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Changes to HAMP Can Help You Avoid Foreclosure

The Obama administration is taking another swing at improving its main foreclosure prevention program, expanding eligibility for its Home Affordable Modification Program (HAMP) to borrowers with higher debt loads. It will also triple the incentives it pays banks that reduce principals on loans.

The program, which was initially set to expire at the end of this year, has also been extended to December 2013. Additionally, the administration will also offer incentives to Fannie Mae and Freddie Mac to reduce principal on loans which previously was only offered to private lenders and banks.

According to CNN Money, the changes to HAMP which were announced last week at a press conference, include:

  • Expansion of eligibility: HAMP was designed to bring the debt ratio of mortgage borrowers down to 31% of their incomes. Those whose mortgage payments were already below that level had been ineligible for a modification. They may qualify now. The new guidelines will allow for a more flexible approach that takes other debt into account when calculating debt-to-income ratios.
  • Extension of eligibility to owners of rentals properties: The old HAMP rules applied solely to owner-occupied homes but now those who own rental properties may also qualify for a HAMP modification.
  • Triple balance-reduction incentives: The new HAMP will pay between 18 cents and 63 cents for every dollar that lenders take off the mortgage principal, up from between 6 cents and 21 cents.
  • Pay Fannie and Freddie the same incentives: Currently, Fannie Mae and Freddie Mac do not offer principal reduction plans as part of their HAMP modifications. To encourage this assistance, Treasury said it will pay the same principal reduction incentives to Fannie Mae or Freddie Mac if they allow servicers to forgive principal in conjunction with a HAMP modification.

The changes to HAMP do not take effect until the end of April, but the Treasury recommends any struggling homeowners to seek foreclosure prevention counseling immediately to learn their options and determine their best course of action.

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