Need some input on DTI...

[JayBet98]

Any input/thoughts/opinions appreciated...here's the long story short...

-$304,000 5 year fixed interest only ARM in Oct. 2005. Current balance is $303,018 (I paid a little extra for a while, but now doing interest only again).

-Am not due to adjust until 10/2010, but am sure the adjustment will be more than I can handle.

-Husband NOT on loan docs, but I have relied on his income to make household expenses work. He's been laid off since late June (construction) and market is not looking good for work any time soon.

-I have recently paid off all debt (but mortgage) with overtime assignments that have now disappeared. We are going to have to "re-enter" into a car loan because our current vehicle is not large enough for our 6 person family. Am current on mortgage.

-I calculated my front end DTI (38%, included interest only, tax, & insurance) and back end DTI (45% including interest only, tax, insurance and anticipated "new to us" car payment). No other monthly expenses were included in these calcs (like child care, groceries, bills, insurance, etc) and these are what make the month tight!

-I plan on writing a hardship letter explaining that although my husband is not on the loan docs, I have always relied on his income, and he's now laid off. We are able to make the bills but it's tight, and it will be near impossible when the rate adjusts.

-I have good credit, and am a responsible "borrower." I had every intention to refi into a 30 year fixed, but the market in CA has tanked and I'm underwater by about $100-150K. Through my research my loan is not serviced by Fannie or Freddie, so govt plans are no use.

All that being said,
...do you think I have a shot at a mod?

or

...do I not look to be in "enough" trouble yet...like I should wait closer to the adjustment date?

Thanks in advance!

[jakelabry]

When you calculate what you should be paying always use Principal, Interest, Taxes, Insurance, and HOA fees. This amount should not be more than 31% of your GROSS monthly income. If it is more then you should be able to apply for the HAMP program - this is a government modification program which DOES NOT require a Fannie or Freddie mortgage. Only the refinance program requires that you have a Fannie/Freddie loan.

So you should be eligible for the mod program - BUT if you are 38% with an interest-only payment then there may be a problem because the gov't program with insist that your modified payment include everything (PITA). This inevitably raises your payment. Now they can reduce interest to as low as 2%, extend the loan term to 40 years, and even forbear principal to get you to that 31%. Forbearing principal just means they defer it until the end of the term or until the house is sold - gives you a "balloon" payment at the end. Also, lenders can conduct an NPV (net present value) test. This test basically applies a complicated formula to a whole list of factors and allows them to determine if they make more money off or you by modifying the loan or foreclosing on the house. You must also be able to demonstrate a verifiable hardship and certify that you have no cash reserves to pick up the slack.

Finally, people that don't qualify for the government modification program may still be able to get a lender modification. You can also go a non profit organization called NACA who will advocate on your behalf for a modification. You do have options.

Hope this helps.

[JayBet98]

This is HUGELY helpful, thank you so much! I have read conflicting things as to whether you include principal in that calculation if you're not currently paying P&I. I recently had our house reassessed by the county for prop taxes, and once our bill comes we should see a significant decrease in that amount, and I may pick up a few "extra" work assignments that might balance out that DTI.

One question about the cash reserve thing...I have an online savings account that "looks" like a cash reserve, but it's really not. It's where I budget our property taxes, house insurance (no escrow acct for these, I pay myself) and car insurance. Do you think they'll have issue with that as long as I explain it? Or would they expect me to use that money?

[fatcat]

helped me as well...thank you....I am in a situation like this...I don't have an arm but I am on very shakey ground with my wife taking a job for much less money than she had been making..wanted to get this under control before I get into trouble...