Seven in 10 homeowners who apply for help under the federal government’s signature mortgage aid program are rejected, according to a government report released Wednesday.
The program, called the Home Affordable Modification Program, is meant to help homeowners who are at risk of foreclosure stay in their homes by reducing their monthly mortgage. Since it began in 2009, 5.7 million homeowners have applied for assistance and 4 million have been rejected, according to data provided by the Treasury Department to the Special Inspector General for the Troubled Asset Relief Program.
Under HAMP, homeowners who are struggling to pay their mortgage apply for a modification that will lower their monthly bill. That application is reviewed by the mortgage servicer, who runs a standardized calculation to determine if they will receive more money from the homeowner at the current payment level, or with a reduced monthly payment. (Think about how much a lender would receive, in total, if a borrower paid a mortgage of $1,000 for three months and then stopped making payments and the house was foreclosed on, compared to a borrower making $600 payments until the loan was fully paid off.) If the servicer will get more money in the long run by collecting less each month, and the homeowner meets other guidelines — such as that they live in the home and took the mortgage out before 2009 — they are supposed to be approved under Treasury guidelines. Mortgage servicers are required to follow these guidelines.
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