FHA Home Affordable Mortgage Program

On August 15th, 2009 the new FHA Home Affordable Mortgage Program (FHA-Hamp) will become effective.

Initially the Helping Families Save Their Homes Act of 2009 did not include provisions for the FHA to modify home loans under the program. Guidelines have now been issued as to how these mortgages will be modified. Currently this modification solution only applies to those that are in default.

The program utilizes the Partial Claim Provision, which allows the lender to make a claim against the insurance provided by FHA on a home mortgage. Under certain guidelines up to 30% of the principle balance may be removed from the computation of a modified mortgage payment. This 30% must be reduced by past due payments, (up to 12 months) and foreclosure costs up to that date of the modification.

 

Guidelines state that the Front-End Debt-to-Income Ratio (Before Taxes) must be not less than 31% for the new payment. This payment includes principle, interest, insurance and taxes. In addition the Back-End Debt-to-Income Ratio may not exceed 55%. This includes the new mortgage payment plus all recurring monthly debt.

The homeowner must have enough income to make the new payment and a trial period of three months will be in effect during which the homeowner must make all payments on time. In the event of a default during the trial period the homeowner will no longer be eligible for this particular solution. Other avenues of settlement such as dee-in-lieu of foreclosure, or a short-sale may be implemented. A Hardship Letter or Affidavit is also required that outlines reasons for delinquency on the loan.

Lenders may receive an incentive fee of up to $1250 for a successful modification using this program. For more information regarding this program please refer to the Making Home Affordable Web Site.