Bank Criteria in Loan Modifications

One of the most commonly asked questions by debtors in arrears is:  Do I qualify for a loan modification?  I will try to answer that question in this article.  First of all, it is common knowledge that due to governmental pressure, the majority of the financial institutions are offering some type of relief to mortgage debtors in arrears.  If the debtor qualifies or not will depend on the criteria applied by all the financial institutions known as the “Debt Ratio Percentage.”

The majority of the banks require that your modified loan include a monthly payment between thirty-four and forty-five percent of your monthly gross income.  Your monthly gross income is the monthly income that you receive before the deductions for taxes.  The debt ratio percentage is determined dividing the totality of your mortgage payment including principal, interest, taxes and HOA, if applicable, by your monthly gross income.  Obviously, the lower the debt ratio percentage, the greater the possibility of successfully obtaining the modification.

Even though performing this mathematical computation does not require specialized knowledge, adjusting the budget of the applicant to the bank’s expectations does require such knowledge.  Also, dealing with a bank representative in the negotiating process also requires specialized knowledge.  Therefore, I am somewhat concerned when I read Internet publications advising the consumers that they can achieve a loan modification without seeking out a competent professional.  I ask myself whether these publications are drafted or sponsored by the banking industry.  I have seen many circumstances in which following these recommendations has had devastating results.

Unfortunately, many that follow this recommendation wind up losing their home.  The frequent scenario is the individual that is in communication with the bank files a loan modification application with all the documents required in accordance with the instructions provided by the bank.  If the individual is able to complete the application and compile the documents necessary, he usually feels confident that the modification will be approved.  He soon discovers that the application has been deposited in a sea of bank bureaucracy.  When he calls the bank, the representative assures him that the application is being considered.

In the interim, the applicant is trusting that the bank will not file a foreclosure action because his application is pending, which is false.  The fact that you have filed a loan modification application does not preclude the bank from filing a foreclosure action if you are not current.  Unfortunately, many discover this reality when it is too late to remedy this situation.  As one seeks out a doctor when there is a serious medical condition, one should not underestimate the importance of seeking an attorney in a timely fashion.

Luis A. González
Attorney and Mediator
L. A. González Law Offices, P.A

(407) 649 - 8389