At This Time You Are Ineligible for the HAMP Program… Does This Sound Familiar?

By: Anna Cuevas; The Loan Mod Guru

To be considered as qualifying for HAMP Home Affordable Modification Program even when you are NOT currently delinquent this formula must be used by your servicer and the borrower’s debt coverage ratio must be less than 1.20. This is sometimes difficult to figure out so I have explained the step by step process.

This is how the lender calculates this formula to see if your account is in “imminent” danger of becoming delinquent, in other words to figure out if you seem like you may become delinquent very soon.

A. To come up with what they call Debt Coverage Ratio you first take your net or
your after tax and deduction income, minus escrow amounts ( monthly property tax, homeowners insurance, Homeowner association fees), also minus all other credit obligations (any obligations on your credit such as credit cards, loans, auto payments, etc), minus living expenses (such as utilities, gas, auto insurance, food etc.), minus negative rental income or investment property mortgages,
Once you come up with this figure you then you divide the figure you get here by the figure you get from the calculation below.

B. Now take the current first mortgage payment including principal and interest but NOT counting escrow or taxes and insurance.

A divided by B = Debt Coverage Ratio

The number you get is called the debt coverage ratio and this is the exact calculation your servicer will use to verify you have a hardship and whether you may be facing foreclosure when you are NOT behind in your mortgage payments to see if you can apply for the HAMP Home Affordable Modification Program per the exact guidelines your participating servicer must follow per the Treasury Department, Fannie Mae and Freddie Mac as of 1/01/2010.

If you get less than 1.20 you can be considered at risk for defaulting on your payment
AND you must also have less than three monthly total current mortgage payments including property tax and homeowners insurance payments in liquid assets cash reserves that you have available from any financial or brokerage institution such as checking, savings, certificate of deposits cd, mutual funds, stocks, bonds or money market accounts (even if they are held for an extended term).

If you pass both of these tests, you get a ratio of less than 1.20 AND you have less than the three months in liquid reserves then this signals the servicer to proceed and begin the process of eligibility for the HAMP Loan Modification Program.

IF the figure you get here is over 1.20 then you will not be considered as being in danger of facing a financial hardship and you will not be considered for the HAMP President Obama Program when you have not missed a mortgage payment.

It is of upmost importance that you get empowered with knowledge when trying to save your home. The more you know the more confidence you will have. Only then will you have the modification mindset you MUST have to be successful.

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