Underwriting Process Overview
Home Affordable Modification program (HAMP) underwriting focuses on creating a more affordable first-lien housing payment of principal, interest, taxes, insurance (property, flood, etc.), homeowner/condo association fees, and escrow shortage (PITIAS) that is as close as possible, but no less than, 31 percent of the borrower's gross monthly household income. A new PITIAS amount is established using a sequential process as needed in the following order:
- Capitalizing arrearages.
- Reducing the interest rate.
- Extending the amortization terms to up to 40 years.
- Granting partial principal forbearance.
Review Single-Family Seller/Servicer Guide (Guide) Chapter 8501 for communication timeline requirements for notifying borrowers of interest rate adjustments for Step-Rate Mortgages.
A total monthly debt payment-to-income ratio is calculated after the PITIAS, and borrowers with ratios greater than or equal to 55 percent must agree to enter a free credit-counseling program with a HUD-approved housing counseling agency as a condition for the modification. To the extent permitted by applicable law, an escrow account must be maintained on the modified mortgage, even if the existing mortgage does not have an escrow account.
Borrowers must successfully complete a Trial Period, during which they will be required to remit the estimated new monthly payments. Servicers enter into a workout/forbearance plan with the borrower during the Trial Period, followed by a modification agreement upon successful completion of the Trial Period. Additional requirements for income, collateral, escrows, credit enhancements, the Trial Period, and the steps to take once the borrower successfully completes the Trial Period are detailed in Guide Chapter 9205.
If a borrower meets the basic eligibility criteria for HAMP, but does not qualify for or complete a HAMP modification or Freddie Mac home retention option under Guide Chapter 9204, you must consider them for a short sale under the Treasury’s Home Affordable Foreclosure Alternatives initiative.
Please visit our HAMP Tools Overview Web page for information on HAMP tools that you must use during the HAMP loan modification evaluation process.
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