On March 4, 2009 President Obama has released his Home Affordable Modification Program, commonly known as HAMP. This modification program is designed to force banks to make homeowners monthly mortgage payment affordable based strictly upon income. Any bank that took TARP (Troubled Asset Relief Program) offered treasury secretary Henry Paulson in September 2008 is required to participate in this program. A vast majority of banks took this bailout money, meaning there is a good chance that your bank must comply.

Bullet Points of HAMP
Bank brings your payment down to 38% of your front end ratio at their cost. The government matches dollar for dollar to get you to 31%. Lowest rate is 2%, longest amortization is 40 years. Principal balance reduction is an option, but not required. Back end DTI over 55% required Debt Counseling. Owner occupied residences only, no investment or second homes. You can only modify once. If you go delinquent at any point, there is no second chance. Accepting the modification waives all rights to predatory lending litigation. 2nd not holders are offered a buyout by the government when the property has negative equity. Payment fixed for 5 years, afterwards switches to the lowest published Freddie Mac 30 year conforming rate at the time of modification. Industry Reaction and Expectations
Banks despise this program. When they took the TARP money, they were basically allowing the government to impose their will with future policy. Now that the programs are rolled out, they are attempting to give the money back. These modifications are too extreme for the banks to keep their target margins. When compared previous modifications that banks are granting, the TARP payments will be 15% – 50% lower. While this means huge losses to the bank, it produces great benefit to the borrower.

To add to the banks dismay, homeowners who are current can take part in this program. This means that homeowners who have been making their high payments to the banks on time can also greatly lower their payment. Before this program, homeowners who were current had little chance of getting modified. Banks were practically forcing homeowners to go delinquent to even consider a modification application. Homeowners who were recently late (30-60 days) were being offered modifications with very little benefit to the homeowner.

All signs are leading to banks resistance. Many lenders who took TARP money are trying to give it back to avoid these requirements. But, the Obama Administration is blocking banks from giving the money back until they pass a recession/depression Stress Test. They have to prove that they would be able to remain in business without the money to a certain depth of recession. Big banks, such as Wells Fargo and JP Morgan Chases, currently failed that stress test and must keep the money. They are running numbers to find a reasonable date and figure to give the money back and be back under their own control. Since banks are looking for ways out, it is imperative that homeowners act fast before banks are able to devise an alternate plan. This is not a socialist country so banks are able to separate from the government.

Banks Looking to Deny Homeowners?
For reasons previously discussed, banks do not want to grant HAMP modifications. Therefore, what seems to be happening is that banks are aggressively approaching troubled homeowners for the over the phone with the intent to deny their application. Nowhere does it say that the bank has to allow the homeowner to resubmit if denied, only stating that denied for HAMP the bank must attempt to modify them under traditional means. This gives the control back to the bank. There is no shortage of press regarding how obstinate banks are to this program, leading to the recommendation of hiring legal help when applying for this modification. Being that the bank cannot advance with the foreclosure proceedings during the application process, appropriating the money for a real estate attorney is the smart homeowners move. If you only have one shot for a superb modification, it makes sense to ensure that you get it.

Mahalo to “The Modification Squad” for this information