If you're having trouble paying your mortgage and facing the loss of your home, you might have a friend at the FDIC. The Federal Deposit Insurance Corporation's loan modification program could help you, if you meet eligibility requirements. The program offers an alternative to foreclosure for borrowers who want to pay the mortgage but might have a limited ability to do so. The FDIC requires specific documentation for income determination.
FDIC Loan Modification Program
The FDIC Loan Modification Program was created to aid individual borrowers, stop the rising tide of foreclosures and stabilize housing prices. The program uses a systematic process for modifications, based on loan term extensions and reduction of interest rates, as well as principal forbearance. This means the homeowner doesn't make payments on a certain portion of the loan principal. Under this program, the FDIC pays lenders $1,000 for each modified loan for covering expenses and shares up to half of the losses should the homeowner later default on this modified loan.
Eligibility for the FDIC loan modification program is limited to loans for owner-occupied properties. The government shares losses only after a borrower makes at least six payments on the mortgage after modification. Loss sharing is limited to eight years of payment after loan modification. Under the FDIC's net present value test for loan modification versus foreclosure, an affordability standard is based on borrower's mortgage debt to his income ratio of a minimum of 31 percent.
Under this plan, the FDIC determines the amount the borrower can afford to pay by multiplying her gross monthly income by the ratio of housing to income. Property taxes and insurance are not included in this calculation. To qualify, the borrower must achieve at least a 10 percent payment reduction under this formula.
The FDIC requires documentation and verification of the borrower's gross monthly income, along with documentation and verification of any co-borrowers. You must document your income with pay stubs or with the Internal Revenue Service Form 4506-T, the request for a transcript of the tax return. If you are self-employed, you must provide a signed federal income tax return and a current profit and loss statement. For other sources of income, such as alimony, child support or Social Security payments, you must provide bank statements. The FDIC relies on the lender to provide information regarding the borrower's other debts.
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