The ‘real estate bubble burst’ has been identified as the major contributory factor towards the current economic meltdown. The real estate industry tumbled as the home values dropped below the purchase prices, forcing many homeowners to foreclose. In order to stabilize the situation the Obama Government has introduced the Home Affordable Modification Program or HAMP. This program is expected to benefit around 5 million American homeowners.

The objective of the program

The principal objective of the program is to offer the much needed relief to homeowners. It’s also aimed at stabilizing the real estate market. For this purpose, the program is being offered free of cost and the borrowers are discouraged to use any third party negotiator to join the program. A fund worth $75 million has been set aside as an incentive for the participating lenders. The three main targets that the program aims to achieve are,

• Bringing the interest rate down to as much as 2%.
• Bringing the debt-to-income ratio of the participating borrowers below 31% of their earning. This has been targeted to achieve even by forbearing the principal amount.
• The amortization period can be extended to 40 years to accomplish the DTI target.

Mortgages that would qualify for HAMP

• The loan should have been taken before January 1st 2009.
• The mortgage shouldn’t have been considered before for modification under HAMP.
• Only primary residence (owner occupied) would qualify for this program. Size of the property may vary from one unit to four units.
• The value of the property mustn’t exceed the amount $729, 750 for a single unit home. However, there is a relaxation in limit on properties with more than one unit.

Qualification for the owner

There are some criteria set for the owner too in order to qualify for the Home Affordable Modification Program.

• The owner needs to be current on her mortgage payment while applying for HAMP.
• She mustn’t also file bankruptcy if she seeks to join the loan modification program.
• The debt-to-income ratio of the household must be more than 31% of its current monthly income.

Home Affordable Modification Program has been strongly opposed by investors, who have heavily invested into mortgage securities. Further, the lenders are asked to enroll in HAMP within 31st December, 2009, which will then require them to offer modification to all eligible borrowers.