As the Home Affordable Modification Program (HAMP) reaches its five-year anniversary, some HAMP loans, including Fannie Mae HAMP loans, will begin to experience an increase in mortgage rates.
When loans were modified, they were provided a below-market rate to help struggling homeowners. The rate was good for a set period of time, often five years, which makes HAMP's anniversary bittersweet for some homeowners who will now face rising interest rates.
Rates will rise annually by a maximum of 1.0 percent per year, until reaching a "cap" rate based on the Freddie Mac Weekly Primary Mortgage Market Survey Rate for 30-year fixed-rate conforming mortgage loans, rounded to the nearest 0.125%.
The increases will be spread over a number of years, which should help affected homeowners adapt to the increase in mortgage payments.
Servicers were directed to notify homeowners well in advance, issuing Servicing Guide Announcement SVC-2014-01 back in January.
"Homeowners who have been paying their mortgages on time may not have looked at their modification paperwork in years and may need to be reminded about the upcoming increases," explained Bill Cleary, Fannie Mae's VP of Credit Portfolio Strategy.
Cleary added, "Our goal is to have servicers reach out early, well before the increase happens, so if the homeowner needs to, they can seek assistance with budgeting for the multi-year impact."
Servicers are encouraged to notify homeowners as soon as possible, but must notify them by April 1, 2014.