Loan Modifications under HAMP Tier 1

HAMP Tier is the basic HAMP Modification. With Tier 1, a homeowner’s monthly mortgage payment, including their principal, interest, taxes, insurance, and association fees, is reduced through a series of steps, called a “waterfall”, so that it equals 31% of the homeowner’s gross monthly income. The servicer only moves on to the next step in the waterfall, if the target payment has not been reached. If the payment is still too high after all of the steps have been processed, a denial for the modification will be given.

The waterfall steps include the following: The servicer will capitalize the arrears, Interest rate reduction (it will go no lower than 2%), and Term extension (up to 480 months). If after taking these steps, the payment still exceeds 31% of the borrower’s monthly income, the servicer can defer a portion of the principal to the end of the loan (interest free). This results in a balloon payment when you sell the home or when the loan matures. Additionally, If the mark-to-market loan-to-value ratio is greater than 115%, the servicer is required to add a step to the waterfall in which a portion of the principal is forgiven.

The modification must result in a positive Net Present Value (NPV) for the investor. In the NPV Test, the results would need to show that it is more beneficial for the investor to modify the loan than to foreclose. If the loan fails this test, the Loan Modification application will be denied. For more information regarding loan modifications under HAMP Tier 1, please feel free to contact our office at 305-227-4030 or email us at

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Law Office of Ray Garcia, P.A.

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