Christian D. Posada, P.A. | Loan Modification
What Is Loan Modification? Loan Modification Sign

A loan modification (Mortgage Modification) is a process where the terms of a mortgage are modified outside the original terms of the contract agreed to by the lender and borrower.

A loan modification will typically result in the change to the loan's monthly payment, interest rate, term or outstanding principal.

Home Affordable Modification Program
Loan Modification

Federal Home Affordable Modification Program (HAMP)


Home Affordable Modification Program, also known as HAMP, is set out to help up from 7 to 8 million struggling homeowners at risk of foreclosure by working with their lenders to lower monthly mortgage payments. The Program is part of the Making Home Affordable Program which was created by the Financial Stability Act of 2009. The program was built as collaboration with banks, services, credit unions, the FHA, the VA, the USDA and the Federal Housing Finance Agency, to create standard loan modification guidelines for lenders to take into consideration when evaluating a borrower for a potential loan modification. Over 110 major lenders have already signed onto the program. The Program is now looked upon as the industry standard practice for lenders to analyze potential modification applicants.














Eligibility Requirements

The program abides by the following eligibility and verification criteria:

  1. Loans originated on or before January 1, 2009
  2. First-lien loans on owner-occupied properties with unpaid principal balance up to $729,750

Participating loan servicers will be required to use a net present value (NPV) test on each loan that is at risk of imminent default or at least 60 days delinquent. The NPV test will compare the net present value of cash flows with modification and without modification. If the test is positive: meaning that the net present value of expected cash flow is greater in the modification scenario: the servicer must modify absent fraud or a contract prohibition.

  1. Servicers will follow a specified sequence of steps in order to reduce the monthly payment to no more than 31% of gross monthly income (DTI).
  2. The modification sequence requires first reducing the interest rate (subject to a rate floor of 2%), then if necessary extending the term or amortization of the loan up to a maximum of 40 years, and then if necessary forbearing principal. Principal forgiveness or a Hope for Homeowners refinancing are acceptable alternatives.
  3. The monthly payment includes principal, interest, taxes, insurance, flood insurance, homeowner’s association and/or condominium fees. Monthly income includes wages, salary, overtime, fees, commissions, tips, social security, pensions, and all other income.
  4. Servicers that modify loans according to the guidelines will receive an up-front fee of $1,000 for each modification, plus “pay for success” fees on still-performing loans of $1,000 per year.
  5. Homeowners who make their payments on time are eligible for up to $1,000 of principal reduction payments each year for up to five years.
  6. The program will provide one-time bonus incentive payments of $1,500 to lender/investors and $500 to servicers for modifications made while a borrower is still current on mortgage payments.

Mortgage Payment Guideline: this is calculated as 31% of your current monthly gross income. If your current monthly mortgage payment is above this amount, you may be eligible for the Home Affordable Modification.

CheckMyNPVTM.com is a free consumer online tool designed to assist homeowners learning about the net present value (NPV) evaluation process under the Home Affordable Modification ProgramSM (HAMP) and to conduct an NPV evaluation of their mortgage.