HAMP GUIDANCE ON ADJUSTABLE RATE MORTGAGES
Borrowers with adjustable rate mortgage (ARM) loans, including ARM
loans that provide for a monthly payment option (e.g., specified minimum payment, interest only
payment, 40, 30 and/or 15 year fully amortizing payment) (Pay Option Loans) and interest only
ARM loans, that have an interest rate reset scheduled within 120 days after the date of the
evaluation (Reset ARM), the monthly mortgage payment used to determine eligibility will be the
fully amortizing monthly mortgage payment.
The borrower’s fully amortizing payment is to be determined by using the remaining term of the mortgage, the
current unpaid principal balance (before capitalization) and the reset rate. The reset rate is to
be calculated by applying the index or formula value that is in effect as of the date of the
evaluation, even if the reset rate would not take effect until a future date and/or be calculated
using a future index (Reset Interest Rate).
For ARM loans, including Pay Option Loans that are ARM loans and interest only ARM loans,
that have an interest rate reset scheduled more than 120 days after the date of the evaluation,
Tthe monthly mortgage payment and interest rate used to determine eligibility will be the
borrower’s current scheduled monthly mortgage payment (which, in the case of Pay Option
Loans that are ARM loans, means the minimum payment required under the loan documents
regardless of which payment the borrower elected to pay in the prior period) and the note
interest rate in effect at the time of evaluation is used to determine eligibility for adjustable rate
loans that reset more than 120 days after the date of evaluation.
If a borrower has an ARM or interest-only mortgage loan, the mortgage loan will convert to a
fixed interest rate, fully amortizing mortgage loan. For ARM loans that provide for a monthly
payment option (e.g., specified minimum payment, interest only payment, 30-year fully
amortizing payment or 15-year fully amortizing payment), and a rate reset is scheduled within
120 days of the date of HAMP evaluation, the payment used to calculate the 31 percent monthly
mortgage payment ratio should be the fully amortizing monthly mortgage payment based on the
note reset rate using the index value as of the date of the evaluation. For pay option loans (i.e.,
loans where the borrower has an option to pay a fully amortizing monthly payment, a negative
amortizing monthly payment or an interest only monthly payment), the servicer in evaluating the
borrower for HAMP must use the fully amortizing monthly payment amount. For loans where
servicemembers are protected by the Servicemembers Civil Relief Act and temporary interest
rate caps are imposed, the servicer in evaluating the borrower for HAMP must use the full
contractual rate (regardless of the interest rate cap)..
IN PLAIN ENGLISH by Anna Cuevas:
Any Adjustable rate mortgage including interest only loans and option arm loans that have a pending reset within 120 days of the evaluation will be calculated using the fully amortized rate and current balance using the index as of the date of the evaluation.
If your rate is not going to reset until AFTER 120 days of your evaluation then the current payment will be used in the HAMP evaluation. Except in loans such as Option Arm loans where you have the option to pay the fully amortized payment, in this case the fully amortized payment is used to evaluate you for the HAMP program.
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