What's the Deal With.....Loan Modifications

I have had several inquiries from people experiencing financial difficulties who want to know what I know about the loan modifications many lenders are offering. Some lenders are willing to consider modifying mortgages, but the borrower must meet certain criteria. First, you should know that lenders are focusing their efforts in the hardest hit areas first…Florida, California, Arizona, Nevada, Michigan and Ohio. They are aggressively trying to contact borrowers behind on their mortgage to see if they qualify. If not behind on their mortgage, it is not likely at the present time that lenders will be open to a modification.
What does it mean to qualify? The borrower must have a steady income (even if it’s been reduced) and their debt to income ratio cannot exceed 38% with the new modified loan payment. Translated: If you take your gross monthly income and divide it by the total of your new proposed housing payment plus the minimum monthly obligations on all your other credit cards, car loans etc., it should exceed 38%. If you are self employed and typically show the IRS very little income, this will be a large obstacle. If you have lost your job, you are not a candidate. If you are on commission and your income is much less this year, you still may be a good candidate. There are talks of plans that the government has discussed that would make these opportunities more widely available. A lot of scam artists have jumped on this bandwagon, so tread carefully before you sign up for anything. —SDE