Loan Modification Programs

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FHA-Home Affordable Modification Program (FHA-HAMP)

Allows homeowners to modify their FHA-insured mortgages to reduce monthly mortgage payments and avoid foreclosure.

Nature of Program: FHA-HAMP allows the use of a partial claim up to 30 percent of the unpaid principal balance as of the date of default combined with a loan modification.

To confirm if the mortgagor is capable of making the new FHA-HAMP payment, the mortgagor must successfully complete a trial payment plan. The trial payment plan shall be for a three month period and the mortgagor must make each scheduled payment on time. The mortgagor's monthly payment required during the trial payment plan must be the amount of the future modified mortgage payment. The Mortgagee must service the mortgage during the trial period in the same manner as it would service a mortgage in forbearance. If the mortgagor does not successfully complete the trial payment plan by making the three payments on time, the mortgagor is no longer eligible for FHA-HAMP.

Applicant Eligibility: Mortgagors with FHA-insured mortgages that do not qualify for other loss mitigation programs and with adequate debt-to-income ratios. Homeowners must successfully complete a trial payment plan before becoming a full participant in the program.

Legal Authority: Section 230(b) of the National Housing Act (12 U.S.C. 1715u(b)), as amended by the Helping Families Save Their Homes Act of 2009, Division A of Public Law 111-22.

Administering Office: Assistant Secretary for Housing-Federal Housing Commissioner, U.S. Department of Housing and Urban Development, Washington, DC 20410-8000.

Information Source: Administering Office.

Current Status: Active.

Loan Modification Frequently Asked Questions

A Loan Modification is a permanent change in one or more of the terms of a Borrower's loan, allows the loan to be reinstated, and results in a payment the Borrower can afford.

Question 1: How many Loan Modifications may a Borrower receive?

Answer:  Borrowers are permitted to receive a Loan Modification or FHA-HAMP only once within a 24-month period. See ML 2013-32.

Question 2: How does a lender determine a borrower’s eligibility for a Loan Modification?

Answer: Lenders are to use specific financial analysis criteria when determining a borrower's eligibility for the Loan Modification Option: 

The household or mortgagor(s) has experienced a verifiable loss of income or increase in living expenses;
One or more mortgagors receives “continuous income” in the form of employment income (e.g., wages, salary, or self-employment earnings), social security, disability, Veterans benefits, child support, survivor benefits, and/or pensions;
The mortgagor’s surplus income is at least $300 and is at least15 percent of his/her net monthly income;
85 percent of the mortgagor’s surplus income is insufficient to cure arrearages within six months;
The mortgagor’s monthly PITI mortgage payment can be reduced by the greater of 10 percent of the original monthly mortgage payment amount and $100, using the Market Rate and amortizing the new loan over 30 years;
The mortgagor has successfully completed a 3-month Trial Payment Plan based on the reduced mortgage payment amount or a 4-month Trial Payment Plan in cases of imminent default; and
The mortgagor has not received a Loan Modification or FHA-HAMP in the previous 24 month period.

 See Mortgagee Letter 2013-32.

Question 3: When utilizing the Loan Modification option, may the lender include all fees and corporate advances?

Answer:  Yes. Legal fees and related foreclosure costs for work actually completed for the current default episode may be capitalized into the modified principal balance. See ML 2008-21.

Question 4: May a lender perform an interior inspection of the property if they have concerns about property condition?  

Answer: Yes.  The lender may conduct any review it deems necessary to verify that the property has no physical conditions adversely impacting the borrower's continued ability to support the modified mortgage payment. See ML 2000-05.

Question 5: May a Lender include late charges in the Loan Modification?

Answer:  The lender is expected to waive all accrued late fees.  See ML 2008-21. 

Question 6: When completing the Loan Modification Option, what interest rate should the lender use?

Answer: The lender should modify the interest rate to the current Market Rate, defined as a rate that is no more than 25 basis points greater than the most recent Freddie Mac Weekly Primary Mortgage Market Survey (PMMS) Rate for 30 year fixed-rate conforming mortgages (US average), rounded to the nearest  one-eighth of one percent (0.125%), as of the date a Trial Payment Plan is offered to a borrower. See ML 2013-17.

Question 7: Are Lenders required to re-amortize the total amount due over a 360 month period?

Answer: Yes, the Lender must re-amortize the total unpaid amount due over a 360 month period from the due date of the first installment required under the modified mortgage.  See ML 2009-35.