[Moe Bedard]

Sledge Hammer,

Welcome to the forum and thank you for joining.............



the servicer, if participating in the Making Home Affordable modification program, has steps and guidelines that they will be following for the modification process............so the recommended solution would be the outcome of what they arrive at after performing the NPV test and verifying income and expenses...........to try to get the payment on the first lien, including Principal, Interest, Taxes, and Insurance, down to the target of 31% of monthly gross income.


From the program guidelines:

Front-End DTI is the ratio of PITIA to Monthly Gross Income. PITIA is defined as principal, interest, taxes, insurance (including homeowners insurance and hazard and flood insurance) and homeowners association and/or condominium fees. Mortgage insurance premiums are excluded from the PITIA calculation.

The Back-End DTI is the ratio of the borrower’s total monthly debt payments (such as Front-End PITIA, any mortgage insurance premiums, payments on all installment debts, monthly payments on all junior liens, alimony, car lease payments, aggregate negative net rental income from all investment properties owned, and monthly mortgage payments for second homes) to the borrower’s Monthly Gross Income. The servicer must validate monthly installment, revolving debt and secondary mortgage debt by pulling a credit report for each borrower or a joint report for a married couple. The servicer must also consider information obtained from the borrower orally or in writing concerning incremental monthly obligations.

Borrowers who otherwise qualify for a modification under this program, but who would have a post-modification Back-End DTI greater than or equal to 55%, will be provided with a letter stating that they are required to work with a HUD-approved counselor and the modification will not take effect until they provide a signed statement indicating that they will obtain counseling.


The borrower’s Monthly Gross Income is the amount before any payroll deductions includes wages and salaries, overtime pay, commissions, fees, tips, bonuses, housing allowances, other compensation for personal services, Social Security payment, including Social Security received by adults on behalf of minors or by minors intended for their own support, annuities, insurance polices, retirement funds, pensions, disability or death benefits, unemployment benefits, rental income and other income.
Monthly net income can be used for preliminary screening and qualification. If used, the servicer will need to multiply net income by 1.25 to get to an estimate of Monthly Gross Income.



In summary, participating servicers will (in order):

• Determine that a loan meets the minimum eligibility criteria (owner occupied, originated before January 1, 2009, UPB equal to or less than $729,750). If yes:

• Obtain sufficient income information to determine if the borrower has a front-end debt-to-income (DTI) ratio of 31% or greater (verbal income may be accepted for initial evaluation subject to verification prior to final approval). If yes:

• Capitalize (add to the loan amount) accrued interest, past due taxes and insurance, delinquency charges paid to third parties (e.g., for inspecting the property), and escrow advances by the servicer – but not late fees or other default fees charged by the servicer;

• Determine how much of an interest rate reduction is required to get the borrower's mortgage payment to 31% DTI, and if the DTI still exceeds 31% at the rate floor of 2%, modify the loan in other respects specified in the Guidelines;

• Apply a Net Present Value (NPV) test to determine if modification (including the incentive payments) provides the investor with a better financial outcome than foreclosure. If yes:

• Put the borrower on a trial modification at the new interest rate and payment for three months.

• If the borrower is current at the end of the trial modification period, the servicer will execute a modification agreement that includes escrows for taxes and insurance even if the prior loan was not escrowed.