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.
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.)
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)).
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).
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.
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:
In a basic HAMP Tier 2 modification, your mortgage servicer uses a waterfall to modify the mortgage. The waterfall steps include:
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.
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.
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.