The Hamp Program

One possible solution for many homeowners who are facing foreclosure is the Obama Home Affordable Modification Program, or HAMP.4 All banks that received Troubled Asset Relief Program (TARP) funds signed participation agreements, and if your lender participates, then they are required to evaluate you for this type of modification based upon your application. The RAMP guidelines state the following parameters: The debtor's household should not spend more than 31 percent of the gross income per month on housing, which includes the principal interest, taxes, and homeowner's insurance. Essentially, a bank will take the gross income of the household (which is rife with questions as to how that household is defined) and multiply that monthly amount by 31 percent to determine what the mortgage payment needs to be to be affordable to the homeowner. Then the bank must back into that payment amount by either stretching the term of the loan to as long as forty years and/or lowering the interest rate to 2 percent.

For example, let us say that your gross monthly income is $6,000 per month, or $72,000 gross per year. Based on the 31 percent Obama model, the monthly mortgage payment for this income should be no higher than $1,860, including taxes and insurance. Assume the annual taxes on the property are $7,800, or $650 per month and homeowner's insurance is approximately $80 per month or almost $1,000 yearly. Deducting the taxes and insurance from the monthly payment of $1,860 leaves $1,130 toward principal and interest. If you multiply a payment of $1,130 for twelve months over thirty years, the bank will have received $406,800 and you owe the hank $400,000.

The bank will NOT offer a loan modification to this borrower because the bank is barely going to get back its money, let alone a large sum of interest. Yet, when the homeowner hears that the mortgage payment should only be $1,860 including taxes/insurance, versus the payment that was contracted for of of $2,650m they are elated and ready to sign on the dotted line.

The National Mortgage Settlement between the government and five major banks, including Chase, Wells Fargo, Bank of America, Citigroup, GMAC, requires again that these services offer refinancing programs and loan modifications including principal reductions to their customers provided that certain requirements are met and whether the loan is now individually owned or is invested owned. The media portrays that principal reductions and help is out there and everyone gets it, but this is far from the truth. I have found that even the five major banks do not comply with the rules unless I take them to task either through the NJ State Foreclosure Meditation Program or Chapter 13's Loss Mitigation Program. I have consistently found that the numbers work and the home is affordable for borrowers, a loan modification can be achieved if the lender is pushed.

Let us say that I am behind on my mortgage but the company is not going to give me a loan modification, at least in part because I am carrying $70,000 of revolving debt, and even at a minimum, with decent interest, it is costing me approximately $1,500 per month to service this debt, which means that I do not have that money available for the mortgage payment. In this situation, I will file a chapter 7, if the borrower qualifies, to relieve them of their unsecured credit card debt, freeing up money to pay the mortgage, at which point, I can help the homeowner obtain a loan modification through meditation or a Chapter 13. Even if we are unable to save the client's home in the long run, they will not owe any money because of the Chapter 7 discharge, which removes any liability from the mortgage note. In some case, clients will file a Chapter 7 to walk from their homes, while in others it is the first step in a two-part process for obtaining a loan modification.