Treasury to Offer Rewards for Current HAMP Borrowers

WASHINGTON — Administration officials announced extra incentives for borrowers with federally subsidized modifications to encourage them to remain current on their loans.

Under the Home Affordable Modification Program, borrowers who make on-time payments have already been able to earn up to $5,000 over the first five years of a modified loan, which goes toward reducing their principal balance. But the Treasury Department and Department of Housing and Urban Development said Thursday that current borrowers can now earn an additional $5,000 in the sixth year of the modified loan, resulting in $10,000 in total balance reductions. Those borrowers will also have the option to re-amortize the reduced balance to lower their monthly payments.

The administration estimates that approximately one million homeowners with HAMP loans are eligible for the additional $5,000 incentive.

The changes appear aimed at motivating borrowers to stay current while also providing a cushion for borrowers due to see higher rates. Some loans that were modified in the early days of HAMP — which was launched in 2009 — are beginning to reset, with the interest rate set to increase by one percentage point per year until it reaches the rate agreed to when the modification was completed. The reset rates will range from 4% to 5.4%. An estimated 30,100 HAMP loans are slated to reset this year.

"Today's announcement signals our commitment to helping more hardworking families continue the American dream of homeownership," HUD Secretary Julián Castro said in a press release. "These enhancements will expand the opportunity for more folks to stay in their home, stabilizing local communities and continuing our nation's positive economic momentum."

Treasury also announced incentives for borrowers in the HAMP Tier 2 alternative program, which provides a low fixed interest rate for borrowers who did not qualify for a standard HAMP modification. Those borrowers can now pay a 50-basis point lower interest rate and are eligible for the $5,000 pay-for-performance incentive if they are in good standing at the end of their sixth year.

"While the housing sector has strengthened in recent years, there are still many homeowners struggling to make their mortgage payments," said Treasury Secretary Jacob Lew in the press release. "The changes we are announcing today offer meaningful incentives for borrowers to stay current in their modifications, increase their opportunity to build equity in their homes, and provide vital safety nets for those facing greater financial strains."

Treasury also enhanced its short sale and deed-in-lieu programs. Distressed homeowners that complete a short sale or deed-in-lieu transition will now be offered $10,000 in relocation assistance, a $7,000 increase from what they had previously received.

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