Modification Formulas for Eligibility and Outcomes
Loan Modification: Eligibility and Outcomes Per Loan Type:
Learn your Loan Type First

Prepare your numbers to fit eligibility for Loan Modification:
Formulas and Outcomes for all Loan types: Fannie, Freddie, FHA, V A and Conventional.  For additional help, please fill in the form below.

Unemployment benefits. Are they now allowed? (as of 2/10/11) Wells Fargo CEO area has reported that "for the most part" unemployment is not allowed. "A very few investors" now allow unemployment.
Recommendation: Before answering any income verification questions, try to find out first if unemployment is allowed. Assume NO when preparing your numbers for modification. Note: In the 2 modification lessons (Making Home Affordable and Traditional), read "12 ways to show income" to learn ways to augment income for modification purposes.See Updates.
See Top Tips.

Please read: There are two (2) ways to posture numbers to meet eligibility for a loan modification:
1) using Making Home Affordable formulas*, and 2) using Traditional formulas.
* Note slight approaches to calculations: Treasury HAMP vs. FHA-HAMP vs. VA-HAMP.

Note: If you are not eligible for HAMP, then posture your numbers for a Traditional modification.
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Eligible for evaluation under Treasury HAMP (Making Home Affordable) formulas are Borrowers with:
•  Fannie Mae loans
•  Freddie Mac loans
•  Some Conventional loans.  Important!  These loans are investor-owned.  If you have a Conventional loan, ask your Servicer if you are allowed to use the Making Home Affordable formulas for eligibility.
Critical: If you are not eligible using Making Home Affordable formulas, try Traditional formulas (see below).
See Questions and Answers about Treasury HAMP here.

Note (1):  Some Conventional loans are not eligible to use Making Home Affordable formulas. Ask your Servicer if the Investor (who owns loan) is evaluating with HAMP formulas.  (If yes you can posture with HAMP or Traditional - you have a choice).

Eligible for evaluation under FHA-HAMP (variation of Making Home Afffordable calculations) are Borrowers with:
•  FHA loans

NEW! Eligible for evaluation under VA-HAMP (similar to Treasury HAMP formulas) are Borrowers with:
•  VA loans
See Questions and Answers about new VA HAMP here.

Eligible for evaluation under Traditional formulas are Borrowers with:
•  All loans: FHA, V A, Conventional, Fannie Mae, Freddie Mac
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The following lesson will give:
1.  Making Home Affordable formulas (Treasury HAMP, FHA HAMP, VA HAMP) 
     required for eligibility 
   * Note slight approaches to calculations: Treasury HAMP vs. FHA-HAMP vs.
     VA-HAMP.
2.  Traditional formula required for eligibility
3.  Outcomes per loan type
4.  What to do if you are not eligible
5.  Sample Financial Worksheets showing eligibility for Making Home Affordable and
     Traditional modifications.
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Making Home Affordable Formulas
FORMULAS (listed by loan type, see below):
Fannie Mae and Freddie Mac loans (Treasury HAMP) and Conventional loans allowing evaluation under HAMP formulas 
Click here for PDF of Treasury HAMP
Note: See potential outcomes for Conventional Loans below. Outcomes can differ because Conventional loans are Investor-owned.

To meet eligibility, ALL of the following conditions must be met:
1. You must own and live in a 1-4 unit property. That means a single family property, duplex, triplex, or quadraplex AND
2. You must owe the amount shown (or less) according to this chart AND:
             
1 unit (single family)  $729,750
              2 units (duplex)          $934,200
              3 units (triplex)           $1,129,250
              4 units (quadraplex) $1,403,400
3. You must have a loan that originated on or before January 1, 2009 AND

4. You have Mortgage Payment (PITIA  - Principal, Interest, Taxes, Insurance, and prorated Homeowners Association Dues) that is more than 31% of monthly Gross Income (income before taxes)
Division example: PITIA $1,994 / Gross Income $5,800 = .3438 or 34%.  This is eligible because it is over .31 or 31%.
                                                                    AND

5. You must have Total Monthly Expenses (AFTER MODIFICATION PITIA + revolving debt) that are under 55% of Gross Income.   PITIA is Principal, Interest, Taxes, Insurance, and pro-rated monthly Association dues.  "Revolving debt" is any mortgage insurance premium, minimum payments on all installment debts/credit cards, monthly payments on all junior liens/2nd mortgages, monthly mortgage payments for second homes. 
Division example: AFTER MODIFICATION PITIA + Revolving Debt $2980 / Gross Income $5,800 = .51 or 51%.  This is eligible because it UNDER .55 or 55%.

NOTE about #5 above: Borrowers who otherwise qualify for a modification under this program, but who would have a post-modification percentage (%)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. Borrowers in this category should expect to receive a letter (see sample letter) from the Servicer.
To fulfill this requirement, call Credit Counseling Services (CCCS) or a HUD counseling agency.  Tell them you have to receive credit counseling in order to receive the permanent modification.  Give them the same numbers that your Servicer currently has in their system.  They should tell you, after the phone session, that they will send a letter to the Servicer stating that the counseling requirement has been completed.  If you have any questions, please call Operation Restoration.
IMPORTANT:  "Revolving debt" is what shows up on a credit report.

CALCULATION for TREASURY HAMP (in order of approach): Servicer will attempt the following steps in order to reduce the payment to 31% of Gross Income:
#1. Extend loan out to 30 years, bringing interest rate down to a minimum of 2% to see if the mortgage payment (PITIA) will be reduced to 31% of Gross Income. Important: if 3% or another interest meets the 31% rule, then that interest rate will be offered. (2% is the minimum interest rate).
#2. If loan still not affordable, Servicer can extend to 40 years (*may not be applicable if investor-owned).
#3. If loan still not affordable, Servicer can defer part of the principal balance - a Set-Aside -  and place it at the back end of the loan as a balloon payment (*may not be applicable if investor-owned).  Important: The maximum principal balance deferment is restricted to the DIFFERENCE between mortgage balance versus fair market value of the property.  Example: If a Borrower owes $200,000 and the value of the property is $175,000, the maximum deferment would be $25,000. 
#4. Making Home Affordable “Set Asides” and Eligibility
The Making Home Affordable program requires the Servicer to follow guidelines to attempt to reduce the mortgage payment to 31% of Gross Income. If, however, the maximum allowable “Set Aside” (see above) does not bring the payment to 31% of Gross Income, the Servicer cannot offer Making Home Affordable. (*Does not apply to FHA). If you have any questions about this issue, please call Operation Restoration so that they can get verification from Servicer.

Note: Unemployment income will ONLY be used if the Borrower can show 9 months at the beginning of the HAMP trial modification.  Documentation is required.  Otherwise, if it is under 9 months, do not show unemployment as this will be considered temporary income and will not be eligible income.
See 11 ways to show income in the lesson.

FHA-HAMP: How to calculate for FHA Loans to determine if you are eligible.  See Click here for PDF of FHA-HAMP Mortgagee Letter 2009-23

Step 1: You must have Mortgage Payment (PITI  - Principal, Interest, Taxes, Insurance and any MIP - mortgage insurance premium) that is more than 31% of monthly Gross Income (income before taxes). Note: FHA adds MIP in and omits Assoc. Dues, which is different from above.  The result must be more than .31 or 31%.  
Division example:  PITI + MIP (if applicable) $1,994 / Gross Income $5,800 = .3438 or 34%.  This is eligible because it is over .31 or 31%.
                                               *******AND*******

Step 2:  You must have Total Monthly Expenses (including AFTER-MODIFICATION mortgage payments - Principal, Interest, Taxes, Insurance, Mortgage Insurance Premium + "Revolving Debt) that are under 55% of Gross Income.  "Revolving debt" is any minimum payment on all installment debts/credit cards, monthly payments on all junior liens/2nd mortgages, monthly mortgage payments for second homes. 
Division example: AFTER-MODIFICATION PITI + MIP (if applic.) $2980 / AFTER-MODIFICATION PITI + MIP + REVOLVING DEBT $5,800 = .51 or 55%.  This is eligible because it UNDER .55 or 55%.
IMPORTANT:  Revolving debt is what shows up on a credit report.
Step 3: Servicers will then calculate a temporary principal balance reduction (called a Partial Claim) using the following formula to see if they can bring the Borrower's payment down to 31%.
Formula for Partial Claim (see EXAMPLE below): Multiply .30 x (times) the outstanding principal balance (not including default amount or late fees) minus the amount of arrearage (up to default of 12 months) and minus foreclosure related costs.  Note: this is the maximum partial claim amount.  The principal amount deferred for a specific case will be limited to the amount that will bring the mortgage payment down to 31% of Gross Monthly Income (not below).
Step 4: Now use the below calculator and place your new outstanding principal balance in as loan amount, and put the market rate (now reporting as 5.50) and 30 years (maximum time frame).  Put your annual taxes and insurance.  What is the result?  Is the mortgage payment now 31% (or less) than your Gross Monthly Income?  If yes, then you will be eligible for a modification. -- if you meet the requirement in STEP 2 above.
Please note - REPEAT - the Borrower's principal amount deferred will only be what will bring the payment to 31%, not below that. 

EXAMPLE CALCULATION for FHA-HAMP:
Gross income: $3500
Current mortgage payment, including MIP: $1220
Recurring monthly debt (on credit report) $800
Unpaid principal balance is $150,000 (do not include amount in default or foreclosure related fees)
Delinquent amount: $3660
Calculate maximum partial claim: .30 x $150,000 - $3660 = $41,340
Take unpaid principal balance $150,000 - maximum partial claim $41,340 = $108,660
Use calculator below, entering 30 year (max), $108,660 as loan amount, 5.50 interest rate, and annual taxes and insurance $3600.  Resulting mortgage payment is $908.46. 
Divide $908.46 / Gross Income $3500 = .2596 or 26%.  That means that the partial claim will successfully bring your payment down to meet FHA modification eligibility (31%).
Remember, however, Servicers will only offer the amount of Partial Claim (principal deferment) that will bring your payment to .31.
The resulting mortgage payment you will be offered will be:
Gross Income $3500 x .31 (31%) = $1085, including principal, interest, taxes and insurance.

To check if you meet the 55% requirement under FHA -HAMP steps above, add new mortgage payment $1085 + recurring debt payments $800 = $1885
Divide $1885 / Gross Income $3500 = .5386 or 54%.  This meets the requirement because it is under 55%.

Do not include unemployment income as this is not eligible income.
See 11 ways to show income in the lesson.

VA Loans: VA HAMP  Click here for Questions and Answers about VA HAMP
Servicers will first attempt to modify V.A. loans through the traditional method (see
STEP 4 in Traditional lesson for formula). If the Borrower is not eligible for Traditional formulas, the Servicer will follow the guidelines of the Treasury HAMP (See Calculation for Treasury HAMP above).

***Please see notes about outcomes below.

If the Servicer will not modify:
1) Ask why and know the reason.
2) Ask the Servicer to refer to the V.A. to be reviewed for V.A. Refund. This means that V.A. will consider “buying” it from the Servicer. -- or --
3) Call V.A. 877-827-3702 to request that the V.A. Refund the Loan.

Mortgage Calculator
Mortgage Calculator


Making Home Affordable formulas are from lesson:  15 Steps to Loan Modification using Making Home Affordable Guidelines: (See Step #4 in lesson).

Use this blank Financial Worksheet and Sample for Making Home Affordable formula  (based on Gross Income).  Important!: Make sure to record all minimum payments on loans/credit cards and all other items that are listed on a credit report.  These are counted regardless of whether or not you are making these payments.

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                                                    Traditional Formulas

To meet Traditional guidelines, make sure to show your Net Income (income after deductions) to be approximately $300 over total Monthly Expenses, including your monthly mortgage payment – Principal, Interest, Taxes and Insurance, + Revolving Debt (any minimum payment on all installment debts/credit cards, monthly payments on all junior liens/2nd mortgages, monthly mortgage payments for second homes) + household  expenses.  This is different from HAMP above as it takes into account household expenses. 
* Do not include unemployment income as this is not eligible income.
See 11 ways to show income in the
lesson.

Traditional formula is from lesson: 15 Steps to Loan Modification using Traditional Guidelines: (See Step #4 in lesson).

Use this blank Financial Worksheet and Sample for Traditional formula. (based on Net Income).  Important!: Make sure to record all minimum payments on loans/credit cards and all other items that are listed on a credit report.  These are counted regardless of whether or not you are making these payments.

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                                                Outcomes per Loan Type
Making Home Affordable program - General.
The Making Home Affordable program attempts to bring the mortgage payment down to 31% of a Borrower’s GROSS monthly income (if monthly expenses do not exceed 55% over Gross Income). Expect the Servicer to give a trial modification for three months.  If you make payments on time all 3 months, the Servicer will then create a permanent modification agreement.
Loan Types
Government-sponsored Fannie Mae / Freddie Mac loans (and some conventional loans)

The interest rate to take the Borrower to 31% will never go below 2% to do so. See the structure of a Fannie Mae and Freddie Mac (Treasury HAMP) agreement
under Step 7 here. Notice that the interest rate to take the Borrower to 31% will be offered for 5 years and then escalate by 1% year 6 and beyond until the market rate (at the time of the permanent modification) is reached.  For Fannie and Freddie loans, the period of time offered may be 30 years -- or 40 years (if this will make the payment affordable). Finally, the Servicer may defer a portion of the principal balance to make the payment more affordable. This is not a permanent principal reduction! It will be treated as a deferred amount that is due as a balloon payment at the end of the loan period (at which time terms can be negotiated). We have provided a mortgage calculator on the home page bottom right column.
FHA, VA, and Conventional loans
These loans are located in investment pools (or funds) that have guaranteed returns. These pools (or funds) have different interest rates. Expect your Servicer to offer a market interest rate and remember the interest rate is determined by Investment pool guidelines.
     FHA-HAMP. See more notes about FHA Hamp in the
lesson. See Mortgagee Letter 2009-23.  While these guidelines specifically state that the Servicer will attempt to bring the mortgage payment down to 31% of a Borrower’s Gross Income (through a Partial Claim - see calculation above), the interest rate will be a market interest rate - fixed for 30 years. The rate is determined by Investment pool guidelines.  
     V. A. Loans.  Expect your Servicer to offer a fixed rate for 30 years.
     •  97% of VA loans are in GNMA securities. GNMA guarantees investors the timely payment of principal and interest on loans insured by the Federal Housing Administration (FHA) and the Department of Veteran Affairs (VA).
     •  The pools have guaranteed interest rates. That makes it difficult for Servicers to implement according to Treasury guidelines. For a Servicer to modify a loan in a pool, they have to “buy it”, “modify it” and put it back in the pool. This means that the loan has to have the same basic characteristics of the former loan (interest rate, loan period) in order for it to be returned to the pool. Expect the result to be a fixed rate for period of 30 years.
     Conventional loans. (This is the area of most variation). Some investment pool guidelines follow the formulas and outcome of the government sponsored HAMP – in other words, the Servicer (following the investor guidelines) will attempt to bring the mortgage payment down to 31% of a Borrower’s Gross income but the interest rate offered to do so may – or may not – go as low as 2% to so. Other investment pool guidelines follow the Making Home Affordable formula or traditional formula for eligibility and the outcome is market rate.  Remember that conventional loans are in pools with guaranteed returns. Market interest rates are commonly offered. It is at the discretion of the investor who owns your loan whether they will allow modifications at all, or allow an offer of 40 years, or allow a deferred principal balance reduction to make the payment more affordable.  Bottomline, posture yourself for eligibility...you can control that.   The investor controls the outcome.
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What to do if you are not eligible.
If you do not qualify for modification right now, you have 5 options:
1. 
Ask for a
Partial Payment Forebearance. 
Click here for an example. This is a temporary solution which is generally offered for temporary financial losses associated with illness (which resulted in time off work and medical bills), death in the family (resulting in time off work and funeral expenses), and temporary cut in pay (necessitating a mandatory leave of absence for instance). Depending on the Servicer, the Borrower may be able to use reduction in income or loss of income, but that varies by Servicer. A Partial Payment forebearance allows lower payments (sometimes one-half the current payment) for a limited time but Borrower must meet the guidelines of -- and request -- a Loan Modification at the end of the Forebearance period.

2.  If you are not at immediate risk of foreclosure, you may be able to wait until you are able to meet guidelines and then apply.  Look under the subject Do Not Panic on the website for samples of letters from Servicers and foreclosure attorneys so that you will understand the differences. Also know the laws in your state regarding notice of foreclosure.

3.  Sell your home. You can sell if the value is under the Mortgage balance. Please consult the lesson by clicking:
Proven 15 Steps to Short Sale: Selling Your Property Under the Mortgage Balance.

4.  If you are at immediate risk of (a few days from) foreclosure and just need to stall it to get prepared, you can file bankruptcy or file paperwork to Produce the note.  Bankruptcy is considered more minor than foreclosure. You can recover from Bankruptcy more easily than Foreclosure.  Produce the Note is less dependable but is another option to try.
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Sample worksheet showing eligibility for Making Home Affordable program.
Click here for blank Making Home Affordable Financial Worksheet and Sample.



Sample worksheet showing eligibility for Traditional modification.
Click here for blank Traditional Financial Worksheet and Sample.


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                                                                                              - Anne Batte, Executive Director
                                                           
Copyright 2009 Operation Restoration

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