The Home Affordable Modification Program: What Is It All About, and am I Eligible?

The Obama Administration's Home Affordable Modification Program (HAMP) is designed to assist homeowners with restructuring their loans to avoid foreclosure. If you are eligible for HAMP, you may qualify for a lower interest rate, principal deferment, and even government cash incentives that can reach $5,000, thus reducing the principal balance on your home loan.

If this sounds too good to be true, it might be; but only in some cases. The Treasury requires a lot of paperwork and the completion of a trial plan before a customer can qualify for a final Home Affordable Modification Agreement that modifies the loan terms for good.

You can find detailed information regarding HAMP on the government's official website, makinghomeaffordable.gov.  The following factors are the minimum elements necessary to be eligible for the program, according to the Treasury Department's guidelines, as outlined on the government's website:

• The mortgage loan must be for the homeowner's primary residence.
• The mortgage must have been originated prior to January 1, 2009.
• The amount of the loan should be $729,750 or less.
• If the account is not in default, the homeowner must be able to demonstrate imminent default, which includes providing proof of a financial hardship, job loss, etc.
• The payment on the first mortgage must be more than 31% of the homeowner's gross income. This includes principal, interest, insurance, taxes, and HOA fees. The gross income includes all borrowers, if more than one person signed the Note.

Note that second liens do not qualify for the Obama Plan.

So, what's next? Contact your loan servicer, and if the investor of the loan allows modifications under HAMP, the servicer will obtain financial information from you and request documentation including a 4506 T form and Federal Tax Return. In addition, you will execute a trial plan, which typically is a three-month payment plan during which you are given time to provide your servicer with the necessary documentation.

Many homeowners are not eligible for this program; however, there are other options to explore. Your loan servicer is a great source of information and assistance. They often offer forbearance agreements and repayment plans, without requiring as much documentation as the government. Remember that they servicer getting some money is better than them getting nothing. It works out better for both parties to avoid foreclosure. Keep this in mind to give you confidence as you explore other options such as refinancing.