The Home Affordable Modification Program (HAMP): Do You Qualify?

The Home Affordable Modification Program (HAMP), which provides a way for a borrowers to lower their monthly payments on their first mortgages to 31% of gross income, has been both the nation's biggest hope and biggest disappointment in its efforts to bail out troubled homeowners. Nonetheless, hundreds of thousands of homeowners have obtained significant mortgage modifications under HAMP.

Don't assume you won't gain anything through HAMP; read on to find out whether you qualify. For information on what HAMP will do for you, see our article What is the Home Affordable Modification Program (HAMP)?

HAMP Eligibility Requirements

You may be eligible for HAMP if you meet all of the following criteria:

• Your house is your primary residence.
• You obtained your mortgage on or before January 1, 2009.
• You have a mortgage payment that is more than 31% of your monthly gross (pre-tax) income.
• You don’t owe more than $729,750 on your home.
• You have a financial hardship and are either delinquent or in danger of falling behind.
• You have sufficient documented income to support the modified payment.
• You have not been convicted within the last ten years of felony larceny, theft, fraud, or forgery, money laundering, or tax evasion in connection with a mortgage or real estate transaction.

NPV Analysis

Once your servicer determines your initial eligibility for HAMP, it is required to perform a “net present value” (NPV) analysis. A loan’s NPV is what it would cost (in cash flow) to modify your mortgage payments compared to the cost of taking the property through foreclosure and selling it. If the NPV analysis shows that it would cost the lender more to foreclose than to modify your loan, your mortgage servicer is required to notify you, enter into modification discussions, and modify the mortgage terms under the program’s guidelines. If the NPV analysis shows that the lender would not save money by agreeing to a modification rather than foreclosing, the lender still has the option of offering you a loan modification under the program’s guidelines. If your request for a HAMP modification is rejected, you can do your own NPV analysis at a website offered by the Making Home Affordable program. Visit CheckMyNPV.com.

Incentives for Lenders and Mortgage Servicers

Participating in the mortgage modification program is voluntary for mortgage servicers, though if a mortgage servicer accepted any federal bailout money, its participation is mandatory. Most of the big ones have already indicated their willingness to play along. (You can find a list of these servicers on the Making Home Affordable website; click "Get Assistance," then "Contact Your Mortgage Company.") One reason: The program provides monetary incentives to servicers for keeping people in their homes and to lenders for agreeing to modify mortgages. (The incentives make it less likely that a servicer would make more money by foreclosing than it would by modifying a mortgage to the 31% debt-to-income level.)

The program also includes incentives for mortgage servicers who are able to extinguish second liens (second mortgages, for example) on the property. Getting rid of second liens will make mortgages more affordable, improve loan performance, and help prevent foreclosures. To this end, the government is also offering financial incentives to second mortgage holders to go along with the Making Home Affordable programs.

Starting the Modification Process

Your mortgage servicer is supposed to contact you if you appear to be eligible for HAMP, though there is no guarantee this will happen. Before contacting your servicer, it’s a good idea to talk to a HUD-approved housing counselor about your options. (You can find a HUD-approved housing counselor by calling 888-995-HOPE (4673) or visiting HUD.gov and clicking "Talk to a Housing Counselor.") To request a modification, follow the steps on the Making Home Affordable website (click “Get Assistance,” then “Request a Home Affordable Modification”).

Information to Provide When You Apply for Mortgage Modification

The information you will need to provide to your lender as part of your HAMP application include the following:

• Information about the monthly gross (before tax) income of your household, including recent pay stubs if you receive them or documentation of income you receive from other sources
• Your most recent income tax return
• Information about your savings and other assets
• Information about your first mortgage, such as your monthly mortgage statement
• Information about any second mortgage or home equity line of credit on the house
• Account balances and minimum monthly payments due on all of your credit cards
• Account balances and monthly payments on all your other debts, such as student loans and car loan, and
• A hardship letter describing any circumstances that caused your income to be reduced or expenses to be increased (job loss, divorce, illness, etc.), if applicable.

Don’t Pay for Modification Assistance!

Under no circumstances should you pay anyone to help you modify your mortgage. According to promotional materials, a bevy of mortgage brokers are being retrained to negotiate mortgage modifications, charging $1,000 and up for the same services you can get for free from a HUD-approved housing counselor. Because some states prohibit people from taking money up front to help rescue people from foreclosures, some modification companies use lawyers—who can accept up-front payments in most states (but with restrictions in California and a few other states)—to pitch their services. Lawyers can be helpful in certain situations—for instance, to challenge a foreclosure in court or to help you file for bankruptcy—but they have no magic keys to the kingdom of mortgage modifications. You and your wallet will be better off with a free HUD-approved housing counselor.

Excerpted from The Foreclosure Survival Guide, by Stephen Elias (Nolo).