Most of the HAMP loan modifications made to struggling homeowners over the last several years had reduced the interest rate on their mortgage for a fixed period of only five years. HAMP Tier 1 modifications included interest rate reductions to as low as 2% for the first five years to help these homeowners avoid foreclosure.
Many of these borrowers have been facing interest rate reset increases, also known as a rate step-up, of 1% per year (maximum) until their rate adjusts to the market rate at the time of their modification. Approximately 90% of the 900,000 homeowners with an active HAMP modification are scheduled for interest-rate increases from 2014 to 2021, according to a January 2014 report from the Office of the Special Inspector General for the Troubled Asset Relief Program (TARP).
Here is an example from Making Home Affordable that shows 80% of these HAMP rate resets that began in 2014 with an approximate increase in their monthly payments of $200.
This is what a typical HAMP loan modification looks like, showing that by the time these modifications reach maturity, their payments will double.
Many of these homeowners who received HAMP loan modification are still facing financial difficulties and their increased payments are making matters worse. We are seeing many requests from these people in our mortgage forum who are trying to obtain a 2nd loan modification because they simply cannot afford their mortgage payments.
The chart below from the Urban Institute shows that we are now seeing many of these resets on mortgages that were modified in 2011 and 2012, are reaching maturity with their third and fourth increases peaking in 2016 and 2017 which will most likely cause additional defaults in the near future.