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You know there is something wrong with a system when those that need it don’t qualify. This seems to be the case with the Home Affordable Modification Program. One of the main reasons home owners are turned down is because their loans, by the Home Affordable Modification Program standards, are too affordable.
How is it decided if a loan is too affordable to qualify?
One of the main factors is the percentage of the household income that is dedicated to pay the mortgage. If 31% or more of the household income is set aside for the mortgage and other criteria is also satisfied then the home owners qualifies for the loan modification. However if the percentage of the household income is lower it is too bad.
When this criteria was decided it seemed a reasonable percentage of a household income. It was actually seen as a turn back to old fashioned conservative times when workers where only expected to put one week of their wages toward their housing. Apparently it was in the times of the railway “explosion” that workers were given housing by the railway company in exchange for one week of wages.
However this measure has turned out to be just that, old fashioned. People nowadays don’t only owe money on their homes, also on their cars, their credit cards. In fact credit card debts are right at the top in the catalysts for bankruptcy.
Forbes website reported that William Erbey, chief executive of Ocwen, the second largest U.S subprime mortgage servicer says his borrowers are often saddled with credit card bills and auto loans and will pay those bill before their home loans. William Erbey feels that “ It’s not their mortgage that is out of whack. It’s that their other consumption patterns are out of whack”.
This opinion will ring true for many that have seen how a consumerist culture has moved more and more people to get deeper into debt as a matter of course.
Others criticize the administration and government institutions for being out of touch with reality. Forbes also reported that Chief Executive Sanjiv Das chided policymakers by saying: “This is people solving for a housing crisis not realizing we’re in a credit crisis”.
These comments and the slow start of the Home Affordable Modification Program indicates that it might be the program itself that is ready for modification. A program that worked on the overall debt of a household would provide more practical help than just focusing on one of the debts of this credit crisis. One of the biggest hurdles the government have to overcome is training people to spend sensibly not only provide the cash to pay the debts.
Last 3 posts by Andrew
- Struggling Home Owners Loan Modifications Turned Down Because Too Affordable - August 26th, 2009
- Loan Modifications and FHA Refinance What Is The Deal - August 26th, 2009
- Loan Modifications, lies, scams and misinformation - August 24th, 2009
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