The Home Affordable Modification Program (HAMP) will end at the end of December 2016. The Mortgage Bankers Association (MBA) has proposed a product that would target reducing the household’s monthly mortgage payment, by extending the loan term to forty years. Significantly, unlike HAMP, the MBA model would not be based on household income. This is an important reversal from HAMP, because in households where there has been a significant loss of income, the targeted reduction in the monthly mortgage payment may not produce an affordable payment. Additionally, the forty year term extension makes it difficult for the homeowner to rebuild their equity in their home.
The Empire Justice Center (EJC), National Council of La Raza (NCLR), and the National Housing Resource Center (NHRC) collected loan information from households who had received HAMP modifications. EJC then analyzed the loan information to compare the modification that was received under HAMP with the modification that would be available under the MBA proposal. You can read the summary of the analysis here, but here are some of the key findings:
- Targeting the modification to a reduction of the monthly mortgage payment is most beneficial to higher-income households, who are most likely so see a reduction of 20 percent of more, while moderate-income households are more likely to see a reduction of less than 20 percent;
- Including interest rate reduction as an element of any modification package is critical to ensuring affordable payments, particularly for lower-income homeowners—but this will not be a modification tool available under the MBA proposal;
More flexible alternatives to the 480-month term extension are needed for homeowners with significant equity in their homes.