There were lots of changes last year to many of the government programs available to homeowners that are in over their heads with their underwater mortgages. The Home Affordable Modification Programs (HAMP) is no exception and clients are still calling with questions because they are unsure of the program's guidelines. Below is a list of changes to HAMP that took effect on June 1, 2012.
1) Lower Debt-to-Income Limits: The new guidelines allow borrowers to lower their monthly mortgage payment to as little as 25% of their gross monthly income. In the past, the number was 31% of the gross monthly income. Big difference!
2) Broader Debt Guidelines: Before, there was a short list of the types of debts that the lenders took into account when evaluating the borrower's financial hardship, and all were linked to the 1st mortgage. They are now allowing 2nd mortgage costs, medical bills, etc. to be taken into account.
3) Rental Properties Eligible: Landlords who are struggling can now take advantage of this program, where they weren't eligible before. Properties do not have to be occupied to qualify, and a single borrower can qualify for loan modifications on up to 3 properties.
4) Repeat Modifications Allowed: Before these changes, you had 1 shot to get HAMP. If you couldn't keep up with your payments, they would kick you out of the program and you could never reapply. Now, borrowers can reapply after 12 months from their default have passed.
5) Minimum 10% Reduction: Under the new guidelines, all modifications under HAMP must reduce the mortgage payment by at least 10%.
6) Principal Reductions Encouraged: New incentives are being given to encourage lenders to allow principal reductions where the home is underwater.
These are pretty big changes! I'm generally weary of modification based on many stories I've heard from my short sale sellers, but I'm optimistic that these changes will be positive and more homeowners can modify and stay in their homes.