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The New Road to Serfdom - Part 63
Sunday, March 14, 2010
In reading through some of the commentary about Friday's report(.pdf) containing the latest data for the government's Home Affordable Modification Program (HAMP), the item circled in red below sort of "popped out at me" as being one of the more important reasons why this program will, ultimately, be an even bigger failure than it already is.
Even after mortgage payments were reduced to a maximum of 31 percent of gross monthly income, the median total debt service each month is almost twice that amount, which almost guarantees a high rate of default down the road.
Based on the note above, it seems there is no upper limit on the back-end debt-to-income ratio and borrowers coming in at above 55 percent are required to seek counseling, but, apparently, this doesn't stop their loan mod from becoming "permanent".
Whatever happened to 28 and 42 percent for front-end and back-end debt-to-income ratios?
How can these people possibly last when they have to start with just 40 percent of their income to pay taxes and then take what's left over to put food on the table, put gas in the car, pay their medical bills, pay their utility bills, and the many other costs of everyday life?
5 comments:
Something seems weird about those numbers...
$800 really isn't that outrageous in the grand scheme of things. However, if $800 is 60% of your gross income (as defined by note 2 in the graphic), you're not bringing home much more than like $15,000/year...
As I read it, the $837.86 would be the 31 percent, meaning that the gross income in question is about three times that or, roughly $32K per year.
The footnote (2) says the back end includes taxes. So they have 40% to pay for food and to live.
It's doable, but I think the rates will RESET down the road. It's like the subprime. Don't worry about the reset, you can just refinance into a NEW 2% loan later.
Unless you can, in that case we take your house and your income for the rest of your life.
Sign on the dotted line please.
MU HA HA HA HA (satanic laugh of the banker)
I think that's property taxes in the back-end total - I was referring to income taxes, SS, and Medicare taxes.
Okay, $32k is slightly less ridiculous. But that's still only about the 35th percentile in terms of income. It sounds like most of those people bought more house than they could afford.
I don't blame them too much, though. If they're only making $32k then they probably aren't that smart. It'd be pretty easy for a smooth-talkin' banker to convince them that this is the home of their dreams and that it's affordable.
The bankers, however, should have known better.
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