By Kirk Haverkamp
New rules that recently took effect are giving financially pressed homeowners a fresh opportunity to qualify for a HAMP loan modification.
The changes ease restrictions on borrower debt limits to qualify for the government-backed mortgage assistance program, and while opening it up to owners of investment properties as well. Some borrowers may even be able to get part of their mortgage forgiven by their lender.
Borrowers can even qualify if they were previously approved for a HAMP loan modification, but were unable to keep up with the payments.
Here's a summary of the new guidelines, generally known as HAMP Tier 2:
Lower debt-to-income limits
The new guidelines allow borrowers to lower their monthly mortgage payment to as little as 25 percent of their monthly income. Previously, borrowers could not qualify unless their total mortgage payment was more than 31 percent of their monthly income.
Broader debt guidelines
The new rules also take into account more types of debt in evaluating a borrower's financial burden. The old guidelines focused on what a borrower was paying for their primary mortgage; the new rules allow consideration of other debt such as second mortgages, medical bills and the like.
Rental properties eligible
One of the biggest changes is that the HAMP program is now open to landlords who are struggling to keep up with the mortgage payments on rental properties. Properties need not be occupied to qualify. A single borrower can qualify to obtain loan modifications on up to three properties under the program.
Repeat modifications allowed
It used to be that you got only one shot at a HAMP loan modification -- if you didn't keep up with your payments, you were out. Under the new guidelines, borrowers who defaulted on a permanent or trial HAMP loan modification can apply for a new one, provided they've been out of the program for at least 12 months.
Minimum 10 percent reduction
Under the new rules, all loan modifications performed under HAMP must reduce a borrower's monthly mortgage payments by at least 10 percent.
Principle reductions encouraged
New incentives are being provided to encourage lenders to allow principle reductions on mortgages where borrowers are underwater on their mortgages; that is, they owe more than the home is worth. Recent figures from the Treasury Department show that, as of April, lenders were performing principle reductions on about 70 percent of eligible mortgages in HAMP.
Unfortunately, mortgages backed by Fannie Mae or Freddie Mac are not currently eligible for HAMP principle reductions due to the objections of their parent agency, the Federal Housing Finance Agency (FHFA). Fannie and Freddie-backed mortgages are available for other aspects of the program, however.
The new guidelines went into effect on June 1; however, principle reductions have already been going on for several months as part of a $25 billion settlement reached by state attorneys general and the federal government with major lenders over alleged foreclosure abuses.
HAMP stands for the Home Affordable Modification Program, a government initiative to encourage lenders to allow loan modifications to reduce mortgage payments for financially troubled borrowers. It is operated through the Treasury Department and HUD, but borrowers interested in obtaining a HAMP loan modification should apply through their mortgage servicer.
For more information, visit the HAMP page on the Making Home Affordable web site.
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