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.