Home Affordable Modification Program (HAMP)

The Home Affordable Modification Program (HAMP) was a federal initiative launched in 2009 to help homeowners at risk of foreclosure by making mortgage payments more affordable. Active through the end of 2016, HAMP aimed to lower monthly payments through standardized modification rules and financial incentives for mortgage servicers and investors.

Purpose and background

• Created under the Troubled Asset Relief Program (TARP) in response to the 2008 housing market collapse.
• Addressed unaffordable monthly payments, especially for borrowers with adjustable-rate mortgages whose payments rose sharply.
• Its major contribution was standardizing modification practices across servicers and investors.

How HAMP worked

Eligibility and tests
– Targeted homeowners who were in financial hardship and spending a large share of gross income on mortgage payments (originally >31%).
– Property and loan eligibility required passing a net present value (NPV) test — a calculation showing the investor/lender would recover more (or lose less) by modifying the loan than by foreclosing.
– Homes had to be habitable, and unpaid principal balances were subject to a cap (the program referenced a $729,750 limit for single-unit properties).

Forms of relief
– Principal reduction (in some cases).
– Interest-rate reduction.
– Temporary forbearance (postponement) of payments.
– Extension of loan term to lower monthly payments.
– Previously modified loans could be re-evaluated and receive further HAMP reductions.

Servicer and investor incentives
– Servicers received an initial payment (commonly $1,000) for each eligible modification.
– Additional payments included up to $1,000 per year for up to five years and a $5,000 completion incentive after year six for borrowers who remained current.
– The Treasury also provided incentives designed to bring borrowers’ front-end debt-to-income (DTI) ratios down — working toward a target DTI of about 31% (with an initial bank target of ≤38%).

Program changes and scope

• Initially limited to principal residences (2009–2011). In 2012, the program was expanded to cover non-owner-occupied homes, multiple-mortgage households, and borrowers not meeting earlier strict DTI thresholds.
• Although some modifications were subsidized by taxpayers, standardization of modification procedures was widely regarded as HAMP’s primary legacy.

Results and limits

• Participating families reduced their monthly payments on average by over $530.
• Up to $10,000 in principal-reduction-related incentives could be realized over time (structured as annual and completion payments tied to borrower performance).
• The program expired at the end of 2016 and was not renewed.

HAMP vs. HARP (brief comparison)

• HAMP: focused on loan modifications to avoid foreclosure for borrowers in distress.
• HARP (Home Affordable Refinance Program): focused on refinancing for borrowers who were underwater (loan-to-value >80%) and whose loans were owned or guaranteed by Fannie Mae or Freddie Mac before May 31, 2009. HARP required borrowers to be current on payments and was designed to lower rates or move borrowers to more stable mortgage products. HARP’s expiration was extended into December 2018.

Legacy

HAMP helped thousands of borrowers remain in their homes and introduced consistent modification standards across the mortgage servicing industry. While it ended in 2016, its structure—NPV-based decisioning, servicer incentives, and standardized modification terms—influenced later loss-mitigation practices.