Hamp Loan Modification
HAMP Loan Modification: Terms and Conditions Explained
What is a HAMP Loan Modification?
Home Affordable Modification Program (HAMP) loan modification was initially created thru the collaboration of several government, quasi government and private entities to aid the estimated 7 to 8 million homeowners who were about to be kicked out of their homes because of the 2009 housing meltdown.
Hamp Loan Modification
Admittedly it was not designed for all. Because of the sheer amount of individuals facing foreclosure only those who wanted to save their occupied principal residence and had the capacity and willingness to pay were prioritized by the program.
Relevance of HAMP Loan Modification
HAMP still find relevance nowadays because it is widely considered as the current industry standard for loan modification application and consideration.
This article will discuss several of the more important and controversial terms and conditions of the HAMP loan modification to aid the understanding of the reader.
HAMP loan modification requires that at each step of the way proper documentation must be given. These documents consist but are not limited by the following:
1. Paystubs
2. Bank Statements
3. Utility Bills
4. 4506-T -T
5. W2
HAMP Loan Modification: Disposable Income
Loan servicers must not charge monthly amortization beyond 31% of the monthly gross income of all the borrowers.
This is because, it is widely accepted by experts in the field that 70% of the income is usually used for necessary expenses of the household.
Charging beyond that would mean two things:
1. The standards of living of the household will go below acceptable levels.
2. In the first place, the home loan is way beyond the financial capacity of the household and it is unlikely that they can actually pay the loan even if it is put under HAMP loan modification.
When conducting HAMP loan modification, loan servicers are required to use the Net Present Value (NPV). This is to determine the expected cash flow when testing a loan that is at least 60 days delinquent or in any way in danger of imminent default or foreclosure.
This will then be charted prior to and after HAMP loan modification. HAMP loan modification will only be granted to those who show a positive cash flow. The reason for this is because most financial experts agree that loan modification will only work if there is positive cash flow.
Without that, regardless of modification the homeowner will still be unable to pay the loan or at least cannot show the capacity to pay the loan.
HAMP loan modification sequence is required to be followed. The sequence is as follows:
1. Reducing the interest rate (subject to a rate floor of 2%)
2. Extending the term or amortization of the loan up to a maximum of 40 years
3. forbearing principal
The reason for the HAMP loan modification sequence is to limit the award or reduction to each homeowner.
HAMP loan modification was designed to aid an individual lower the amortization to an acceptable level but it must not be so low as to overburden the lender for so long as the borrower is capable.
For those who do not qualify for a HAMP loan modification there are still viable alternatives such as hope for homeowners.
Read also: Hamp Guidelines
Page: Hamp Loan Modification
