Qualifying for a HAMP Loan

There are a num­ber of rules regard­ing the HAMP pro­gram — many home­own­ers who are unem­ployed or under employed believe (incor­rectly) that they do not qual­ify for HAMP programs.

Who is eli­gi­ble for prin­ci­pal reduc­tion?
The revised HAMP prin­ci­pal reduc­tion pro­gram is designed specif­i­cally for the approx­i­mately four mil­lion U.S. home­own­ers who are respon­si­ble bor­row­ers with rea­son­able mort­gages. It does not offer pro­tec­tion for peo­ple hold­ing million-dollar mort­gages, spec­u­la­tors, and own­ers of vaca­tion homes. It is rec­og­nized that some fore­clo­sures are inevitable for those who sim­ply bought a more expen­sive house than they could afford. Home­own­ers who intend to apply for a HAMP loan mod­i­fi­ca­tion must meet sev­eral qualifications:

• You must be able to demon­strate finan­cial hard­ship
• You must live in the home
• The home must con­sist of no more than four units
• Your mort­gage bal­ance must be less than $729,750 for a one-unit home. If the home has more than one unit, this cut­off amount increases
• You must have taken out your first-lien mort­gage on or before Jan­u­ary 1, 2009
• Your monthly mort­gage pay­ments must be greater than thirty-one per­cent of your income
• The home must be worth at least fif­teen per­cent less than the amount of your first mortgage

Unem­ployed home­own­ers
Unem­ployed home­own­ers may qual­ify to have their monthly mort­gage pay­ments reduced or elim­i­nated for three to six months while they look for work. To qual­ify they must:

• Sub­mit proof that they are receiv­ing state unem­ploy­ment insur­ance ben­e­fits
• Within the first ninety days of mort­gage delin­quency the home­owner must request tem­po­rary assis­tance
• Meet HAMP eli­gi­bil­ity guide­lines, includ­ing being under the loan bal­ance max­i­mum and the owner occu­py­ing the house.

Qual­i­fy­ing  for a HAMP pro­gram while on unem­ploy­ment means that the home­owner may be able to get their home loan pay­ment down to 31% of their income. Fed­eral Unem­ploy­ment max­i­mums are around $2,000, mean­ing that the new loan pay­ment could, in the­ory, drop to $620 per month.

When the tem­po­rary assis­tance period ends, home­own­ers whose mort­gage pay­ment is more than thirty-one per­cent of their monthly income and have found employ­ment are eli­gi­ble for a HAMP loan mod­i­fi­ca­tion. The mod­i­fied loan must pass a net present value test, and the home­owner must ver­ify qual­i­fy­ing income and be up to date on their for­bear­ance plan payments.

Bank­ruptcy
If the bor­rower or the borrower’s bank­ruptcy coun­sel asks for help, the new guid­ance requires ser­vicers to con­sider a bor­rower in bank­ruptcy for HAMP prin­ci­pal reduction.

What should home­own­ers do?
If you believe that you qual­ify for a HAMP loan mod­i­fi­ca­tion because your pri­mary res­i­dence is worth less than your mort­gage and you are expe­ri­enc­ing finan­cial hard­ship, con­tact your lender imme­di­ately. You should be aware that lender par­tic­i­pa­tion is vol­un­tary; except for ser­vicers of loans owned or guar­an­teed by Fan­nie Mae and Fred­die Mac, your lender is not required to par­tic­i­pate. If you are not sure if your loan ser­vicer is a par­tic­i­pant, check the fed­eral gov­ern­ment list at makinghomeaffordable.com/contact_servicer.html. If your lender or ser­vicer is not part of the pro­gram, ask them about other options that may be available.

For more updated infor­ma­tion on prin­ci­pal reduc­tions, check out the lat­est on the mort­gage relief project.