Did You Receive a HAMP Modification? If So, Your Mortgage Payments May Increase This Year

January 29, 2014 2 Comments »
Did You Receive a HAMP Modification? If So, Your Mortgage Payments May Increase This Year

Back in 2009, the government launched the Home Affordable Modification Program (HAMP) to help struggling homeowners keep up with their out-of-control mortgage payments.

The program offered all types of solutions to reduce borrowers’ monthly mortgage payments to 31% of their gross monthly income, including interest rate reductions (to as low as 2%), loan term extensions, and principal balance reductions.

But there was a caveat. Five years after the modification, homeowners who received reduced interest rates would face rate resets.

And seeing that it’s 2014, the very first batch of these rate resets is soon to go live.

Of the 894,302 homeowners with active HAMP permanent modifications, an overwhelming 88% are scheduled to have mortgage rate increases, according to a new report from the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP).

The increases will take place between 2014 and 2021, and will rise incrementally by up to 1% each year until reaching the national average rate for a conforming 30-year fixed-rate mortgage on the date of the original modification.

The average 30-year fixed rate over the past five years has hovered between 4% and 5.4%, so those enjoying 2% mortgage rates will be in for quite a surprise.

Someone’s Monthly Mortgage Payment Will Go Up $1,724

HAMP payments

In fact, the maximum monthly payment increase after all the incremental increases will be $1,724 for an unlucky California homeowner.

But Hawaii boasts the highest monthly median payment increase after all rate adjustments at $356. California came in a close second at $297.

While that sounds pretty bad, the median payment increase after all adjustments will only be $196, which will typically take several years to achieve.

So it shouldn’t be a major payment shock for most homeowners, though it could lessen their incentive to stick around.

My guess is that some homeowners facing higher monthly payments will think about selling their properties, assuming they’ve appreciated enough.

And others will probably look to refinance their modified loans, though the modified rate should still be pretty favorable compared to the going market rate.

Apparently lenders are okay with refinancing modified loans so long as the borrower kept up with payments for the past two years. My guess is leniency will prevail in the face of lower mortgage application volume…

Four States Account for Half of HAMP Payment Increases

HAMP performance

It won’t be much of a nationwide epidemic though. Just four states account for half of the homeowners with permanent HAMP modifications scheduled for interest rate increases.

They include California, Florida, Illinois, and New York.

This could dampen the recovery that has taken place in these states, especially with so many HAMP modifications performing poorly.

As of December 31, 2013, 359,072 homeowners, or 28% of all participants who received a permanent HMAP modification, fell three months behind on payments and thus redefaulted out of the program.

And the older HAMP modifications appear to be doing even worse. For HAMP modifications received in 2009, the redefault rate ranged from 43% to 49.6%.

For 2010 HAMP modifications, 32.4% to 41.9% had redefaulted as of November 30, 2013.

The largest HAMP payment increases will affect homeowners in California, Hawaii, Maryland, Massachusetts, Nevada, New Jersey, New York, Virginia, Utah, Washington, and Washington, DC.

And the highest mortgage payment any HAMP borrower will pay after all the interest rate increases will be a whopping $9,966.

2 Comments

  1. Armando Soler March 1, 2014 at 2:53 pm -

    Colin Robertson:
    We had a pick-a-pay mortgage since 2006 with Metrocities LLL DBA No Red Tap Mortgage.Can you help us.?The mortgage rates in 2008 went to 3.5% that Aurora Mortgage(our new servicer in 2008) reduced our principal balance every time we made an Interest Only Payment. The Adjustable Rate Note says on page 3 of 6 (H) Payment Options: (i) Interest Only Payment: the amount that would pay the interest portion of the monthly payment at the current interest rate.THE PRINCIPAL BALANCE WILL NOT BE DECREASED BY THIS PAYMENT OPTION.In my opinion our note was changed without our permission. Isn’t this a breach of contract? I talked with Aurora and was told that the interest rates are so low that they ,Aurora,decided to add the interest payment to the principal balance because they did not know what to do with the extra or surplus money and it caused our principal balance to go down.What action can we take? Now we have Nationstar Mortgage. And they continue to do the same thing.Am I complaining? Yes.We want our money back or what ever we can do.
    Thanks,

  2. Colin Robertson March 2, 2014 at 10:09 am -

    To get this straight, you make interest-only payments each month and the bank pays DOWN your principal balance (what you owe)? If that’s the case, it’s a great deal. Why would you be upset with your loan balance dropping when it originally shouldn’t be with IO payments?

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