The Smooth Loan Process #2010-09

The HAMP Modification Program Could Have Unintended Consequences

By now, we have all heard of the Home Affordable Modification Program (HAMP). Essentially, the program gives incentive to the Banks to modify the home loans to make the payments lower and more affordable for the homeowners. But there's a catch for the homeowner (and there's always a catch).

HAMP requires a three month "trial period" where the homeowner will make a reduced payment. The homeowner must make the payments during the trial period on time in order to be eligible for the final modification. Here's the catch: During the trial period, your mortgage will be reported on your credit as "paying under a partial payment agreement". In other words, not paid as agreed. This will have the negative affect of about 100 points to your credit score. Here's the spicy part. If your modification is not approved and made permanent, the trial period payments will be reported as late and you will be past due for the difference between your trial period payment and your regular payment.

According to the Wall Street Journal, to date there have been about 900,000 applications for HAMP modification since the programs inception in April 2009. Only 7% of those modification applications have been approved. That means about 840,000 households are worse off now than before they applied for the modification. The unintended consequence of all of this is that many of the 840,000 households that did not qualify for the modification would have qualified to refinance or purchase something more affordable but now, their credit has suffered to the point that they can no longer qualify for a new loan.

The spirit of HAMP was to be an option for people that have the intention of keeping their home to live in but have had an adverse change in financial circumstances. Used any other way, HAMP can be disastrous for your credit.

The Smooth Loan Process lesson for today: Get all of the facts and educate yourself before applying for any new loan or modification program.

Harold Perkins
Galaxy Lending Group
602-595-1233
Harold@HaroldPerkins.com