Making Home Affordable: Lender Incentives
Mortgage lenders and investors get monetary incentives if they provide loan modifications and other work-outs through the Making Home Affordable program.
The government’s Making Home Affordable (MHA) program, which includes the Home Affordable Modification Program (HAMP), the Second Lien Modification Program (2MP), and the Home Affordable Foreclosure Alternatives Program (HAFA), among others, was developed to help homeowners avoid foreclosure, stabilize the housing market, and improve the overall economy.
You might be wondering why your loan servicer (the company you make your mortgage payments to) and the investor (the owner of the loan) would want to help you avoid a foreclosure with one of the Making Home Affordable programs. One reason is because the servicer and investor receive financial incentives from the government if you participate in a MHA program.
Read on to learn more about servicer and investor incentives under HAMP, 2MP, and HAFA.
Home Affordable Modification Program (HAMP)
The Home Affordable Modification Program (HAMP) assists borrowers by modifying their first lien mortgages so that the monthly payments are lower and more affordable.
If your lender agrees to a loan modification under HAMP, you start with a three-month trial period. After you make all three payments (on time), the loan modification becomes final. (For more information about HAMP and how to qualify for the program, see Nolo’s articles The Home Affordable Modification Program (HAMP) and Eligibility Requirements for Making Home Affordable Program Broadened to Help More Homeowners.)
Servicer Incentives Under HAMP
Once the borrower enters into a permanent modification after completing the three-month trial period, the servicer receives compensation.
The servicer receives a completed modification incentive. The amount of compensation for each completed loan modification ranges from $400-$1600, depending on how delinquent the borrower is when he or she enters into the trial period plan. The more delinquent the borrower is at the time of the plan, the less compensation the servicer receives. This encourages servicers to provide a modification before the borrower falls extremely far behind in payments. (A servicer is not allowed to try to collect additional amounts from the borrower during the loan modification process to attempt to reduce the delinquency period and consequently increase its compensation amount.)
The servicer may also receive a pay-for-success incentive. Additionally, a servicer will also receive an annual pay-for-success payment of up to $1,000 for three years if a particular borrower’s monthly mortgage payment is reduced through HAMP Tier 1 by 6% or more, so long as the loan is in good standing and has not been paid in full at the time the incentive is paid. (The pay-for-success payment is not available for HAMP Tier 2 permanent modifications.)
Investor Incentives Under HAMP
An investor is also entitled to certain incentives under HAMP once the borrower enters into a permanent modification, including:
- a "payment reduction cost share" incentive (which is based on the amount the borrower’s payment is reduced), and
- a “current borrower” incentive of $1,500 (if the borrower was current before the loan modification and the monthly payment was reduced by at least 6%).
Second Lien Modification Program (2MP)
If your first mortgage was permanently modified under the Home Affordable Modification Program (HAMP) and you also have a second mortgage, you may qualify for a modification or principal reduction on your second mortgage (such as a HELOC, or home equity loan) under 2MP. (To learn more about 2MP, see Nolo’s article Second Lien Modification Program.)
Servicer Incentives Under 2MP
A servicer receives a one-time payment of $500 for each completed 2MP modification. Also, the servicer receives an annual pay-for-success fee of $250 for up to three years if a particular borrower’s monthly second lien mortgage payment is reduced through 2MP by at least 6%.
If the second lien is extinguished, the servicer receives a one-time compensation of $500, so long as the second mortgage lien’s unpaid principal balance was:
- equal to or greater than $5,000, and
- the pre-modification monthly payment was equal to or greater than $100.
Investor Incentives Under 2MP
Investors are entitled to a payment reduction cost share incentive (which is based on the amount the borrower’s payment is reduced), and, in some cases, an extinguishment incentive if the second lien is eliminated.
Home Affordable Foreclosure Alternatives Program (HAFA)
HAFA provides two options so that borrowers can give up the home and avoid a foreclosure: a short sale or a deed in lieu of foreclosure.
HAFA Short Sales and Deeds in Lieu of Foreclosure
With a HAFA short sale, the loan servicer approves the short sale terms prior to listing the home and then accepts the sale proceeds in full satisfaction of the mortgage. (Learn more about short sales to avoid of foreclosure.)
With a HAFA deed in lieu of foreclosure, the homeowner voluntarily transfers ownership of the property to the lender to satisfy the debt. (Learn more about HAFA short sales and deeds in lieu of foreclosure, see Nolo’s article What's the Difference Between HAMP and HAFA?)
Servicer Incentives Under HAFA
If a short sale or deed in lieu of foreclosure is completed in accordance with the requirements of HAFA, the servicer will be paid $1,500 to cover administrative and processing costs. (Investors may choose to pay additional incentive compensation to servicers as well.)
Investor Incentives Under HAFA
The investor receives a maximum of $5,000 if it allows a portion of the short sale proceeds to be distributed to or paid to subordinate mortgage lien holders. (Learn more about how Short Sales With Multiple Mortgages work.)
How to Obtain More Information About MHA Programs
For more information about HAMP, 2MP, HAFA, and the other programs available under the Making Home Affordable program, go to www.makinghomeaffordable.gov. You can also call 888-995-HOPE (4673) if you have additional questions about getting mortgage assistance or avoiding foreclosure.
If you want to apply to any of the Making Home Affordable programs, call your loan servicer.