Loan Modifications and HAMP

HAMP – HOME AFFORDABLE MODIFICATION PROGRAM

Loan Modifications and HAMP

So loan modifications are still alive and well. The process can still be difficult and take 3-6 months but is still much better than it was years ago. A basic rule is that if you have enough income you will generally qualify for a loan modification. You can still have too much income or too little income to qualify, and there are some lenders that still do not offer loan modifications or have limited ones that may not be beneficial to homeowners who are still struggling. Below are the basic guidelines for HAMP Tier 1 and HAMP Tier 2 which are some of the most common types of loan modifications offered.

Home Affordable Modification Program (HAMP)

There are two types of HAMP loan modifications. They are called Tier 1 HAMP modification and Tier 2 HAMP modification. Tier 1 is the original HAMP modification program and Tier 2 was added later to encompass more homeowners.

The basic requirements for HAMP Tier 1:

  1. The mortgage loan is a first lien and was originated on or before January 1, 2009
  2. The property must be your primary residence
  3. The property is a 1-4 family residential premises
  4. There are loan limits depending on how many units there are and the amount of unpaid principal balance must be lower than these limits;
    1. One Unit $729,750.00
    2. Two Units $934,200.00
    3. Three Units $1,129,250.00
    4. Four Units $1,403,400.00
  5. You must be in default or delinquent on your loan. There is a provision where is default is reasonably foreseeable you can qualify but this is hard to meet;
  6. You can’t have received a HAMP modification previously on this loan. If you receive one and default you are automatically disqualified from another one;
  7. If you were convicted for a crime in regards to a real estate or mortgage transaction in the last 10 years you are not eligible;
  8. Finally your mortgage payment must be greater than 31 percent of your gross monthly income. Your mortgage payment includes principal, interest, taxes and insurance.

HAMP Tier 1 works like this:

The bank will try a few different methods to bring your payment down to 31% of your monthly gross income:

  • They will lower your rate as low at 2%
  • They will extend the term of your loan up to 40 years
  • They will forbear principal which means they put aside a portion of the loan that you will not pay interest on but will be a balloon at end of mortgage.
  • We are also told they will reduce the principal balance down to as low as 95% of the value of your home. We do not see this happen very often.

There are still nuances in this procedure that can cause you to not qualify. One thing we used to see often but not as much anymore was that the bank would tell you that you failed the NPV test. This is a net present value test that determined if it was more in the banks interest to offer you a loan modification or to take the home to foreclosure. I believe homeowners were generally denied in this manner when they had equity in their homes.

So HAMP Tier 2 was added later and while many of the requirements are similar there are some significant differences. To be eligible you need to meet the following criteria:

  1. The mortgage loan is a first lien and was originated on or before January 1, 2009
  2. For some reason you are not eligible for HAMP TIER 1
  3. The property can be a rental or owner occupied
  4. The property can’t be a second home or vacant
  5. Must be a 1-4 unit property with same loan limits as listed above
    1. One Unit $729,750.00
    2. Two Units $934,200.00
    3. Three Units $1,129,250.00
    4. Four Units $1,403,400.00
  6. You must be in default or delinquent on your loan. There is a provision where is default is reasonably foreseeable you can qualify but this is hard to meet;
  7. The principal, interest, taxes and insurance, (mortgage payment) including escrow shortage must be more than 15% of your monthly gross income
  8. If you defaulted on a previous HAMP modification you may be eligible for HAMP Tier 2 if you have had a change in personal or financial situation or at least 12 months have gone by since date of original HAMP modification.

HAMP Tier 2 works like this:

  • 

If you don’t qualify for HAMP (Tier 1) you may then possibly qualify for HAMP (Tier 2)
  • The HAMP Tier 2 must reduce your mortgage payment by at least 10%
  • The HAMP Tier 2 must also lower your mortgage payment between 15% and 45% of your monthly gross income.

They do this by offering the following:

  • 30 Year Freddie Mac Primary Mortgage Market Survey rate plus .50%;
  • The may extend to the term of the loan up to 480 months;
  • The bank may forbear up to 30% of the mortgage balance. It would be non-interest bearing a balloon payment would be due at the end of the mortgage term;
  • The bank may also forgive some principal to get the loan to value to 95% of the value of the home. We do not see this happen often.

So these are the basics for HAMP Tier 1 and HAMP Tier 2. If you are expecting to get a principal reduction it is unlikely to happen. HAMP Tier 1 is now similar to many in-house loan modifications a lot of the banks have. Generally speaking you will usually be run for a HAMP loan modification prior to any others. The key to getting a loan modification is to have sufficient income and to be extremely diligent throughout the whole loan modification process. If you are in the application process you should be calling the bank on weekly basis to check on the status.

If you’d like to learn more about the HOME AFFORDABLE MODIFICATION PROGRAM (HAMP) visit the federal government’s Making Home Affordable website.

 

Contact Peter Spino at ☎ 914-984-5315 for Loan Modification assistance in Westchester and a free Loan Modification consultation

 

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