HAMP Participants Are Now Eligible for an Additional $5,000 in Principal Balance Reduction

December 4, 2014 19 Comments »
HAMP Participants Are Now Eligible for an Additional $5,000 in Principal Balance Reduction

It sounds like Christmas came early this year…borrowers who already received loan modifications via the Home Affordable Modification Program (HAMP) are now eligible for expanded benefits.

As it stands, borrowers taking part in HAMP who stay good on monthly payments can earn up to $5,000 in principal balance reduction over the first five years of their modification.

But now HUD and the Treasury are sweetening the deal. Under revised guidelines announced today, roughly one million borrowers are eligible to receive another $5,000, which will also be applied toward the principal loan balance in the sixth year of their loan mod.

This means borrowers can shed a total of $10,000 off their outstanding loan balance, which will certainly help them get their heads above water, assuming they aren’t already.

Additionally, borrowers will be given the opportunity to re-amortize the reduced mortgage balance, which will lower their monthly payment going forward.

Under normal circumstances, making extra payments to the principal balance reduces the overall interest expense, but it doesn’t lower subsequent monthly payments.

So this change will help borrowers build equity and lower payments even further.

Changes Coincide with HAMP Payment Resets

This change happens to come at a time when interest rates on HAMP loan mods are scheduled to increase.

After five years of monthly payments via a HAMP loan mod, the interest rate will increase one percent or less per year for three or four years until it reaches the market rate at the time of the modification.

Secretary of the Treasury Jacob J. Lew noted that scores of homeowners continue to struggle with their mortgage payments in spite of the strengthening housing market.

After all, just because a home is worth more doesn’t mean the payment is more affordable, there’s just more incentive to pay it.

He added that the changes are “meaningful incentives for borrowers to stay current in their modifications,” while also giving them an opportunity to build equity in their homes.

Borrowers with HAMP Tier 2 loan mods, which provide a low fixed rate for the life of the loan to those who don’t qualify for HAMP, will see their interest rates get slashed by another 50 basis points.

They will also be eligible for the $5,000 pay-for-performance incentive if they are in good standing at the end of the sixth year of their loan modification.

Lastly, borrowers receiving benefits under the Home Affordable Foreclosure Alternatives (HAFA) program will see relocation assistance bumped up to $10,000 from $3,000 to “better reflect increased rents and the cost of moving in many parts of the country.”

HAMP was launched back in 2009 to help delinquent homeowners (or those in danger of falling behind) keep up with mortgage payments.

The program has reduced monthly mortgage payments for over a million borrowers via interest rate reductions, extended mortgage terms, and in some cases, principal balance reductions.

Despite this, many borrowers have been unable to make even the modified payments, with re-default rates on loan mods often remarkably high, though they seem to have improved along with the housing market as a whole.  It seems HUD and Treasury want to keep it that way.

If you’re currently making mortgage payments under HAMP, you might want to get in touch with your loan servicer to see how you can take advantage of these new incentives.

19 Comments

  1. Shelly July 14, 2015 at 12:56 pm -

    What does one have to do to receive this? We have been in good standing for over 5 years now. Do we have to request this formally or is it going to just take place within our Mortgage Company. We did receive letter from our Mortgage company saying we are eligible for the Principal Balance Reduction. Tnank you for any information you can supply us.
    Respectfully,
    Shelly L

  2. Colin Robertson July 15, 2015 at 11:25 am -

    Hey Shelly,

    You may want to follow up with your loan servicer instead of waiting for them to take action just to ensure that you get the principal reduction. Like anything else being proactive can get the ball rolling sooner.

  3. Kim August 21, 2015 at 9:22 am -

    So, I was approved for my modification in February. Did my three (3) month trial and the modification became active with my first payment in June, 2015. I was told that I would receive the $5,000 if all my payments were made on time. Will I qualify for the additional $5,000? BTW, my mortgage is with Chase.

  4. Daniel November 5, 2015 at 1:30 pm -

    Colin, my wife refinanced her house with HAMP in 2012. We got married this past April 2015 and live in my house. Currently her parents live in the HAMP house, but she still pays the mortgage on it. Can she get in trouble if she buys rental dewelling insurance which is $400 cheaper for the year? or could that hinder her in the current HAMP or in any way when she refinances if the rate goes up too high after year 5? I just don’t want the mortgagee to see she got rental property insurance instead of homeowner insurance and they’ll complain or somehow take her out of HAMP and raise her rates.

  5. Colin Robertson November 9, 2015 at 3:46 pm -

    Daniel,

    Perhaps read the HAMP paperwork to see if there’s an occupancy requirement and/if so a penalty for violating it.

  6. Zbigniew February 25, 2016 at 8:01 pm -

    I received 5000 and now another 5000 on principal ,but can I refinance now for 15 years fixed because my financial situation has improved

  7. Donley Ingwaldson April 19, 2016 at 4:23 am -

    We have completed our loan modification with 100% payments on time for 5-years. We received $1,000 per month for a total of $5,000.00. But we have sold our home prior to collecting the additional $5,000.00 and have no modified loan on our new home only a VA loan. Can the offered extra $5,000 be sent to us direct? We qualified just sold before we received the bonus $5,000.00.

  8. Colin Robertson April 23, 2016 at 10:52 am -

    Donley,

    Not sure, you may want to look into the program’s terms and conditions to see if an early sale disqualifies you from the extra bonus.

  9. Melissa July 6, 2016 at 4:39 pm -

    I have a principal forgiveness modification and will complete the 5-yrs trial period on September this year. On the same month, the interest will go up 1% and will increase my monthly mortgage by $125. Interest will go up 1% each year until it hits the cap. Am I able to refinance and borrow some money for my son’s college finances?

  10. Colin Robertson July 7, 2016 at 7:27 am -

    Melissa,

    You may want to check the terms of your modification and/or speak with some lenders/brokers to see what you’re able to do. It may also depend on your equity position on your property.

  11. Cathy January 30, 2017 at 9:03 pm -

    We were eligible for the $5,000 6-yr incentive and we had filled out and sent in the paperwork back in the summer of 2015. Our 6-yr anniversary was in March 2016 and that came and went without seeing that incentive applied. I have called Green Tree (now Ditech) three times now and have never gotten a call back. How do I file a formal complaint? I suspect Ditech may have gotten the incentive and never applied it to our loan.

    Thanks in advance for any assistance you can provide.

  12. Colin Robertson January 31, 2017 at 10:26 am -

    Cathy,

    Most folks are referring to the CFPB these days when they have a general banking/mortgage complaint.

  13. Marilou January 31, 2017 at 12:11 pm -

    HI, I have a principal forgiveness modification and will complete the 5-yrs trial period in April this year. We too are having our interest rate go up 1% each year every May until the cap. Should I refinance now, I don’t want to lose out on the other 5000 incentive. Should I refinance through my mortgage company or try different lenders?

  14. Stephen Swanlund February 15, 2017 at 5:50 am -

    I received a HAMP modification in 2013. My mortgage is with Chase. I am supposed to be receiving incentive yearly principal reductions. So far none have been forthcoming. I have attempted multiple times to get clarification from Chase about the matter. I have been told that there’s nothing documented therefore I am not eligible unless I can show proof. How do I get this resolved?

  15. Colin Robertson February 15, 2017 at 3:44 pm -

    Stephen,

    Here is the original release on the matter: https://archives.hud.gov/news/2014/pr14-150.cfm

    It states “all homeowners in HAMP will now be eligible to earn $5,000 in the sixth year of their modification.”

  16. Jacqueline Montgomery June 26, 2017 at 12:50 pm -

    Has anyone received their HAMP Pay For Performance Incentive through Bank of America? I just need to know if there is another person like me who has not received one thing as promised???

  17. Griffin August 28, 2017 at 3:58 pm -

    Colin, The HUD and FHA contacts I could find have all referred me to my current servicer, who has told me the paperwork has to be submitted to them, but they don’t know where it comes from. I see the link above with the announcement – do you have any additional information about who to contact to take advantage of this incentive?

  18. Colin Robertson August 28, 2017 at 8:15 pm -

    Griffin,

    It was a joint HUD/Treasury announcement from back in 2014 that gave no concrete details about how the $5,000 would actually be administered. But I would guess the servicers should have received more detailed guidance and should know about this incentive and how to apply it to a homeowner’s mortgage.

  19. Melanie September 16, 2017 at 8:57 pm -

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