All the multifarious hordes of struggling homeowners who wash up on the shores of the Making Home Affordable website will find one questionnaire for HAMP eligibility. It only has 5 questions! You can determine for yourself whether or not you might qualify for this program. Go ahead, give it a whirlt. I’ll wait:
http://www.makinghomeaffordable.gov/modification_eligibility.html
Reproduced here for your convenience:
1. Is your home your primary residence?
2. Is the amount you owe on your first mortgage equal to or less than $729,750?
3. Are you having trouble paying your mortgage?
4. Did you get your current mortgage before January 1, 2009?
5. Is your payment on your first mortgage (including principal, interest, taxes, insurance,and homeowner’s association fees, if applicable) more than 31% of your current gross income?
Pretty straightforward, right? Depending on whether your answer “yes” or “no” to any one of these five questions you will be told “yes” or “no” you do or don’t qualify for this program. I often directed irate or confused borrowers to this website and this questionnaire because it is simple and accurate. If only everyone who ended up in this program was filtered through this questionnaire there would be a lot less heartache, hair-pulling and teeth-gnashing. Unfortunately, not everyone has the internet or the gumption to do any research, and many people ended up in this program after being told by a bank representative or a third party that they might qualify. Even more unfortunately, people who looked at this very questionnaire still applied for a program woefully ill-fitted to their particular scenario.
Allow me to give you the answer key: If you answer no to any of the questions you fail. Questions 2 and 4 are hard lines in the sand, no flim-flamming here. Question 3 is a red herring. Question 5 is, for many people, much harder than it first appears. And a surprising number of people lie about question 1.
Question number 3 is the bane of my existence. It is so misleading it actually makes me cringe. It seems to imply that you may qualify for the program based any number of legitimate hardships, and this is simply not the case. To illustrate:
Mr. and Mrs. Burns make $7,000 a month in gross income (gross means before taxes and all other deductions are taken out). After everything is deducted and withheld they bring home about $5,250 in net income. Their monthly housing payment including everything (principal, interest, taxes, homeowner’s insurance, and homeowner’s association fees) is $2,000 a month. So after paying their mortgage they have $3,250 for food, utilities, other bills, clothing, etc. This is probably an adequate amount of money to get by just fine and save for the future. The Burns are responsible, hardworking people with stable employment, who have excellent credit and always pay their bills on time. They save every month and have accumulated a cushion of money. They have finally reached the level of security in their lives where they want to have their first baby. They did. She was born with a crippling birth defect which requires round-the-clock in home nursing care, a series of painful and extremely costly operations not covered under their insurance plan, and expensive prescriptions also not fully covered. In order to pay for the operations and prescriptions they had to empty out their savings, max out several credit cards and take out a personal loan. They have worked out a plan to provide care for their daughter so they can stop missing work while simultaneously cutting all unnecessary spending from their monthly budget, and have consolidated all their credit card debt. They believe they can make their new budget work and get caught up if the bank could only reduce their monthly payments to somewhere in the neighborhood of $1300 a month.
They read the questionnaire and they fixate on number 3 and they think they might be prime candidates for this program. But they will be denied. Why? Because 31% of $7000 is $2170.00 and their monthly housing payment is less than that. Only $170 less than that – a pittance one might think. It doesn’t matter. 31% is 31% is 31%. Question number 5 for the override. I cannot tell you how many times I have had to break the news to people just like Mr. and Mrs. Burns that they make too much money to qualify for this program.
“TOO MUCH MONEY!?” they scream in my ear. “TOO MUCH MONEY!?” they manage to get out through their disgust and incredulity. Have you seen my bills? Did you see the Doctor’s report?! I don’t actually bring home $7000!!!
Yes, yes I know and I don’t care. 31% is the cutoff point. Says who? I don’t know, the government? You’ve got a problem with arbitrary cut off points that fail to account for all-too-real scenarios like this? Too bad, we gotta draw a line somewhere. Question number 5 bites so many people because they think it is a suggestion or a guide when it is actually a rule. So if you are even thinking of applying for this hot mess of a modification you are going to actually have to sit down with your pay stubs and your calculator and do the math.
I read letters, dozens of them, from people like Mr. and Mrs. Burn’s every day. New families from every class of society – from those living off $500 a month to those living off $32,000 a month. A man who was caring for his two brothers with mental retardation trying to live off his pension and Social Security. A woman whose husband was permanently disabled by a terrible car accident. A man trying to support his family after his wife abandoned him and their children. A woman who had to shoulder the expenses of burying her mother and her father within a month of each other. I’ve read letters that had penciled doodles from the borrowers’ children trying to add a personal touch, letters that included pictures of those mentioned in the home they loved so much and wanted to keep, letters that almost and, sometimes, did make me cry. I tried to read them through the detached, emotionless lens of that 31% cutoff because there were few to no exceptions. And when I say few I mean statistically negligible.
This is the ratio: Your total monthly housing payment ÷ your gross monthly income = your debt-to-income ratio
The HAMP program is designed to help people who are in the “Goldilocks” zone of income. You may have heard how the planet Earth is in the Goldilocks zone of our solar system (not too hot, not too cold… just like the porridge). Well you can’t make too much money, but you can’t make too little either. From my experience I would say when you calculate your DTI (debt to income ratio) it should be somewhere around 32-50%.
If it is you might have a fighting chance to get this modification. If it isn’t you probably shouldn’t bother.
Before I end this post let me draw your attention to some considerations. The banks didn’t come up with the 31% cut off, that was built into the program as it was given to them by the US Department of the Treasury. How can anyone expect a governmental bureau to leave room for exceptions? If there were no cutoffs it would be pandemonium. Maybe the Burns should have sprung for a less expensive house in a less expensive neighborhood. Maybe they should have been monitoring and testing the pregnancy for birth defects, and if a life-long impairment was detected they should have had an abortion. Why doesn’t the Burns’ medical plan cover the expenses of caring for their sick child – can’t we also lay blame on the medical care and insurance industries? None of the issues I raise are going to be black and white, because they are pulled from reality. I would love to hear what people think, because the Burns’ by any other name truly experienced this rejection.
HAMP CRAMPS 