Changes to Loan Modification Programs Target Unemployed

In March, HUD announced adjustments to the Home Affordable Modification Program (HAMP) and to the similar Federal Housing Administration (FHA) programs. These adjustments are designed to meet the needs of unemployed homeowners and to help homeowners who are underwater on their mortgages. Modifications in HAMP include the following:

1. Mortgage payments reduced to affordable level for a minimum of three months, and up to 6 months for some unemployed homeowners while they search for re-employment.

2.  All servicers now required to consider approach that emphasizes principal write-down with lender incentives based on the dollar value of the principal reduced.

3. Clear performance timeframes for both servicers and borrowers and a prohibition against initiation of a new foreclosure referral when a borrower is cooperating with the servicer to obtain a modification.  Borrowers in active bankruptcy must be considered for HAMP upon request.  Expansion of HAMP to include homeowners with FHA loans

4.  Helping homeowners move to more affordable housing by offering relocation assistance payments to homeowners receiving foreclosure alternatives doubled.  Increased incentives to servicers and lenders, including increased incentives for extinguishment of subordinate liens, to encourage more short sales and other alternatives to foreclosure

The FHA refinance options provide more opportunities for lenders to restructure loans for some families who owe more than their home is worth. This is a voluntary program for lenders and homeowners.

1.   Voluntary option to restructure underwater mortgages.   Lenders write down principal of the original first mortgage at least 10 percent to reduce the debt      burden on borrowers.

2.  All mortgage debt including second liens must be written down to a maximum of 115 percent of the current value of the home to qualify for the refinance

3.  FHA will publish data on number of loans, average percentage written down and quantity of principal reduced quarterly.

4.  TARP funds will be made available up to a total of $14 billion to provide incentives to support writedowns of second liens and encourage participation by servicers, and to provide additional coverage for a share of potential losses on these loans.

For information on the HAMP program changes go to,, or For changes to FHA program go to

[Article contributed by Susan Reif, Housing Law Specialist Attorney for Georgia Legal Services Program]

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