FDIC Guidelines for Loan Modifications

According to the FDIC, guidelines for loan modifications maintain two primary principles:

1. Evaluate the amount a borrower can afford by multiplying the borrowers gross monthly income time the HTI (Housing To Income) ratio, less taxes and insurance to achieve a minimum payment reduction of 10 percent.

2. Protect investors’ interest by making the modification cost less than the estimated cost of foreclose through the NPV (Net Present Value).

The FDIC Affordability Payment Calculator

FDIC loan modification program calculates PITI (Principal, Interest, Taxes, Insurance) is not higher than 38 percent of the HTI.

PITI includes:
- Modified principal and interest payment
- Real estate taxes
- Property taxes
- Leasehold estate payment
- HOA dues

Now let’s put the principles in action. If you have two people on one loan, both incomes are calculated. Let’s assume Chris makes a gross monthly income of $3,298 and Pat makes $2,288. This gives them a cumulative gross monthly income of $5,586.

The PITI of $5,586 at 38% is $2,123.

Monthly Housing Expense Breakdown
$2,123 – Maximum Total Monthly Housing Expense
$- 401 – Taxes, Required Housing Insurance
$- 50 – HOA Dues
$1,672 Maximum Modified Monthly Payment

So, a family that grosses a little over $67,000 a year is only required to pay $1672 in a loan modification as set forth by FDIC guidelines.

The FDIC does set guidelines as to how mortgage companies can modify loans according to income and family changes according to housing debt. Many people that own homes are not just in debt due to their mortgage but often carry a large debt in different credit aspects. In this case, many mortgage companies have ongoing relationships with credit counselors and non-profit organizations that assist in rebuilding personal finances in order to keep borrowers from defaulting on loans during these difficult economic times. The FDIC guidelines for loan modifications are a step in the right direction, but truly outlasting the recession is more than loan modification, but re-learning debt management.