The enhancements are designed to make monthly mortgage payments affordable for homeowners in MHA who are struggling, to strengthen the safety net for homeowners facing financial hardships, and to help stabilize communities most affected by the financial crisis by helping homeowners in MHA build equity in their homes.
"Today’s announcement signals our commitment to helping more hardworking families continue the American dream of homeownership," HUD Secretary Julian Castro said. "These enhancements will expand the opportunity for more folks to stay in their home, stabilizing local communities and continuing our nation's positive economic momentum."
The Home Affordable Modification Program (HAMP) was established by HUD and Treasury in 2009 to provide relief for homeowners facing financial hardship by reducing monthly payments to affordable levels through lowered interest rates and modified loan terms. Under current HAMP terms, borrowers who stay current on their mortgage payments following modifications can earn as much as $5,000 in outstanding principal reduction over the first five years of the modification.
With the revisions to the guidelines, HAMP homeowners will be eligible to earn another $5,o00 in principal reduction in the sixth year of the modification, making them eligible for up to $10,000 in principal reduction. Also, now homeowners will have the opportunity to lower their monthly mortgage payment through re-amortizing the reduced balance. According to HUD, approximately one million homeowners who have received modifications through HAMP are eligible for the increased incentive.
"While the housing sector has strengthened in recent years, there are still many homeowners struggling to make their mortgage payments," Secretary of the Treasury Jacob J. Lew said. "The changes we are announcing today offer meaningful incentives for borrowers to stay current in their modifications, increase their opportunity to build equity in their homes, and provide vital safety nets for those facing greater financial strains."
Treasury and HUD have also announced enhancements to the HAMP Tier 2 and Home Affordable Foreclosure Alternatives (HAFA) program in order to strengthen the safety not for homeowners struggling to make payments in HAMP Tier 1 or non-HAMP modifications. HAMP Tier 2 is an alternative modification for borrowers who cannot qualify or sustain a HAMP Tier 1 modification. A HAMP Tier 2 modification provides borrowers with a low fixed interest rate for the life of the loan.
Under today's revised guidelines, the HAMP Tier 2 interest rate is reduced by 50 basis points, which will enable more homeowners to qualify for modifications. It will also make HAMP Tier 2 borrowers eligible for the $5,000 pay-for-performance principal reduction if they are in good standing with their mortgage payments in the sixth year of modification, HUD announced.
Another enhancement announced today provides an increase in the amount of relocation assistance to $10,000 for homeowners who are transitioning to a more affordable living situation through a short sale or deed-in-lieu of foreclosure through the HAFA program. The increase in relocation assistance funds was made to keep up with increased rents and rising moving costs, according to HUD.