Mortgage Servicing and Loan Modifications: 6.7.2.5 The HAMP “Waterfall”
If the borrower was eligible, the mortgage servicer was required to calculate hypothetical new mortgage terms based on the borrower’s monthly gross income, using a series of steps called the HAMP “waterfall.” Under the Tier 1 waterfall, the goal was to follow a series of steps until the borrower’s monthly payment was reduced to 31% of the borrower’s gross monthly income. Under the Tier 2 waterfall, the terms were fixed, but the monthly payment was required to fall within a certain debt-to-income ratio range based on the borrower’s gross monthly income.