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Tuesday, March 16, 2010

HAMP Debt-to-income Ratios of "Permanent" Mods

by Calculated Risk on 3/16/2010 11:10:00 AM

Last night I mentioned the astounding DTI (Debt-to-income) of HAMP modification borrowers who were converted to a permanent modification: 2010: REOs or Short Sales?

Total Housing Starts and Single Family Housing Starts Click on chart for larger image in new window.

If we look at the HAMP program stats (see page 6), the median front end DTI (debt to income) before modification was 45%, and the back end DTI was an astounding 76.4%!

Just imagine the characteristics of the borrowers who can't be converted!

Here is a table putting the numbers in dollars:

Median Characteristics of HAMP Permanent Modification
 Before ModificationAfter Modification
Monthly Income$2,702.77$2,702.77
Front End (PITI & HOA)$1,216.25$837.86
Back End (total)$2,064.92$1,616.26
After Debt Income$637.85$1,086.52

Front end DTI includes Principal, Interest, Taxes and Insurance (PITI) plus any homeowners association fees.

The back end DTI includes PITI and HOA, plus installment debt, alimony, 2nd liens, and other fixed payments.

That left the median borrower before modification with only $637.85 not including payroll taxes ($206.76), income taxes, utilities, food, and other monthly expenses. No wonder the borrowers were delinquent.

Now these median borrowers have $1,086.52 to pay all those expenses after the to 59.8% DTI bank end ratio. Remember this is gross, and is before the $206,76 in payroll taxes and an income taxes). Although this is an improvement, I expect many of these borrowers to redefault.