Recently, the Obama Administration including Federal Housing Administration (FHA) announced changes to the Home Affordable Modification Program (HAMP) and enhancements to the FHA's refinance program. The Federal cost of these changes will be funded through the $50 billion allocation for housing programs under the Troubled Asset Relief Program (TARP).
Under the HAMP enhancements, unemployed borrowers meeting eligibility criteria will have an opportunity to have their mortgage payments temporarily reduced to an affordable level for at least 3 months and up to six months for some borrowers while they look for a new job. Eligible homeowners under HAMP must live in an owner occupied principal residence, have a mortgage balance less than $729,750, owe monthly mortgage payments that are not affordable (greater than 31 percent of their income) and demonstrate a financial hardship. Mortgage companies are required to consider an alternative modification approach that emphasizes principal relief.
The FHA refinance option provides more opportunities for lenders to restructure loans for some families who owe more than their home is worth. This is a voluntary program for lenders and homeowners and is primarily targeted to non-FHA borrowers refinancing into a FHA-insured mortgage. To be eligible for a FHA refinance homeowners must be current on their mortgage. This rewards responsible homeowners and creates stabilizing incentives in the housing market.
Total mortgage debt for the borrower after the FHA refinancing, including both first and any other mortgages, cannot be greater than 115 percent of the current value of the home. This will give homeowners a path to rebuild equity in their homes and an affordable monthly payment. Lenders must write down and reduce principal of the original first mortgage at least 10 percent to reduce the debt burden on borrowers and the loans may not exceed 97.75 percent of the value of the home. All mortgage debt including second liens must be written down to a maximum of 115 percent of the current value of the home. Also, other program enhancements are designed to help more borrowers complete a HAMP mortgage loan modification. Borrower outreach and communications rules are clarified and strengthened to protect responsible borrowers from unnecessary and costly foreclosure actions and to expand modification opportunities for borrowers in bankruptcy. Mortgage companies will receive increased incentives, allowing them to expand borrower outreach and counseling efforts. Other options are available if you cannot make this program work for your situation. These options include loan modification and short sale as alternatives to losing a home to foreclosure.