HAMP Rides Again

With the ink barely dry on the Dodd-Frank bill which was signed into law last week by the President, one of the first changes provided for in the new bill will go into effect August 1--the revisions to the Making Home Affordable Program (more commonly called HAMP).

HAMP, which was supposed to allow troubled homeowners to refinance into loans they could more easily afford, has come under a lot of fire from both the mortgage industry and consumer advocacy groups for not being able to do the job. One major reason is that the lenders started requiring income documentation on these borrowers and soon discovered that the borrowers did not meet current underwriting standards. Bottom line--without enough income and sufficiently good credit to qualify, you can't get your rate and payment reduced.

Not until now, that is. According to HUD's website, starting August 1, mortgage servicers participating in the Making Home Affordable Program will begin offering the Unemployment Program which will offer a forbearance to suspend or reduce monthly mortgage payments while these homeowners look for work.

The forbearance will reduce the homeowner's payment to no more than 31% of his or her gross monthly income; at the servicer's discretion the total amount of the payment can be suspended. Each servicer will decide how much forbearance the homeowner will receive.

HUD's website is a little vague on the specifics, but the amendment to the Dodd Frank bill that makes this possible actually allows for the government to provide up to $50,000 of help to unemployed homeowners for up to 24 months. During the forbearance period, the servicer may not initiate foreclosure or collect late fees from the borrower.

To qualify, homeowners need to meet the following guidelines:

1. The mortgage is a first lien mortgage originated on or before January 1, 2009, with a remaining principal balance of no more than $729,750 for a single family residence (which is the super conforming loan limit for most mortgage loans.)

2. The property must the homeowner's principal residence.

3. The mortgage has not previously been modified through HAMP, or a modification was attempted but the homeowner was ineligible.

4. The homeowner is behind on the payments or there is a reasonable certainty that the homeowner will fall behind in the near future. (However, the borrower cannot be more than 3 months behind.)

5. The current total monthly payment is more than 31% of the homeowner's gross monthly income. (The servicer can use their own discretion about whether the homeowner can modify if their current payment is less than 31% of their income.)

6. The homeowner will be unemployed when the forbearance starts as documented by recipt of unemployment benefits (even if the benefits expire before the forbearance ends). At their own discretion the servicer may require that the homeowner has received three months of unemployment benefits prior to qualifying for the program.

If the homeowner gets a job during the forbearance period, the forbearance will end and the servicer will determine whether the homeowner qualifies for a loan modification.

One other set of qualifiers which you will not see on HUD's website are spelled out in the Dodd-Frank bill, Subtitle G Section 1481:

"In General--No person shall be eligible to begin receiving assistance from the Making Home Affordable Program authorized under the Emergency Economic Stabilization Act of 2008...or any other mortgage assistance program authorized or funded by that Act, on or after 60 days after the date of the enactment of this Act, if such person, in connection with a mortgage or real estate transaction, has been convicted within the last 10 years, of any one of the following:

(A) Felony larceny, theft, fraud or forgery.
(B) Money laundering.
(C) Tax evasion."

Interesting! If you have been caught not paying your taxes, you are unworthy of help, even if such conviction took place a long time ago. Obviously a lot of people currently in Washington are not counting on losing their jobs and needing mortgage modifications.

It will be very interesting to see how many homeowners are actually able to be modified under the new program, and government will be watching too. Under the new guidelines, servicers who participate in HAMP must report monthly on their progress, and no later than 14 days after the due date for submission of this data, it must be posted to a public site. The data will include the number of requests for loan modifications received by lenders and mortgage servicers, the number of modifications processed, the number approved and the number denied. This will at least provide a benchmark for whether the new program is working.

But the real test will come after these homeowners go back to work and we see how many of these homes were ultimately saved through HAMP, and how many others went into foreclosure while government assistance merely delayed the inevitable.