Mortgage modification attempt - what is the right amount of income

[progree]

Last edited Mon Jul 11, 2016, 10:43 PM - Edit history (7)

[font color = red]7/11/16 - Edited to add: See "UPDATE - On May 31" halfway down[/font]

Mortgage modification attempt - what is the right amount of income
so that one is not "too rich" or hopelessly poor to be helped?

I don't know if the DU Lounge is the place for this. I tried a longer version in the Consumer Advice group about a month ago, and got only 1 reply. http://www.democraticunderground.com/1112278

A close friend of mine is in the process of trying again to get a mortgage modification (mortgagostomy). Through the Home Affordable Modification Program (HAMP). She isn't qualified for HARP because neither Fannie nor Freddie own or back the loan or whatever.

She failed with a mortgage modification attempt in 2010 -- basically too poor to be helped. As they said in their letter:

... "We are unable to offer you a Home Affordable Modification because we are unable to create an affordable payment equal to 31% of your reported monthly gross income without changing the terms of your Loan beyond the requirements of the program"

From what I read online,

They look at your "debt to income ratio" (DTI), i.e. DTI =

monthly debt payment (aka PITI)
---------------------------------------------
monthly gross income

PITI = Principal + Interest + Property Taxes + Insurance

Monthly gross income is before-tax income

If your DTI is below 31%, then you are doing fine and you don't need help.

If your DTI is above X%, you are hopeless, i.e. her situation in 2010, where they won't change their terms drastically enough to bring the PITI down to where the DTI is 31%.

If your DTI is between 31% and X%, then they will change their terms (lower interest and maybe principal) to bring the PITI down to where the DTI is 31%.

I haven't been able to find out what "X%" is, and maybe (probably) it is situation - dependent. They talk about NPV - net present value calculations, but when I tried the long long NPV Calculator (more than once), it just Errored out.

It seems they don't consider a modification that would bring the DTI down to something larger than 31%, like say 35%. It seems like its 31% or bust. I don't know why that is.

Where she's at now, is that she has some housemates paying rent that amount to almost half her total income. And that makes her "too rich" (a DTI a bit below 31%).

But come February 1, the terms of her mortgage are that it stops being interest-only and she will have to pay principal on a 20-year amortization schedule. That will raise her payments by $600, resulting in a DTI of about 50% -- which might put her in the "hopelessly too poor" range.

Her mortgage is not that far under water -- per recent real estate agent comparables analysis.

I wish the mortgage company would be satisfied with just keeping it interest only for say another 5 years, by which time her house value will be above water and can be sold, and the mortgage company paid every dime of the balance.

(FWIW, Chase is the mortgage servicer, and is handling the mortgage modification process. Wells Fargo is the owner of the mortgage)

It will be a challenge enough handling interest only -- as it is an ARM whose interest rate is the 6 month LIBOR + 2.25%. And for every percentage point that the LIBOR goes up, her payment will rise by about $160/mo (if the loan remained interest-only)

She also has about a $20,000 balance on a Home Equity Line of Credit. Currently it only costs her about $70/month to service (interest only), but early next year is "year 10" on that too when they will require principal payments (I have no idea what they will require per month on that). I didn't include this loan in the PITI or DTI calculations above (should I have?).

Thanks for reading such a long and wonky post, and for any insights

[font color = blue]UPDATE - On May 31 she received a rejection letter from Chase[/font]. It turned out they didn't count as income the rent she received from her boarders (total $1000/mo) nor the $300/mo she has been receiving in child support from her daughter's father.

The reason given by the Chase representative is that there is no rental agreement and no proof that income was received since it was all on a cash basis (Actually some is paid by check). Despite both renters having written letters saying they were paying $500/month each in rent. So Chase is calling 3 people liars.

The reason given for rejecting the child support is that there is no court order requiring it, and no proof given of it being received. Despite the child support payer having written a letter saying he has been paying it every month for years. So basically Chase is calling 2 people liars. (Actually those payments are all paid by check, so there should be a paper trail available)

That's about half her income thrown out! Her remaining income leaves her too poor to qualify for help, according to HAMP guidelines (presumably because she is hopelessly poor and couldn't possibly afford even a reduced payment that still fit the HAMP guidelines. Despite making all her payments on-time in nearly 2 decades of home ownership).

Various HAMP program options were considered, and the reasons given were these --

{a} "We're not able to create an affordable payment equal to the required percentage of your reported monthly gross income without changing the terms of your mortgage beyond the modification program's requirements

{b} There is more equity in the property, which is the difference between what the home is worth and the amount owed, than the program allows

{c} We're not able to reduce your principal and interest payment by at least 10%.

{d} We're not able to calculate a proposed post-modification debt-to-income ratio that is within the range of 10% to 42%. Your debt-to-income ratio is your monthly housing expense, divided by your gross monthly income. Your monthly housing expense includes your mortgage principal and interest payment, plus any property taxes, hazard insurance, and homeowner's dues.

As for equity in her property - it is theoretically, per a from-the-street external appraisal, worth more than the mortgage (about $11,000 positive equity). But selling costs and fix-up costs to take care of issues that one doesn't see from the street would certainly put it back under water.

The only option she was given is to do a short sale, which would kill her almost perfect credit rating.

Another update is that her monthly payment goes up from $879 to $939 on August 1, primarily because of a rise in the 6-month LIBOR interest rate. That's a $60/month increase.

And as noted before, on February 1 her payment goes up by another $600/mo due to the interest-only period ending.

I also questioned Chase why they have not notified her of the huge $600/mo increase yet? The Chase representative checked and found they give no special notification for that, just the same 2-3 month advance notice as for any other upcoming payment amount change. (Actually she has been getting 1 1/2 month advance notifications of payment changes as measured by the due date. 2 months if one includes the 16 day grace period after the due date.)

I let them know how I felt about such inconsiderate heartlessness in giving her such a short notice of such a massive payment increase.

[mackerel]

1. They told me if I made more than 27K a year they wouldn't do it nor

would they approve a short sale.

[progree]

2. Ouch! What a bummer. Sorry to hear