I applied for a loan modification under HAMP 2 for my second home, but the bank is continuing to foreclose. How is this possible? I thought that the bank had to stop the foreclosure if I sent in the application to get my loan modified under HAMP.
If you submit an application for a HAMP modification, the loan servicer (the company that you send your payments to, which also handles loss mitigation applications) must hold off on starting a foreclosure or continuing a foreclosure (so long as you submit the application seven days prior to a scheduled foreclosure sale) until you have been evaluated and determined ineligible for HAMP.
Unfortunately, because the house is a second home, and not a rental property, you don't qualify for a HAMP modification and the loan servicer can proceed with foreclosure.
The Home Affordable Modification Program (HAMP) is part of the government’s Making Home Affordable initiative, which modifies existing first-lien mortgages to lower the monthly mortgage payment. (Learn more about HAMP.)
Originally, the HAMP program only allowed loan modifications for owner-occupied properties. Then, in 2012, the Obama administration expanded HAMP’s eligibility requirements. As a result, a borrower may now qualify for a HAMP modification even if the mortgaged home is not his or her primary residence, but there are some limitations.
Current Eligibility Requirements for HAMP
To qualify for a loan modification under the HAMP program, you must meet the following eligibility criteria.
- You took the mortgage out on or before January 1, 2009.
- The mortgage debt is equal to or less than $729,750 if the property is a primary residence or single unit investment property.
- The mortgage debt is equal to or less than $934,200 on a two-unit property; $1,129,250 on a three-unit property; or $1,403,400 on a four-unit property.
- The property has not been condemned.
- You have suffered a financial hardship and are either delinquent or in danger of becoming delinquent on your mortgage payments. If you’re looking to modify a loan on an investment property, you must be delinquent on payments in order to qualify.
- Your current income is enough to cover a modified payment (that is, you must have a job).
- You have not been convicted of felony larceny, theft, fraud or forgery, money laundering or tax evasion, in connection with a mortgage or real estate transaction within the last ten years.
Rental Properties Qualify for HAMP, Second Homes Do Not
Under HAMP Tier 2, mortgages secured by rental properties are eligible for a HAMP modification, but mortgages secured by second homes are not.
What is a second home? A second home is a home that you intend to occupy in addition to a primary residence for part of the year.
What is rental property? For HAMP purposes, a “rental property” is a property that is used by the borrower for rental purposes only (meaning, it is currently rented or the homeowner intends to rent the property) and is not occupied by the borrower, whether as a principal residence, second home, vacation home, or otherwise.
Also, if you rent your property on a seasonal basis, but you can use it when it's not rented, it is not eligible for a HAMP modification.
The Bottom Line
The bottom line is that since you were seeking a modification for the loan on your second home (rather than a rental property), you don’t meet the eligibility requirements for the HAMP program. Once your servicer made this determination, it was well within its rights to continue with the foreclosure.
After finishing its evaluation, the servicer should have sent you a denial notice that provided the reason for the HAMP denial along with a toll-free number to reach a representative who is able discuss the details about the notice with you.
Keep in mind that even though you have been denied a HAMP modification for your second home, your loan servicer may offer its own alternative to foreclosure. Contact your servicer for details.