HAMP Incentives: What Does Your Lender or Mortgage Servicer Get For Modifying your Mortgage?

July 27, 2009

HAMP: What is it?

The Home Affordable Modification Program (HAMP) was established in March 2009 using 50 billion in funds from the Troubled Asset Relief Program (TARP).

HAMP aims to get mortgage servicers and lenders to modify mortgages in default or in danger of default.

Which mortgages are covered by HAMP?

Your mortgage might be eligible for a HAMP modification if your mortgage servicer participates in the program OR if your mortgage is owned or guaranteed by Fannie Mae or Freddie Mac.

Even if your servicer is not an official participant in the program, it may participate in order to receive the incentive payments described below.

If you need a mortgage modification due to a hardship, ask your servicer to help you modify your mortgage.Â Do not be discouraged if your servicer is not listed as an “official” participant in the HAMP program.

To find out if your lender or servicer participates in the program, call your loan servicer or visit the Making Home Affordable website.

Once your servicer has agreed to participate, you must determine whether your mortgage meets certain criteria.

You must:

Be the owner-occupant of a one to four unit home;
Have an unpaid principal balance that is equal to or less than $729,750 (higher limits apply for dwellings with 2-4 units)
Have a first lien mortgage that was originated on or before January 1, 2009;
Have a monthly mortgage payment (including taxes, insurance, and home owners association dues) greater than 31 percent of your monthly pre-tax income; and
Have a mortgage payment that is not affordable due to a financial hardship you can document.

Why would servicers or lenders participate?

Earlier, similar programs did not provide incentives for lender participation. These programs were not terribly successful.

Consequently, HAMP offers lenders and servicers incentive payments from the government for every mortgage they successfully modify. Some of these incentives are described below:

HAMP Incentive Payments

Lenders are eligible to receive:

A bonus incentive of $1,500 for any loan modified while the borrower is still current (including less than 30 days delinquent), subject to some restrictions.

Reimbursement for part of the difference between the “new,” modified mortgage payment and the “old” mortgage payment. The government would pay this to the lenders for up to five years.

Some compensation to offset losses on previously-modified loans

Servicers (including lenders who service their own loans) are eligible to receive:

An initial payment of $1,000 for each successful modification.

Annual payments of up to $1,000 for the first three years following successful modification if the borrower stays in the program.

A bonus incentive of $500 for any loan modified while the borrower is still current (including less than 30 days delinquent).

Borrowers are eligible to receive:

Principal reductions of $1,000 for each year they make mortgage payments on time under the program.

This applies for the first five years of the borrower’s program participation.

Department of the Treasury website.