Launched in 2009, HAMP helped troubled borrowers by either reducing the principal they owed or the monthly interest they paid, with many receiving rates as low as 2%.
But modifications under the program remained fixed for only five years and starting the next several months, the earliest borrowers in the program will begin seeing their rates climb by 1% a year to a high of 5.4%, the Special Inspector General's report on the Troubled Asset Relief Program (TARP) said.
As a result, some 33,000 borrowers are expected to see their rates increase this year, with payments climbing by an average of almost $200 a month, the watchdog estimated.
Currently, the median mortgage payment among these borrowers is $773 a month. Once all rate hikes are factored in, their payments are expected to climb to a median of $989 a month, SIGTARP calculated.
However, a Treasury Department spokeswoman notes that the resets don't actually begin until five years after the modifications become permanent, which, in most cases is five years and three months after they were initially granted. That reduces the number of resets expected this year to about 18,000.
"We're already seeing alarming re-default rates and are really worried that this could lead to more," said special inspector general Christy Romero. "It will be a real challenge for people to pay the higher amounts."
As of November 31, 359,000, or 28%, of borrowers with HAMP-modified mortgages had already re-defaulted on their mortgages and nearly 100,000 more were deemed "at risk" of default, SIGTARP reported.
Four states, including California, Florida, New York, and Illinois, accounted for half of all of the HAMP modifications that are expected to see rates climb. Some borrowers, particularly in expensive coastal markets, could see their mortgage payments climb by as much as $1,700 a month, SIGTARP reported.