How Is the Income Determined With the FDIC Loan Modification Plan?

Income for this program is determined by tax returns.

Borrowers facing foreclosure use the FDIC Loan Modification program as a way to stay in their home. Using the applicable ratios, the lender determines what level of payment a borrower can afford, and adjusts the payment to that level. This helps prevent foreclosure, and it lessens the impact of a borrower's change in circumstance on the economy as a whole.

Significance

Typically, a borrower becomes unable to afford his mortgage if his income drops after the mortgage closes. With the depressed U.S. economy of 2008 and 2009, many homeowners faced foreclosure because of decreased income, sometimes coupled with job loss. The way in which the underwriters of a mortgage calculate income can greatly affect a borrower's ability to qualify for the FDIC Loan Modification Plan.

Function

A borrower's income is used to calculate her debt load and her new payment in the FDIC Loan Modification Plan. Her income is based upon her net income as reflected on her tax returns. In most cases, the borrower's income is averaged over two years, and this new average income is used as her basic income. If taxes have not been filed, W-2, 1099 and other income documentation may be used as well.

Types

Income can come in several forms, from hourly wages to salaries to commission. If a borrower is self-employed, his tax returns could be quite complicated because of business expense deductions. Also, a borrower might receive only interest income or Social Security income. The only way to standardize income verification and calculation is to use filed and processed income tax returns.

Considerations

A borrower's income might be too low for loan modification. If the borrower is unemployed or if her tax returns list a negative net income, she will not be eligible for the FDIC Loan Modification Plan.

Benefits

With the utilization of the FDIC Loan Modification Plan, a borrower can stay in his home, and will make a lower monthly payment as well. This can help him navigate rough economic and financial times as well as retain his asset.

References

• FDIC: Loan Modification Plan Guide