The Making Home Affordable program of the United States Treasury was launched in 2009 as part of the Troubled Asset Relief Program. The main activity under MHA is the Home Affordable Modification Program.
Other programs under MHA include: Principal Reduction Alternative (PRA), assists homeowners with a loan-to-value ratio exceeding 115 percent. Home Affordable Unemployment Program (UP), temporary forbearance for unemployed homeowners. Second Lien Modification Program (2MP) provides a mechanism for servicers to modify second liens when a homeowner receives a first lien modification through HAMP. Home Affordable Foreclosure Alternatives Program (HAFA), helps homeowners exit their homes and transition to a more affordable living situation through a short sale or deed-in-lieu of foreclosure.
Background
The subprime mortgage crisis was triggered by a large decline in home prices after the collapse of a housing bubble, leading to mortgage delinquencies, foreclosures, and the devaluation of housing-related securities. Declines in residential investment preceded the recession and were followed by reductions in household spending and then business investment. Spending reductions were more significant in areas with a combination of high household debt and larger housing price declines.
The housing bubble preceding the crisis was financed with mortgage-backed securities (MBSes) and collateralized debt obligations (CDOs), which initially offered higher interest rates (i.e. better returns) than government securities, along with attractive risk ratings from rating agencies. The crisis was caused by the rise in subprime lending and the increase in housing speculation. The percentage of lower-quality subprime mortgages originated during a given year rose from the historical 8% or lower range to approximately 20% from 2004 to 2006, with much higher ratios in some parts of the U.S. A high percentage of these subprime mortgages, over 90% in 2006 for example, were adjustable-rate mortgages. Housing speculation also increased, with the share of mortgage originations to investors (i.e. those owning homes other than primary residences) rising significantly from around 20% in 2000 to around 35% in 2006–2007. These changes were part of a broader trend of lowered lending standards and higher-risk mortgage products, which contributed to U.S. households becoming increasingly indebted. The ratio of household debt to disposable personal income rose from 77% in 1990 to 127% by the end of 2007.
When U.S. home prices declined steeply after peaking in mid-2006, it became more difficult for borrowers to refinance their loans. As adjustable-rate mortgages began to reset at higher interest rates (causing higher monthly payments), mortgage delinquencies soared. Securities backed with mortgages, including subprime mortgages, widely held by financial firms globally, lost most of their value.
During the 2008 United States presidential election, Presidential candidate Barack Obama promised to help homeowners who were facing foreclosure during the crisis.
HAMP
The Home Affordable Modification Program (HAMP) is a government program introduced in 2009 to respond to the subprime mortgage crisis. HAMP is part of the Making Home Affordable program (MHA), established in concert with the Hardest Hit Fund program (HHF) under the Troubled Asset Relief Program (TARP), a part of the Emergency Economic Stabilization Act of 2008. HHF provides targeted aid to home owners in states hit hardest by the economic crisis and works in tandem with HAMP and most MHA programs.
HAMP (and the entire MHA Program) is set to expire December 31, 2016, the last day to submit applications, and the Modification Effective Date must be on or before September 30, 2017. HHF has been extended to 2020.
Purpose
The Home Affordable Modification Program (HAMP) is designed to help financially struggling homeowners avoid foreclosure by modifying loans to a level that is affordable for borrowers now and sustainable over the long term. This is done by interest rate reduction, fixing the interest rate, principal reduction or forbearance, and term extension. The program provides clear and consistent loan modification guidelines and includes incentives for borrowers, servicers and investors.