The ABCs of Loan Modification: The Basic Preliminary Calculation The following information is not intended to substitute for

local legal advice. No client- attorney relationship between the author and the reader exists. The information presented herein was provided by Rory M. Alarcon for general purposes and should not be relied upon for any legal action. Homeowners at risk of losing their homes should contact their local branch of the U.S. Housing and Urban Development or other local resource for assistance options. A number of persons I speak with regarding modification of their mortgage loan want a simple yes or no answer as to their chances of receiving a modification of the terms of their mortgage loan. I cannot, and never will, guarantee that any particular lender will (or will not) offer a loan modification, as there are so many variables that the lender considers. Programs that may be offered to borrowers, such as HAMP, HARP, in-house and government-sponsored forms of relief change often. Rather than explain the ABCs of determining eligibility for modification programs, I can only offer a simple preliminary test to determine if a loan modification is a viable option. Here is the basic test I use: 1) Obtain the most recent mortgage statement that you can find and note the total amount of the mortgage due. If you have not made payments on the loanfor several months, calculate the total amount of the missing payments and add that number to the total mortgage amount listed. 2) Go to an online mortgage calculator, such as the one below: http://www.bankrate.com/calculators/mortgages/mortgage-loan.aspx 3) Using your recent statement, enter the total amount of your loan as calculated before as the mortgage amount or principal amount. Enter 30 Years or 360 Months into the term of the loan. These two numbers will remain fixed throughout the process. 4) Enter your current Interest Rate into the Interest Rate box. Press the Calculate button. You should receive a monthly payment amount that DOES NOT include your real estate taxes and homeowners insurance. Add your monthly real estate taxes and homeowners premium. The new amount should show an approximate monthly mortgage amount due for the total amount of your loan. Write this down. 5) Using your last tax return or current pay stubs, determine your annual gross income and divide by 12 to obtain a monthly income amount. 6) As of now, many bank programs want borrowers who obtain loan modifications to spend approximately 31 to 37 percent of their gross monthly income on their mortgage. Be it that 33 percent is in between the desired percentages, we will use that.

7) Since 33.333 percent is equal to one-third of the total, divide your gross monthly income by 3. The number you obtain is our target number. Subtract the monthly amount of taxes that you pay per month from this number. Subtract another 100 to cover homeowners insurance costs. This is our target monthly mortgage payment we are looking for. 8) Now it is time to change the interest rate on the loan calculator to determine whether you can afford a modified loan. Enter different interest rates into the calculator between 2 percent (2%) and your current interest amount. Did any of the resulting Monthly payment amounts given by the calculator equal the target monthly mortgage payment you obtained above. If so, then you pass the preliminary test.

Example: Mortgage statement states mortgage payment is $2100.00. The total mortgage owed is $200,000.00 at 8% interest. Taxes on the home are $600.00 per year. Applicant grosses $5000 per month income. His target monthly payment is $1666.67, inclusive of taxes and insurance. We subtract $500 for taxes per month and $100 for homeowners insurance. Our target principal and interest payment per month is now $1066.67. What interest rate would allow the applicant to pay a $200,000 loan at the applicants salary? Playing with the calculator suggests that the mortgage is affordable for the applicant is the interest rate is lowered to 4.9%. Result: New monthly payment: $1667.67 New interest rate: 4.9%

REMEMBER: This is a simplified method to calculate whether a loan modification would be available to you. DO NOT RELY ON THIS INFORMATION ALONE. If you did not pass this test, your lender may still offer alternatives to the tradition modification, including principal reductions, short refinances, short sales, or other programs. Speak with a professional / housing agency about your situation to determine what your options are.