In February 2009, the government unveiled the Making Home Affordable Program, which is made up of two main programs: one for loan modifications and one for refinance loans. While there are a number of companies whom offer loan modification programs, the loan modification portion is called the Home Affordable Modification Program (HAMP). It is designed to reduce mortgage payments struggling homeowners pay per month to sustainable levels. The refinance plan is called the Home Affordable Refinance Program (HARP).
According to the details of the HAMP plan:
- The lender would first be responsible for bringing down interest rates so that the borrowers monthly mortgage payment is no more than 38 percent of his or her income.
- Next, the initiative would match further reductions in interest payments dollar-for-dollar with the lender to bring that ratio down to 31 percent.
- Lenders will also be able to bring down monthly payments by reducing the principal owed on the mortgage, with Treasury sharing in the costs.
- Borrowers will be put on a trial modification at the new interest rate and payment for three months. If they make all their payments on time, the modification will be implemented at the new rate and be fixed for five years.
Under the HAMP, loan modifications will be standardized, with uniform loan modification guidelines used by Fannie and Freddie Mac, and then they will be implemented throughout the entire mortgage industry.