The Home Affordable Modification Program (HAMP) provides a type of loan modification to homeowners who are financially unable to keep up with their mortgage payments. This program enables homeowners to remain current on mortgage payments and potentially save their homes from foreclosure by modifying the terms of the original loan, such as the interest rates and length of repayment.
In order to be approved for the HAMP program, you must meet certain qualifications. First, you must be experiencing some type of financial hardship or change in your monthly cash flow. This can be the result of job loss, for example, among other things. As of May 2012 your current mortgage payment, counting tax payments, home owner's insurance and other fees, must be more than 31 percent of your monthly income to qualify for HAMP, although an expanded HAMP program promises more flexible qualification requirements. The mortgage must have originated before January 1, 2009 and the balance cannot exceed $729,750 for single-family homes. Multi-unit, owner-occupied homes can have a higher balance. Finally, only primary residences are eligible for HAMP.
Many mortgage lenders collect money every month for property tax and other items and hold these payments in escrow accounts until they are due. If you currently pay into an escrow account managed by your lender, you will continue to do so after the HAMP modification loan is approved. However, the escrow will be managed by the HAMP program's lender. If you do not have an escrow established and instead pay your property taxes directly, an escrow account will be created. Maintaining an escrow account is an underwriting requirement for HAMP, continuing throughout the lifetime of the loan.
Many lenders prefer to require an escrow account for property tax payments to ensure that they are being paid on time. In the same fashion that the lender can foreclose on your home if you stop making monthly mortgage payments, the taxing authorities can foreclose for unpaid property taxes. This is not in the best interest of the lender. Ensuring that the property taxes are paid on time with funds from the escrow account protects the lender's interest in the property.
Using the HAMP Program's escrow account will help keep your finances on track each month. Generally, property tax payments are due annually or biannually. It might be difficult to come up with a lump sum of money by the due date, especially if you are already in a stressful financial situation. In addition to property taxes, other payments such as homeowner's insurance or association fees can be tabulated into the escrow payment. All of these fees combined, plus the mortgage payment, cannot be more than 31 percent of your monthly income under the first HAMP program, although the expanded program may allow for more flexible payment guidelines.