Working But Not Making Ends Meet? The Home Affordable Modification Program (HAMP) Might Be For You

If you are one of the thousands of Americans who has a job but is still unable to make ends meet, there may be a way to lower your monthly mortgage payments to 31% of your pre-tax gross monthly income.  For many borrowers—particularly those who find themselves in different financial circumstances than they were in when they initially applied for the mortgage—this results in a significant savings.  This program is being used right now by many distressed homeowners in  both Dade and Broward county as a way to avoid foreclosure and potential bankruptcy.  

The program is the Home Affordable Modification Program (HAMP), and is one of the many programs the government is using to attempt to help borrowers who are in over their head with high mortgages.  In fact, the program has been so successful that the government has plans to expand it in June 2012.  The current program has been available to homeowners since February of 2012. 

To be eligible for HAMP, you must:

•     Occupy the house as your primary residence

•     Have obtained your mortgage on or before January 1, 2009

•     Have a mortgage payment that is more than 31 percent of your monthly gross (pre-tax) income

•     Owe up to $729,750 on your home

•     Have a financial hardship and are either delinquent or in danger of falling behind

•     Have sufficient, documented income to support the modified payment

•     Not have been convicted within the last 10 years of felony larceny, theft, fraud or forgery, money laundering or tax evasion, in connection with a mortgage or real estate transaction

Currently, only about 30% of these loan modifications include an actual principle reduction (you used to owe 250k, the bank forgives 30k, now you only owe 220k).  The rest offer some type of temporary reduction in interest rates and/or an extension of the loan.  Why this may be attractive if you have a temporary financial hardship (your spouse is out of work for 3 months), it may not be the best long term solution.  If you have a second mortgage or a line of equity, you may have other better options.  You may want to consult with a bankruptcy attorney about your own specific situation.  Bankruptcies may enable you to reduce your monthly payments, eliminate your second mortgage and enable you to keep your home.