Owners of rental properties and homeowners burdened by secondary expenses are now eligible for mortgage relief under a new expansion of the Home Affordable Modification Program (HAMP).

Changes announced by the Treasury Department extend eligibility for the mortgage loan modification program to several categories of homeowners who were previously ineligible. Along with owners of rental properties, the new guidelines expand the program to include homeowners with heavy debt burdens from medical bills, second liens or other debts separate from their primary mortgage payment.

Extended though 2013

The Treasury Department also announced that HAMP is being extended another year, through the end of 2013, which matches it with the current expiration date for its sibling, the Home Affordable Refinance Program (HARP), which is aimed at helping homeowners refinance their mortgages to lower interest rates.

The administration is also tripling the incentive it pays lenders who reduce the principal owed on underwater mortgages as part of a loan modification, paying from 18 to 63 cents per dollar of reduction, depending on how much the loan-to-value ratio is reduced. Principal reductions will also now be allowed on mortgages backed by Fannie Mae or Freddie Mac, which previously were excluded from that part of the program.

Second liens included

Previously, financially pressed homeowners could not obtain a mortgage loan modification through HAMP if their primary mortgage payment did not exceed 31 percent of their monthly income, regardless of how much other debt they carried. This excluded many borrowers who had taken out "piggyback" loans to cover their down payment, and whose second liens put their total mortgage payments well above 31 percent of their income.

It also left out homeowners who were having trouble paying their mortgages due to other debt burdens, such as medical bills or child support payments.

To date, the HAMP program has enabled some 900,000 homeowners to obtain permanent mortgage loan modifications, well below the 3-4 million projected when the program was launched. However, the government says the program has also played a significant role in spurring lenders to offer some 2.6 million private loan modifications to homeowners and in setting standards that make those modifications more favorable to homeowners.

    Published on December 17, 2008