Understanding the Mortgage Modification Program

by Sean A. Kelly - Date: 2010-11-09 - Word Count: 599 Share This!

According to First American CoreLogic, an American financial services company and leading provider of settlement and title insurance to the mortgage industries, nearly one in four borrowers in America is underwater with their loans, which is getting bigger than their houses' worth. To stop this housing crisis and prevent more homeowners from foreclosing, the Obama administration has introduced the Home Affordable Modification Program (HAMP) in early 2009, an essential piece of Obama's Financial Stability plan. This mortgage modification plan is designed to provide eligible homeowners an opportunity to modify the terms of their original mortgage contract to make them more affordable.

The benefits of this program are aplenty, including reduction in interest rate (subjected to a floor rate of 2%), extension of term (or amortization period if the contract terms forbid term extension) up to 40 years, or forbearance of principal. If the homeowners make their payments on time, they are awarded with up to $1,000 of principal reduction payments for up to five years. Obama's administration has made sure that the lenders and services of the program are also well awarded. Lenders, investors and/or servicers stand to receive $1,000 for each modification as well as another 'pay-for-success' fee of $1,000 per year on every still-performing mortgage loan. There is also a one-time bonus worth $1,500 and $500 for lenders or investors and servicers respectively for any modifications done while the borrower is still current. Aside from that, the Program will also share the cost of reduction, which is the difference between the borrower's modified monthly payment and his unmodified monthly payment or the monthly payment at front-end debt-to-income (DTI) rate of 38%, whichever is lower.

In early March 2010, the Obama administration further expanded the flexibility of the program by offering more programs such as the Second Lien Modification Program (2MP), the Home Affordable Refinance Program and the Home Affordable Foreclosure Alternatives Program. These programs allow the underwater homeowners to modify their second mortgages, refinance their loans and to move into a more affordable housing through deed-in-lieu of foreclosure or short sale.
These are certainly benefits that many homeowners would like to have, but to check your eligibility for HAMP; you may like to ask yourself these few questions first:

● Is your home your primary residence?
● Is the amount you owe on your mortgage loan equal to and no more than $729,750?
● Are you having financial difficulties to pay your loan?
● Is your mortgage loan written before January 1, 2009?
● Is the current payment of your mortgage loan more than 31% of your gross income?

If you answer YES to all the above questions, then congratulations! You may qualify for the mortgage modification plan.
Now that you are eligible, these are a few essential steps you may want to remember when applying for the program. First of all, complete the 'Initial Package', which you can obtain in the Making Home Affordable website. This package includes a:

1. Request Form (Request for Modification and Affidavit), which provides information on your home, mortgage and financial situation. You may want to print two copies - one for yourself.

2. Tax Form (Form 4506T-EZ), which permits your mortgage servicer to request your latest tax return filed with the IRS. Again, it is advisable to print two copies.

3. Verification of Income, which will ensure that the modified terms, will be applicable to your range of income. You may want to obtain all of your income proofs, which may vary according to your income type (wage-earner, self-employed, or on assistance).

If you face difficulties in completing the paperwork or other HAMP related problems, you may call the HOPE hotline at 1-888-995-HOPE for assistance.

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