RealtyTrac, which manages a database of home foreclosures, estimates that more than 1 million homes will go into foreclosure in 2010. In an attempt to help financially distressed homeowners, the federal government has enacted the FHA Home Affordable Modification Program (HAMP). Yet, many homeowners are unsure if this federally funded program will help them keep their homes.FHA-HAMP is only available to homeowners who already have an FHA-insured mortgage. Borrowers do not need to have equity in their home. Additionally, only mortgages that are at least 12 months old may qualify for the loan modification program and homeowners must have paid at least four mortgage payments. However, mortgages do have to be at least 30 days delinquent. It’s estimated that 14 percent of FHA-insured loans are 30 days or more past due.In addition to the age and type of mortgage, there are requirements regarding mortgage payment amounts and the family’s debt ratio. To be eligible for FHA-HAMP, mortgagees must have mortgage payments that are at 31 percent of their gross income. Mortgage payment includes taxes, insurance, and homeowners fees. Gross income is calculated before taxes and other deductions. Second mortgages are not included in this amount.There are limits as to how much other debt an eligible family may have. This debt, called, back-end debt, may not exceed 55 percent of the monthly gross income. Credit cards, second mortgages, and car loan and leases are included in the calculation of back-end debt, as well as other installment or revolving accounts.Homeowners apply for FHA-HAMP through their lenders. At this point, they will be asked to provide proof of income, as well as a hardship letter explaining pertinent circumstances of their financial situation. The lender will pull a credit report. However, this report is not obtain a credit rating for qualification purposes; it is used to verify revolving accounts. Borrowers will need to assemble a list of monthly expenses and supporting documentation.If applicants qualify for FHA-HAMP, the lender will permanently modify the mortgage. The goal of the loan modification is to bring the borrower’s monthly mortgage payment down to less than 31 percent of the gross monthly income. The lender will do this by creating a partial claim on the property, whereby a portion of the principal will be placed in an interest-free mortgage. This secondary mortgage will not be due until the home is sold or the FHA-HAMP matures. This interest-free mortgage will be payable as a balloon payment, which means that the owner will have to either sell the home or refinance the amount owed.The FHA – Home Affordable Loan Modification Program is designed to give assistance to those who are hardest hit by the recession: average homeowners. Those who qualify can use the FHA-HAMP to avoid being counted among the million homeowners who will face foreclosure in 2010.
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