Incentives for HAMP Borrowers Expanded by the Feds
Home Affordable Mortgage Program
To prevent mortgage loan borrowers from getting behind on payments and possibly going into foreclosure as interest rates begin to increase, many people who own homes are adopting the Home Affordable Mortgage Program. In addition to protecting people from losing their homes, the program offers a nice incentive when mortgages are kept current, this according to HUD and the Treasuring Department.
Under the new guidelines revealed by the Home Affordable Mortgage Program, also referred to as HAMP, when homeowners keep payments current for a period of six years they receive a $5,000 bonus on top of the $1,000 a year bonus as agreed with the lending bank and government.
The $5,000 incentive is applied to any outstanding balance for principal, which for many homeowners could be extremely helpful, especially for those who might see a jump in payments because of increasing interest rates as part of the agreement for using the reduced balance of the mortgage to bring payments down.
According to Jacob “Jack” Lew, Treasury Secretary, the changes involve beneficial incentives for mortgage borrowers to stay current on modifications. The incentive provides a safety net for homeowners under financial strain but will also make it possible for them to build equity in the home.
For the most part, this bonus is geared toward Tier 1 HAMP borrowers. This includes homeowners who as part of the program had a reduction of interest by as low as 2 percent, some up to five years, and on average had 35 percent reduced total monthly payments.
Tier 1 HAMP Agreement
However, under the Tier 1 HAMP agreement, there is an increase of rate by 1 percent each year until reaching where the rate was at the time of modification, which in most cases does not exceed 4 percent. Payments could increase as interest rates climb for 80 percent of these borrowers, starting in early 2015 according to the modification agreement.
During the third quarter of this year, the first adjustments for interest rates have gone into effect while the average monthly increase was around $95 with final increases anticipated to reach roughly $211 per month.
As indicated by the Treasury Department, more than 950,000 borrowers who have modifications under HAMP will qualify to earn the increased bonus.
In addition, for borrowers with Tier 2 HAMP modifications and interest rates that have been reduced permanently, another 50 basis point modification will be offered for the life of the loan. These borrowers will also be eligible for the $5,000 bonus but only in the sixth year of the modification. Tier 2 borrowers consist of homeowners that got behind on payments by 90 days, defaulted on trial payments, or had debt-to-income ratio below 31 percent.
Home Affordable Foreclosure Alternatives Program
The US government is also increasing the amount provided for assistance to relocate as outlined in the Home Affordable Foreclosure Alternatives program. With this program, the amount for assistance is being increased from $3,000 to $10,000 specifically for borrowers who can no longer remain in the home and who choose a deed-in-lieu of foreclosure or a short sale.
In most cases, the amount of relocation assistance is designated for expenses associated with moving but also first and last month’s rent. Since 2009, approximately 300,000 borrowers have relied on this program.