How To Calculate Your HAMP Home Affordable Modification Program Like Your Lender Does.
BY Anna Cuevas; The Loan Mod Guru
Trying to navigate the tedious job of trying to modify your own loan is frustrating enough find some time to sit in silence and regroup your inner peace this way you can find the strength within you to carry on and be successful with your goals while maintaining a positive outlook and attitude.
Patience is important and I want to prepare you that even if for some
reason you are denied you can find out why with the recent changes 1/1/10
the servicer MUST tell you why you were denied, you can make the necessary
changes and then reapply.
This is what the lenders do to calculate:
You need to know exactly how much your total PreTax (gross) income is-
they will use a percentage of 31% that will be the basis of your NEW
MODIFIED PAYMENT including mortgage payment for your first loan only,
property taxes, homeowners insurance, and Homeowners Association dues – so
you must gather this information too * The total MODIFIED mortgage payment
CANNOT exceed 31% of your gross income.
You need to answer these questions:
What is your gross income (before taxes)? Multiply the Gross not the Net by
31% ( this is what they call 31% DTI (Debt to Income Ratio)
Take the 31% this is the MAXIMUM TOTAL payment that HAMP will allow- if
your current payment is already UNDER this figure your modification under
HAMP will not be approved.
What are the monthly Homeowners insurance, Property Taxes, HOA fees? Then,
deduct this from the above 31% figure
The balance is Maximum your 1st Mortgage Payment can be.
NEXT: How does the lender get you to that Maximum 1st Mortgage Payment
For the lender to arrive at the modified payment the first step will be for
your lender to
First they may lower your rate down to: as low as 2% start rate
Next,they may extend the term of your mortgage to 40 years in order to
lower the payment to get you to 31% – then, if this is not enough to get your payment to 31% then:
If necessary, the servicer must provide for principal forbearance to achieve the target monthly mortgage payment ratio. The principal forbearance amount is non-interest bearing and non-amortizing. The amount of principal forbearance will result in a balloon payment fully due and payable upon the earliest of the borrower’s transfer of the property, payoff of the interest bearing unpaid principal balance (UPB) or maturity of the mortgage loan. The modified interest- bearing balance (i.e., the unpaid principal balance excluding the deferred principal balloon amount) must create a current mark-to-market LTV (current LTV based upon the new valuation) greater than or equal to 100 percent if the result of the NPV test is negative.
**KEEP in mind, only a very low percentage of lenders
will do this, do not have high expectations of this because most likely you
will be let down) the lender may defer some of the balance and not charge
interest on a portion of the balance, payable when you refinance, at the
end of the term of the mortgage, or upon sale or refinance. If your
maximum payment did not get to 31% of your gross income using step 1 and 2
and your lender does not subscribe to deferring principle then your HAMP
loan modification request can possibly qualify for another internal
program, or denied, if denied then you need to increase your income, try to
lower your insurance and property taxes, if possible and then reapply and
let your lender know you have new information to submit. Keep your
timeline in mind at all times and don’t forget to write down names,
departments, and dates.
Keep this example in mind – let’s say your gross income is $2000 per month
x 31% is $660 – (the original payment was $1500 per month, for example)
and the homeowners insurance and taxes are $500 your lender is NOT going to
give you a ONLY an allowable $160 MORTGAGE payment to arrive at the $660
maximum total modified payment because the payment includes the insurance
and taxes and HOA- it is important to be realistic and work out your
* this is key – as an example scenario if they were to say the loan failed
NPV Net Present Value test what that is in a nut shell is that according to
a specific formula (NPV) it is more profitable to foreclose then to modify
the loan. In the example I listed here if they were to let someone go down
to a $160 per month payment then obviously foreclosing would be more
profitable if lets say the home was worth 200,000 they would gain more
profit selling the home after foreclosure then agreeing to take such a
drastic payment reduction.
Work on finding opportunities to increase your income if it is too low to
qualify or you if you have been denied – Ask questions and get the exact
detailed numbers they used and the reason for your denial. This way you can
reapply when you can increase your income.
They do not use your expenses or credit card debt into these figures
(called ratios) but if you carry a large credit debt load you will be
referred to credit counseling- I would also suggest debt settlement if you
are already late on your other bills as well.
My advice is to please be prepared to be patient, yet commit to a positive
mindset and commit to not give up and make the calls, take the action, and
do the work if you are going to do this yourself you need to be your own
advocate and provide yourself with first class customer service. This
means get yourself organized and go above and beyond even if it takes a few
no’s to get to the yes. Analyze your financial situation, make the
necessary cutbacks, make a commitment to give this your all and that means
to work on your mindset and remain as calm as possible so you can be
successful at modifying your own mortgage loan.
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