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Registered: ‎07-15-2009
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31% of mortgage payment

I am current on both my house payment and credit cards.  I am interested in getting the loan mod. that the Pres. passed.  31% of house payment.  I currently pay around 65-70%.  I was told by bank that it would hurt my credit for two years, Why? 
Senior Contributor
Posts: 3,299
Registered: ‎04-22-2008
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Re: 31% of mortgage payment

The loan mod programs are mainly for people wo are behind.  To get them most banks will require you to miss from 1-3 payments. 


They have refinance options that are available for people who are not behind.


Also, the programs are not required, so it is entirely up to your bank if they want to do it. 


If your bank wants to do it, tey have to verify hardship first, then they look at your income/assets to see if you can afford the program once the mod/refi is done, then the bank has to decide if they are willing to take a hit to bring the loan down to 38% dti.  If the bank is willing to loose what looks to be 30% in your case (or re-arrange the 30%), then the gov't will step in to fill the additional 7%.


This is all from stuff I was just looking into for a friend today.  There are a bunch of programs out there, but this is the financial stability program the gov't has going from what I read today.

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Registered: ‎03-18-2008
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Re: 31% of mortgage payment

littleleela wrote:
I am current on both my house payment and credit cards.  I am interested in getting the loan mod. that the Pres. passed.  31% of house payment.  I currently pay around 65-70%.  I was told by bank that it would hurt my credit for two years, Why? 

The first thing you need to do is go to the Making Home Affordable website to see if your lender is participating in the program.  If your lender is participating, then you need to determine whether your loan is owned/backed by Freddie Mac or Fannie Mae.  There's links on the website that will help you figure it out.


If your lender is not participating, or if the investor of your loan is not Fannie or Freddie, then your lender is not bound by the guidelines in the President's program.  Participation in this plan is voluntary on the part of the lender.


The goal of this plan is to get a borrower's monthly front-end debt-to-income ratio to 31% or lower.  Front-end debt is sometimes referred to as PITIA: Principal, Interest, [Property] Taxes, [Homeowners] Insurance, and Association fees.  For the purposes of the Making Home Affordable plan, it does NOT include any payments on second mortgages (e.g.HELOCs or home equity loans).  The income used in the calculation is your gross income (not after-tax income).


From the Making Home Affordable FAQ:


"Do I need to be behind on my mortgage payments to be eligible for a Home Affordable Modification?


No. Responsible borrowers who are struggling to remain current on their mortgage payments are eligible if they are at risk of imminent default, for example, because their mortgage payment has recently increased to a level that is not affordable. If you have had or anticipate a significant increase in your mortgage payment or you have had a significant reduction in income or have experienced some other hardship that makes you unable to pay your mortgage, contact your servicer. You will be required to document your income and expenses and provide evidence of the hardship or change in your circumstances."


Lenders probably "triage" requests for modification.  That is, they put a higher priority on someone already in default than someone who is still current.  It is generally NOT recommended that you intentionally go late on your mortgage in the hopes of forcing a modification.  That has backfired on many people.  If you have to forgo the necessities in life (medications, health insurance, basic utilities, for example) in order to make your mortgage payments, then you will have to make a decision as to whether you should continue paying your mortgage given the hardship that you face.


Trying reduce a front-end DTI from 70% to 31% is potentially a very difficult goal to achieve.  If your interest rate is very high, then it might be easier; if your interest rate is relatively low (i.e. in the 6-7% range) then it is going to much harder to bring your DTI down.


Regarding your credit: I don't know what that customer service rep had in mind, but a modification does not necessarily affect your credit.  If you are late on your payments at time of modification, those late payments will hurt your score, but the modification itself might have little or no negative effect.  It will depend on how the modification is reported.  I can tell you that when my loan was modified, my score didn't go down at all.

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