relief (i.e. approving a short sale) and finally to those who assist borrowers who are keeping up their monthly payment but need to get into a more affordable loan, by cutting the primary mortgage by at least 10 percent.
The new measures are in response the the large numbers of homeowners who are out of work (10.4 percent nationally- Feb. 2010) and who are underwater on their mortgage. According to Zillow’s Q4 Real Estate Market Reports, 21 percent of of all single family homes with mortgages owe more than their home is worth.