The federal Home Affordable Modification Program (HAMP) modified home loans (mortgages) to make them more affordable for struggling homeowners who were facing foreclosure. There were two levels or “tiers” under HAMP: Tier 1 and Tier 2. Unfortunately, the HAMP program stopped accepting applications as of December 31, 2016.
Still, if you want to learn the difference between Tier 1 and Tier 2, how HAMP worked—and some of the programs that are currently available to help homeowners—read on.
The Obama administration introduced the Making Home Affordable (MHA) program in 2009 to help homeowners avoid foreclosure. One popular program under MHA was the Making Home Affordable Modification Program, called “HAMP.”
HAMP, which was announced on March 4, 2009, was the most popular MHA program. Borrowers who had a steady income, but were struggling to keep up with mortgage payments, were often able to modify their loan through a HAMP Tier 1 or HAMP Tier 2 modification.
HAMP Tier 1 was a basic HAMP modification. Under Tier 1, a homeowner’s monthly mortgage payment, including principal, interest, taxes, insurance, and association fees, was reduced through a series of successive steps (called a “waterfall”) so that it equaled 31% of the homeowner’s gross monthly income.
Effective June 1, 2012, the Obama administration expanded the HAMP program to borrowers who did not meet the eligibility requirements under the existing program (HAMP Tier 1). HAMP Tier 2 was available to homeowners who, for example, wanted to modify a loan on a rental property or previously received a HAMP permanent modification, but defaulted in their payments, and lost good standing. (Borrowers lost good standing if they fell 90 days or more behind on their payments under a HAMP Tier 1 permanent modification.)
Unfortunately, HAMP stopped taking new applications as of December 31, 2016.
While most of the programs under MHA, including HAMP—both Tier 1 and Tier 2—have expired, the federal government's Home Affordable Refinance (HARP) program is available through 2018.
HARP is the mortgage refinance option under the MHA initiative. With HARP, you might be able to get a lower interest rate on your mortgage loan, get a shorter loan term, and/or change from an adjustable to fixed-rate mortgage.
Even though HAMP is a thing of the past, you might qualify for another type of loss mitigation program. ("Loss mitigation" is what the mortgage industry calls the process of working out a foreclosure avoidance option.)
To replace HAMP, Fannie Mae and Freddie Mac, the government-supported enterprises that own or back many mortgages, developed the Flex Modification program.
Lenders are also free to follow their own procedures for settling mortgage issues by offering in-house (“proprietary”) modifications, forbearance agreements, or repayment plans. If you decide that it’s time to give up the property, you might be able to arrange a short sale or deed in lieu of foreclosure.
To apply for a loss mitigation option, you must submit an application along with supporting documentation like pay stubs, tax returns, and bank statements to your mortgage servicer. (Your mortgage servicer is the company that you make your monthly mortgage payments to and that manages the loan account.)
Once you submit a complete application, under federal law, the servicer generally can’t initiate or continue with a foreclosure. (Get an overview of foreclosure protections for homeowners with mortgages.)
Your servicer will then evaluate your application and then let you know if you qualify for a loss mitigation option.
If you need help working out a modification or another way to avoid foreclosure, consider contacting a foreclosure attorney or a HUD-approved housing counselor. (Learn more about using a HUD-approved housing counselor.)