Treasury announces HAMP changes

1 million homeowners eligible for new HAMP benefits

Approximately one million homeowners whose mortgage has already been modified under the Home Affordable Modification Program are now eligible for increased benefits as the government continues its push to aid struggling homeowners.

Under the modified HAMP guidelines, announced Thursday in a joint statement by the U.S. Department of the Treasury and the U.S. Department of Housing and Urban Development, all homeowners in the HAMP program will now be eligible to earn an additional $5,000 in the sixth year of their modification.

Prior to the change, homeowners in the HAMP program were eligible to earn up to $5,000 over the first five years of their modification, which is applied in repayment of their outstanding principal balance.

The newly established guidelines will provide an additional $5,000 to borrowers in the sixth year, which will allow borrowers to reduce their outstanding principal balance by as much as $10,000.

HAMP modifications are part of the government’s Making Home Affordable program, and the Treasury and HUD said the changes are designed to motivate homeowners in MHA to continue making their mortgage payments on-time, strengthen the safety net for those facing continuing financial hardships, and help homeowners in MHA programs build equity in their homes.

“While the housing sector has strengthened in recent years, there are still many homeowners struggling to make their mortgage payments,” said Secretary of the Treasury Jacob Lew.

“The changes we are announcing today offer meaningful incentives for borrowers to stay current in their modifications, increase their opportunity to build equity in their homes, and provide vital safety nets for those facing greater financial strains.”

In addition to the additional $5,000 for homeowners, the new HAMP guidelines include offering some homeowners an opportunity to re-amortize the reduced mortgage balance, which would lower their monthly payment.

Additionally, the government announced changes to HAMP Tier 2 and the Home Affordable Foreclosure Alternatives Program.

HAMP Tier 2, which is an alternative modification that provides a low fixed rate for the life of the loan to homeowners who do not qualify for or cannot sustain a HAMP Tier 1 modification, will now adopt a reduced interest rate.

The reduced interest rate will be 50 basis points lower than the current HAMP Tier 2 rate, and the government expects these changes to allow more homeowners to qualify for a modification.

Additionally, the additional $5,000 given to borrowers after their 6th year in a HAMP modification will be extended to HAMP Tier 2 borrowers as well, as long as they are in good standing.

Through the modified HAFA program, homeowners who need to transition to a more affordable living situation through a short sale or deed-in-lieu will now be eligible to receive $10,000 in relocation assistance. The government said the increase to $10,000 better reflects increased rents and the cost of moving in many parts of the country.

“Today’s announcement signals our commitment to helping more hardworking families continue the American dream of homeownership,” said HUD Secretary Julián Castro. “These enhancements will expand the opportunity for more folks to stay in their home, stabilizing local communities and continuing our nation's positive economic momentum.”

The changes come as the interest rates on some HAMP loans are due to reset soon.

Freddie Mac reminded mortgage servicers in April that interest rates on some HAMP rescues are about to start to tick higher.

After five years, the rate on HAMP loans began to tick up 1% until reaching its previous rate before modification.

"If it was reset to 2%, it will go up 100 basis points this year to 3%, and to 4% next year," Robert Kimble, senior director of mortgage servicing policy at Freddie Mac, said in April.

"Hopefully the borrowers are aware of the reset," he added. "Though, the fear is there will be some recidivism."

Through the changes announced Thursday, the government is hoping to prevent any interest rate shock for at least one million homeowners. 

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