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In order to qualify for a loan modification, the borrowers must demonstrate that a hardship exists and that they
cannot continue to pay the existing level of mortgage payments. In addition, the borrowers must demonstrate that they can and
will make monthly payments at a reduced level that is acceptable to the real estate lender. In short, the borrower /
applicant must provide to the lender, a credible hardship letter, required documents, and proof of current income.
Lenders evaluate front end income to debt ratios and back end income to debt ratios as defined below:
Front End Ratio is principal, interest, taxes, insurance and homeowner association fees divided by the total gross
income. This ratio generally should not exceed 38%.
Back End Ratio is the same as above except that all other debt is added in. This ratio generally should not exceed 45%.
Reasons often cited to justify a loan modification include the following:
- Increase in monthly payments
- Period of unemployment
- Income has been reduced
- Divorce or separation
- Medical problems and bills
- Excessive debt
- Business failure
- Property damage
- Military service
- Job relocation
- Death of spouse or family member
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