What happens if I fail to make my modification payments on time?

Home Affordable Modification Program (HAMP) was started by the Federal Government to help homeowners to live in their homes and avoid a foreclosure. If you happen to default in the payment of your mortgage, you can approach HAMP for loan modification service.

This is known as HAMP Tier 1 modification, whether it is a plan for permanent modification or a modification for a trial period. If you have defaulted in this payment you can reapply for a modification under HAMP Tier 2 category.

How Does Modification in HAMP Tier1 Work?

When you go to HAMP for loan modification, the loan modification specialist uses a modification program which reduces the gross monthly income by 31% on the mortgage which includes association fees, insurance, interest rates and principal. Once the loan is modified there is a trial period of three months.

If you make the three trial payments on time then on the first day of the month after the trial period, the loan agreement will become permanent. As per the new rules people who did not qualify for HAMP Tier 1 could qualify for HAMP Tier 2 for a home that was not the primary residence.

How Does Modification under HAMP Tier 2 Work?

After defaulting under HAMP Tier 1 you can apply, to loan modification professional in HAMP for Tier 2 modification. Although you have defaulted in Tier 1 trial payment after two instalments, or if you have not made a single payment under Tier 1, you can also apply if there has been change of circumstances and the monthly instalment has been overstated by 10%.

In HAMP Tier2 modification, loan modification inspector uses a waterfall and gets the mortgage modified. He capitalises on the arrears and brings down the interest to a fixed permanent rate. The term of the loan is increased to 480 months and there is forbearance of principal.

Going through the above you will know the problems you will face if you fail to make your modification payments.