If you previously defaulted on your mortgage payments under HAMP (now called HAMP Tier 1), whether it was a trial period plan or permanent modification, you may be eligible to reapply for a loan modification under the program’s Tier 2 category. Read on to learn more about the history of the Home Affordable program (HAMP), the difference between HAMP Tier 1 and HAMP Tier 2, and to find out if you may be eligible to reapply to get another loan modification even if you quit making payments on a prior HAMP modification.
History of HAMP
First, a little history: In 2009, the federal government introduced the Making Home Affordable program to help homeowners stay in their houses and avoid foreclosure.
The main program under the Making Home Affordable initiative is the Home Affordable Modification Program (HAMP), which modifies loans to make them more affordable and sustainable for the long-term. HAMP is now the largest mortgage loan modification program in the country. (Learn about other programs available to assist homeowners under Making Home Affordable initiative.)
HAMP Tier 1
Under the original HAMP program (which is now called HAMP Tier 1), the loan servicer uses a modification waterfall, which is a series of successive steps, to lower a homeowner’s total monthly mortgage payment (including principal, interest, taxes, insurance, and association fees) to 31% of the verified monthly gross income for all borrowers on the mortgage. The modification must result in a positive Net Present Value (NPV) for investors. (Learn more about HAMP, including eligibility requirements, in Nolo’s article The Home Affordable Modification Program (HAMP)).
The Trial Period Plan
If your servicer agrees to modify your loan under HAMP Tier 1, you’ll start with a three-month trial period. So long as you make three on-time trial payments during this period, the loan agreement will become permanent on the first day of the month after the trial period (if you still meet the eligibility criteria).
HAMP Tier 2
On June 1, 2012, the Obama administration expanded the original HAMP program by eliminating some of the previous qualification requirements. This means that borrowers who are ineligible for regular HAMP (Tier 1) may quality for a loan modification under HAMP Tier 2. For example, you can now qualify for a HAMP Tier 2 modification for a home that is not your primary residence or if you defaulted on a previous HAMP modification.
You May Be Eligible for a Modification Even if You Defaulted Under HAMP Tier 1
If you defaulted on your HAMP (Tier 1) payments, you may be eligible to receive another modification under HAMP Tier 2, though you’ll still have to meet the basic HAMP qualifications. (Learn more about basic eligibility requirements for HAMP Tier 2.)
You can reapply for a modification under HAMP Tier 2 after a default under HAMP Tier 1 (even if there has been no change in your circumstances) if 12 months have passed and one of the following is true:
- You defaulted on the HAMP Tier 1 trial period plan after making one or more payments. (However, you can reapply for a HAMP Tier 1 modification if you never made your first payment under a HAMP Tier 1 trial modification, the servicer miscalculated your income resulting in a trial plan that overstated the monthly payment by 10%, or you did not accept the trial plan for any reason, if you can show a change of circumstances.)
- You fell 90 days or more behind on your payments under a HAMP Tier 1 permanent modification and lost good standing. (If you lose good standing, you cannot be reconsidered for a future HAMP Tier 1 modification, but you may get a Tier 2 modification.)
How Tier 2 Modifications Work
In a basic HAMP Tier 2 modification, your mortgage servicer uses a waterfall to modify the mortgage. The waterfall steps include:
- capitalizing the arrears
- reducing the interest rate to a permanent, fixed rate
- extending the term of the loan to 480 months, and
- principal forbearance (or in some cases, principal reduction).
Once the terms of the loan modification are established, the loan modification is checked against the NPV test and screened for affordability. (Learn more about the NPV test how to use the government's CheckMyNPV tool to estimate your net present value.)
A HAMP Tier 2 modification is considered affordable for a homeowner if the monthly payment falls between 25% and 42% of the borrower’s gross monthly income, and has a principal and interest reduction of 10% from the pre-modification payment amount.
What Happens if You Then Default on the HAMP Tier 2 Modification
If you default after making one or more HAMP Tier 2 trial payments or lose good standing under a HAMP Tier 2 permanent modification, you are not eligible for another Tier 2 modification. However, if you fail to make the initial trial payment under HAMP Tier 2, you may be considered for another HAMP Tier 2 modification if you can demonstrate a change of circumstance.
Finding Out More about HAMP
To find out more about HAMP, visit the federal government's Making Home Affordable website. To read more about other government programs for struggling homeowners, visit Nolo's Government Foreclosure Prevention Programs area.
HAMP is currently scheduled to expire on December 31, 2016.