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Improve your odds for mortgage loan modification under HAMP

by Dorota Trzeciecka on June 15th, 2010

Once you meet all the eligibility criteria for HAMP, mortgage servicer will determine if you qualify for HAMP modification.  As you will see, this is a multiple step process that begins with calculation of your income and expenses and ends with Net Present Value Test.  

Calculation of gross monthly income and housing costs under HAMP

The servicer’s goal is to determine the amount of monthly mortgage payment, property taxes, and insurance that will let the mortgage payment equal 31% of your gross income.    The servicer will first add up your income from different sources, wages, salary, overtime, commissions, bonuses, social security, self-employment.  Next, the servicer will simply multiply your gross income times 31%.  This is the modified mortgage monthly payment.  The servicer will then add up monthly property taxes, insurance, HOA dues (if any) and will subtract it from the modified monthly mortgage payment.  The result is a new monthly mortgage payment to prepare for the next step in the qualification process, the “Waterfall” calculation.

Whether you are requesting modification of your mortgage because you are in foreclosure, in an imminent danger of default, or you are in bankruptcy,  there are few things that you need to keep in mind if you want to improve your chances for HAMP modification.  Your servicer will only use verifiable sources of income.   For that reason, your chances for modification are only as good as the documents and information about your income and expenses that you will provide to your servicer to support your request for modification.   Put yourself in the shoes of the servicer and ask yourself: what documents and information would I need from this homeowner to make sure that he or she has the ability to make the modified payments?   Most of it is common sense.   For example, if your only income is from wages or salary, you are safe with providing your most current pay stubs.   If, on the other hand, you have additional income, be it rents from investment property, or alimony and child support, you have to provide proof of such additional income in the form of cancelled checks, bank statements, copies of bank deposits, etc.   If you receive financial help from a family member on regular basis, you have to show the stream of these payments being deposited to your bank account by providing cancelled checks, bank statements, or copies of bank deposits; the servicers will not take your word for it.   If you are self-employed, are an independent contractor, or work on commission, and your income varies from month to month, you have to be prepared to provide profit and loss statements.  

How to deal with expenses in your request for HAMP modification

Full disclosure of all your expenses is the key. In addition to your regular household expenses like food, clothing, utilities, cable, phone, child care, etc., you have to disclose all the debts that you have, including other mortgage payments, credit cards, car payments, and any other debts that you currently have, even if someone else is making payments on them.   Remember, if the debt is in your name, it is your debt.  If you do not disclose a debt you have, even inadvertently, the servicer may think that you are hiding something.   You risk being subject to a higher scrutiny by the servicer from then on.    Remember, applying for a mortgage modification is not unlike applying for a new loan.  One thing you can be sure of is that the mortgage servicer is looking at your credit report, with your prior permission, of course.  You have to make sure that any discrepancy between your disclosures in the request for modification and the credit report are explained away and supported by documents.   For example, if you have recently participated in a debt settlement program of any of your debts, you must prove the reduced payment amounts, or provide a zero balance letter; your credit report may still show the pre-settlement amounts that will count against you.  And, because you may not know what else is lurking in your credit report that may hurt your chances for mortgage modification (like an old debt that you thought was discharged in bankruptcy), a good practice is to order your credit report (you can get your credit report for free), and dispute any mistakes prior to applying for the modification. 

These are only few suggestions on how you can improve your chances of being approved for HAMP modification.   They may save you from being sent back to the end of the line, and starting over, while your foreclosure case is moving forward.

From → Foreclosure