What Is the Home Affordable Modification Program (HAMP)?

The Home Affordable Modification Program (HAMP) was a government initiative launched in 2009 to address widespread foreclosures and housing market instability after the 2008 financial crisis. Its main purpose was to help homeowners at risk of losing their homes by reducing their monthly mortgage payments to an affordable and sustainable level. HAMP operated under the broader Making Home Affordable (MHA) program, which was part of the Troubled Asset Relief Program (TARP).

Key Features of the Home Affordable Modification Program

HAMP aimed to make mortgage payments manageable for eligible homeowners. The program’s goal was to reduce a borrower’s monthly mortgage payment for their primary residence to approximately 31% of their gross monthly income. This target was achieved using a “waterfall” approach, where servicers followed a specific sequence of steps to modify loan terms.

The initial step involved capitalizing accrued interest, past-due property taxes, and insurance payments into the loan balance. Servicers then attempted to lower the interest rate, potentially to 2%. This reduced rate was fixed for five years, then could gradually increase by 1% annually to a market-tied cap. If interest rate reduction was insufficient, the loan term could be extended, sometimes up to 40 years from the original origination date.

For loans where the amount owed significantly exceeded the home’s value (loan-to-value ratio greater than 115%), HAMP included a Principal Reduction Alternative (PRA). This allowed a portion of the principal balance to be put into forbearance, not accruing interest, and due only at loan maturity, sale, or refinancing. This layered approach provided flexibility, allowing servicers to adjust multiple aspects of the mortgage to achieve the affordability target. HAMP provided financial incentives to loan servicers, investors, and homeowners who completed modifications.

HAMP Eligibility and Documentation

To qualify for HAMP, homeowners needed to meet specific criteria. The mortgage had to be a first-lien loan on an owner-occupied property, originated on or before January 1, 2009. Unpaid principal balance limits applied, typically up to $729,750 for a single-unit property, with higher limits for multi-unit properties. Homeowners also needed to demonstrate a verifiable financial hardship making current mortgage payments unaffordable, placing them delinquent or at risk of imminent default.

A key financial requirement was that the homeowner’s current mortgage payment (PITI) needed to exceed 31% of their gross monthly income. Applicants also had to show sufficient, documented income to support the modified payment. Individuals convicted of certain financial felonies within the previous 10 years, such as larceny, fraud, or tax evasion related to a mortgage or real estate transaction, were ineligible.

Gathering the necessary documentation was a crucial preparatory step for a HAMP application. Homeowners needed to provide proof of income, such as recent pay stubs and tax returns for the past two years, often requiring an IRS Form 4506-T to allow the servicer to access tax records. Bank statements from the most recent one to two months for all savings and checking accounts were also required. Applicants submitted current mortgage statements and details of other assets and liabilities. A hardship affidavit or letter was a mandatory component, explaining specific circumstances like job loss, medical issues, or divorce that led to financial difficulties.

The HAMP Application Process

Homeowners submitted an “Initial Package” to their mortgage servicer. This package included the completed Request for Modification and Affidavit (RMA) form, an IRS Form 4506-T, and income documentation. Submissions could be made via mail, fax, or online portals. It was important to use the most current application forms, as older versions could cause delays.

After submission, the servicer assessed the application for completeness and eligibility. Servicers were required to make a decision within 30 days of receiving a complete package. During this time, the servicer might request additional information. If approved, the homeowner received an offer for a trial modification plan, usually lasting three months. During this trial period, the homeowner made the new, reduced payments on time. Successful completion of these trial payments led to a permanent HAMP modification and a formal agreement.

Program Conclusion and Related Initiatives

The Home Affordable Modification Program officially concluded on December 31, 2016. No new applications were accepted after this date. However, for homeowners already in a HAMP trial modification plan or those with a permanent modification, the program continued to service existing agreements. The expiration was attributed to a decrease in new applicants and improvements in property values.

After HAMP ended, other initiatives emerged to help homeowners facing financial hardship. The Flex Modification program, introduced by Fannie Mae and Freddie Mac, became available in early 2017 as a successor for loans backed by these enterprises. Flex Modification aimed to reduce mortgage payments by adjusting interest rates, extending loan terms, or forbearing principal, often targeting a 20% payment reduction. Other avenues, such as servicer-specific proprietary modification programs and FHA-backed options, also remained available.