We’ve all heard of the “Making Home Affordable Program”, which has been in play since early 2009. It wasn’t until this past June, however, that the “The HAMP Tier 2” program became effective.
Since June 1, when it went into affect, there have already been new changes put into place since it appears there are many homeowners who are eligible for this particular program designed to reduce the number of foreclosures. Still, there are thousands who don’t understand what these programs and surprisingly, there are even more who have never heard of it without the legal brouhaha and political-speak. So, with that in mind, we thought we’d take a look into this mortgage modification program with the goal of providing more information on what it does and what the expansions mean for homeowners.
Works with Other Programs
The new guidelines fall under the title of HAMP (Home Affordable Modification Program) Tier 2 and they basically expand the qualifications and deadlines to be eligible for a loan modification under HAMP or other relief available through three different government programs:
- Home Affordable Unemployment Program
- Home Affordable Foreclosure Alternatives Program
- Second Lien Modification Program.
Keep in mind, HAMP Tier 2 also does not apply to mortgage loans through Fannie Mae or Freddie Mac or loans guaranteed by the Veterans Administration, the Department of Agriculture Rural Housing Service or the Federal Housing Administration (FHA).
One of the biggest and most important changes refers to the expiration date of the program which has now been pushed back to December 31, 2013. That means that all applications for a loan modification, unemployment forbearance, or any of the other programs through the Making Home Affordable Program must be received by your lender by this date. That was a much needed extension as word has been slow to get out about the benefits and reasons for its founding in the first place.
There have been other changes, too, when it comes to HAMP 2 including:
Expansion of number of loan modifications. You may recall that HAMP Tier 1 allows only one loan modification. HAMP Tier 2, when it was being devised, made allowances and now, under HAMP Tier 2, you can modify up to three different mortgages.
Inclusion of non-owner occupied homes. Mortgage holders who don’t occupy the home as their principal residence are now eligible under HAMP Tier 2, which was a big change from the initial program and widens the net so that more homeowners can qualify.
There’s also an expansion of how “owner occupied” terms apply. These include properties of displaced borrowers – those deployed in the military, with job transfers out of the area, etc. The kicker in this particular change is that it must have been your principal residence before relocating and you must intend to reoccupy the home at some point in the future. As it is now, the current occupant cannot be a tenant for owner occupied terms.
Another big change is the inclusion of 12 month forbearance assistance to unemployed. Servicers (or lenders) are now required to offer forbearance assistance to unemployed homeowners for one year. When the borrower gains employment or the 12 months have expired, they will be evaluated for eligibility under HAMP. This UP unemployment assistance has been expanded to included borrowers whose loan is secured by a vacant or tenant-occupied property.
The borrower’s monthly mortgage payment ratio does not affect their consideration for assistance. Borrowers who defaulted on a HAMP trial plan or HAMP loan modification must also be considered for UP assistance. In many instances, this is the second chance many were hoping for.
Keep in mind, there are millions of homeowners who are so overwhelmed and so unsure of what protections are in place, often, the easiest way of dealing with it is not dealing with it. Hopefully, these changes will illuminate the path for homeowners. The next few changes also are in direct response to those who might have grown frustrated by the lack of clarity in the program.
UP unemployment assistance extended. Servicers are being required to consider borrowers for UP assistance, without regard to their monthly mortgage payment ratio, or if they’ve defaulted on a HAMP Tier 1 trial or modification payment plan. Eligibility for borrowers who received a modification under HAMP Tier 1. Borrowers who weren’t successful with a HAMP 1 trial payment plan are eligible to apply for HAMP 2 modification, as long as 12 months have passed.
Revision to debt-to-income (DTI) ratio for qualification. HAMP Tier 2 sets the pre-modification monthly mortgage payment below 31 percent of debt-to-income ratio. Borrowers are not eligible under HAMP Tier 2 if their post-modification debt-to-income ratio is less than 25% or greater than 42%. Remember, DTI is the equation of your total debt, including your mortgage, credit card payments, other loans, liens, garnishments and other expenses in relation to your income.
There are many more considerations and benefits; however, they will vary from one homeowner to another. We encourage you to speak with a financial counselor in your area for the specifics of your state. It’s become a saving grace for millions of homeowners and if you’re struggling, it’s certainly something that can provide the light at the end of the tunnel.
And as we learned during our research efforts for this piece, the program is very new and mortgage servicers are implementing and learning the guidelines simultaneously. This is one more reason why a proactive approach is your best mindset as you seek to understand the HAMP Tier 2 guidelines; it’s the one way you’ll go into this with a solid of understanding of what it can and what it can’t do.
Do you have personal experience with the HAMP program? If so, let us know in the comments your experience.