HAMP (Home Affordable Modification Plan) is a $75 billion program to provide sustainable, affordable mortgage payments for up to 3 to 4 million at risk borrowers facing foreclosure. HAMP is one of the U.S. governments attempts to check the financial collapse of the housing market and home finance by means of loan modification.

Currently, many homeowners are finding themselves in a terrifying perdicament. Having made the decision to buy a home in the giddy heights of the housing boom (till a couple of years ago), they are now unable to take advantage of the low interest rates available at present because the value of their homes has sunk below that of their existing mortgages.

The rapid decline in home prices over the past two years combined with the double whammy of unemployment has left millions of homeowners devastated and unable to stay current on their mortgage payments. The Government projects that more than 6 million families could face foreclosure over the next three years.

To combat the crisis, the U.S. has instituted the largest economic recovery plan since World War II.

The Making Home Affordable (MHA) Program, is a critical element of the U.S. Treasury Department’s plan to stabilize the U.S. housing market and assist millions of homeowners by reducing their mortgage loan payments and preventing avoidable foreclosures.

HAMP is designed to reduce mortgage payments to an affordable level based on a borrowers’ gross monthly income. Every loan modification under the program must lower the borrower’s monthly mortgage payment to 31% of the borrower’s monthly gross income.

HAMP is offering loan servicers an up-front payment of $1,000 for each successful mortgage loan modification after completion of a trial period and up to $1,000 per year, provided the borrower remains current. Homeowners may earn up to $1,000 towards principal reduction each year for five years if they remain current and pay on time.

HAMP also matches reductions in monthly payments dollar-for-dollar with the lender from 38 percent to 31 percent of debt to income ration (DTI). This requires the lender to take the first loss in reducing the borrower payment down to a 38 percent DTI, holding lenders accountable for unaffordable loans they may have extended.

Under HAMP’s loan modification guidelines, mortgage servicers are prevented from “cherry-picking” only the most promising clients. In fact legislation is pending that would require lenders to offer loan modification to all homeowners before foreclosure.

At present, more than 85% of loans in the country are now covered by HAMP. Participating servicers have extended offers on over 570,000 trial modifications.

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