The secret to understanding the loan modification guidelines for HAMP completely rests in how you submit your income and expenses. A few bucks in either direction on your groceries or electric bill could mean the difference between cutting your mortgage payment in half, and being outright denied. I have gathered a few of the most important secrets to follow when trying to navigate the HAMP loan modification approval process.
HAMP Income to Debt Ratio Guidelines – The magic number to understand here is 31%. Under HAMP guidelines the lender is supposed to reduce your mortgage payments to 31% of your gross income . If your income to debt ratio is below 31% and nothing can be adjusted, HAMP will not be an option worth spending long periods of time trying to qualify for. If you come in anywhere between 32% – 70% it will be worth exploring HAMP further and requesting a review.
Excess Monthly Cashflow Guidelines – This number is the simple calculation of monthly income minus monthly expenses. The result will be either a surplus or deficit. The general rule with most lenders is not to let either a surplus or deficit exceed 10% of the total gross monthly income. Easier said, make sure that your excess monthly cashflow shows that you can afford a mortgage payment of 31% of the gross income. They can't lower you payments to something unless you can show the ability to pay that much.
NPV Test (Net Present Value) – This test is basically used to determine how a HAMP loan modification effects the lenders bottom line. It calculates many factors including the value of the home, your re-default rate, and many others to determine whether it's worth accepting government cash and establishing a HAMP loan modification on your loan. If a loan fails the NPV test, the lender may automatically consider it for other in-house and investor modification options. Many times a couple minor adjustments to the income or expenses can result in passing the NPV test after failing previously.
There are many guidelines that determine whether or not your loan qualifies for a HAMP loan modification. The good news is that you can usually make adjustments or changes to your monthly budget in order to present a better case for the lender to modify your loan. It can take a bit of patience and persistence but the end result can be the piece of mind that you will be in your home for a long time to come.