Hamp Gets a Revamp

The Obama Administration hit the reset button on the Home Affordable Mortgage Program Friday in an effort to jumpstart a program that even its champions have said was underused.

The changes include substantial monetary incentives to lenders that agree to reduce homeowner mortgage debt and expansion of the program to enable investors, who had previously been ineligible to participate in HAMP, to negotiate reduced monthly mortgage payments on rental properties.

“These enhancements will provide additional relief to struggling homeowners, renters and their neighborhoods to accelerate the housing market recovery and improve our overall economy,” said Treasury Assistant Secretary Tim Massad.

When HAMP was announced in 2009, Administration officials estimated that up to four million homeowners could be helped. However, to date HAMP has assisted just 900,000 families.

Key changes to the program:

• Extending program for one year. The Making Home Affordable Program deadline will be extended for an additional year through December 31, 2013. This date conforms to the extended deadline for the Home Affordable Refinance Program.

• Expanding eligibility. Eligibility for HAMP will be expanded so that it reaches a broader pool of distressed borrowers. Additional borrowers will now have an opportunity to receive modification assistance through an additional evaluation process that provides the same homeowner protections and clear rules for servicers established by HAMP.

• More flexible criteria. Treasury said many homeowners who have an affordable first mortgage payment struggle beneath the weight of other debt such as second liens and medical bills. “Recognizing that many homeowners in this situation are still struggling to make ends meet, the program is being expanded to offer another evaluation opportunity with more flexible debt-to-income criteria to expand modification assistance to borrowers with higher levels of secondary debt who otherwise meet program requirements.”

• Expanded property criteria. Treasury will expand eligibility to include properties that are currently occupied by a tenant as well as vacant properties which the borrower intends to rent.

• Increased incentives for lenders/servicers. To increase the amount of principal that is reduced, Treasury will triple incentives to investors, paying from 18 to 63 cents on the dollar, depending on the degree of change in the loan-to-value ratio.

• Principal reduction incentives for loans insured or owned by GSEs. To encourage Fannie Mae and Freddie Mac to offer this assistance to underwater borrowers, Treasury notified the GSEs’ regulator, the Federal Housing Finance Agency, that it will pay principal reduction incentives to Fannie Mae or Freddie Mac if they allow servicers to forgive principal in conjunction with a HAMP modification. “Extending the reach of HAMP will assist a broader pool of struggling homeowners, offer support for tenants at risk of displacement due to foreclosure, and provide more robust relief to those who participate,” Massad said.