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What Are The New Changes To HAMP?


On January 27, 2012, the U.S. Department of the Treasury announced that it is rolling out new enhancements to HAMP.

HAMP loan modifications were set to disappear at the end of 2012. The new changes will extend HAMP another year to the end of 2013. This is good news for people who are in or facing foreclosure. Since the average foreclosure is taking longer to complete, extending HAMP means that more borrowers will have an opportunity to try and modify their loans.

HAMP now includes a "second look" provision, which is a good opportunity for borrowers who have already been denied a HAMP modification due to having insufficient income. The new guidelines include a more flexible set of debt-to-income criteria to make HAMP modifications available to people with high secondary debt, like a second mortgage or medical bills.

Prior to last Friday's announcement, HAMP modifications were only available for a homeowner's primary residence. The changes extend HAMP eligibility to tenant-occupied homes and vacant homes that the owner wants to rent. If affordable modifications can be issued for rental properties, it may help stabilize neighborhoods by preventing some additional foreclosures. As the press release notes, the foreclosure of investor-owned homes tends to have a disproportionate impact on low and middle income families, many of whom rent investor-owned properties. Additionally, foreclosed investment properties are not rented out immediately after repossession, which decreases the available supply of rental properties at a time when demand is high.

It also appears that Treasury is trying to get serious about principal reductions, although without seeing new official guidelines, it is difficult to tell who is truly receiving the incentive to reduce principal. Treasury's press release indicates that it will triple incentives to investors who reduce principal balances. However, most investors have very little to do with the loan modification process. If, on the other hand, servicers were given the incentives, it would make much more sense. More promising is Treasury's overture to FHFA -- it has promised to pay incentives to Fannie and Freddie if the GSEs allow principal reductions on the loans that they own.

Overall, this looks to be a solid set of changes for HAMP, hopefully they're not too little too late.