The Home Affordable Modification Program (HAMP) was a loan modification program introduced by the federal government in 2009 aimed at helping struggling homeowners avoid foreclosure. Targeted primarily at those who paid more than 31% of their gross income toward mortgage payments, the HAMP played a significant role in providing relief until its expiration at the end of 2016.
Key Takeaways
- The Home Affordable Modification Program (HAMP) was a federal initiative established in 2009 to help homeowners avoid foreclosure.
- Through HAMP, homeowners could reduce their mortgage principal and/or interest rates, temporarily postpone payments, or get loan extensions.
- The program expired at the end of 2016 and was not renewed.
The Crucial Role of the Home Affordable Modification Program (HAMP)
HAMP was set up under the Troubled Asset Relief Program (TARP) in reaction to the 2008 subprime mortgage crisis. The crisis left many American homeowners unable to sell or refinance their homes due to restrictive credit markets. Adjustable-rate mortgages (ARMs) often became unaffordable, putting many at risk of foreclosure.
While taxpayers subsidized some loan modifications, HAMP’s standardized approach replaced a previously chaotic system. Homeowners needed to allocate more than 31% of their gross income to their monthly payments to qualify. Additional property eligibility requirements were also in place, such as passing a net present value (NPV) test to demonstrate that the lender or investor would benefit more from modifying the loan than foreclosing.
Eligible relief options included reductions in mortgage principal and interest rates, temporary postponement of payments (forbearance), and extensions of loan terms. Notably, even already modified loans could qualify for HAMP again, further lowering payments for many homeowners.
Families in the program saved, on average, over $530 monthly.
Special Insights
The government classified the ratio of payments to gross income as the front-end debt-to-income ratio (DTI). HAMP, in collaboration with mortgage lenders, aimed to reduce the DTI ratio to 38% or less. The Treasury Department would then intervene to lower this ratio to 31% or less if required.
Private lenders received incentives for modifying loans under HAMP: $1,000 upfront for each eligible modification and up to an additional $1,000 annually for up to five years. A $5,000 one-time payment was available at the end of year six.
Initially limited to principal residences, HAMP’s criteria expanded in 2012 to include non-owner-occupied homes, multiple mortgage households, and those below or above the original DTI ratio requirement.
Differentiation: HAMP vs. the Home Affordable Refinance Program (HARP)
HAMP was complemented by the Home Affordable Refinance Program (HARP). While HAMP aimed to aid homeowners close to foreclosure, HARP targeted homeowners who were underwater or nearly underwater, enabling them to refinance loans, particularly when the home’s value was less than the loan balance. HARP required that loans be guaranteed or acquired by Fannie Mae or Freddie Mac before May 31, 2009, and extended through December 2018.
Timeline and Qualification Criteria
The Home Affordable Modification Program (HAMP) was active from 2009, addressing issues from the 2008 subprime mortgage crisis, until its expiration in 2016.
Initially, between 2009 and 2011, only principal residences qualified. Starting in 2012, the program extended eligibility to second homes, rental properties, multiple mortgage households, and previously ineligible homes based on financial standards.
Under HAMP, homeowners could receive up to $10,000 in principal reductions as long as they made regular, full mortgage payments. This included $1,000 yearly for the first five years and a one-time $5,000 payment at the end of year six.
Related Terms: foreclosure, loan modification, mortgage assistance, HARP, subprime mortgage.
References
- Freddie Mac. “Home Affordable Modification Program”.
- Congressional Research Service. “Troubled Asset Relief Program (TARP): Implementation and Status”, Page 1.
- Internal Revenue Service. “Principal Reduction Alternative Under the Home Affordable Modification Program”.
- U.S. Department of the Treasury. “Prepare What You’ll Need”.
- U.S. Department of the Treasury. “Housing Counselor Frequently Asked Questions”, Page 6.
- Federal Housing Finance Agency. “Reports to Congress 2020”, Page 129.
- U.S. Department of the Treasury. “Home Affordable Modification Program (HAMP)”.
- U.S. Department of the Treasury. “Housing Counselor Frequently Asked Questions”, Page 6.
- U.S. Department of the Treasury. “Earn Incentives for Timely Payments”.
- U.S. House Financial Services Committee. “The HAMP Termination Act of 2011, H.R.839”, Page 1.
- Federal Housing Finance Agency. “Refinance Report First Quarter 2019”, Page 1.
