The FDIC Loan Modification Guidelines stipulate that loan modification plans should achieve the following:

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The FDIC loan modification scheme ensures that the Principal, Interest, Taxes and Insuance (collectively known as PITI) does not exceed 38% of the HTI.

PITI takes into consideration the following:

In order to better explain, let us apply these principals to a simplified example. If there are two people named as borrowers on one loan, both incomes are taken into account. Assuming that Andrew earns $3298 before tax and that Lisa earns $2288 gross. This means that between them, before taxes are paid, they earn $5586 per month. 38% of $5586 is $2123, thus the PITI is $2123.

Let us then move on to look at their detailed monthly housing related outgoings:

$2,123 – Maximum Total Monthly Housing Expense
$- 401 – Taxes, Required Housing Insurance
$- 50 – HOA Dues
$1,672 Maximum Modified Monthly Payment

This means that a household that takes in just over $67,000 a year, before tax, is only required to pay $1672 in a loan modification according to FDIC guidelines.

The FDIC sets these guidelines as to how mortgage companies can best adjust loans taking into account income, housing outgoings etc. However, a good quantity of homeowners in arrears with their mortgages, are often in a great deal more debt than that too, often with debts owing to one or more other creditors in different areas. Allowing for these cases, mortgage lenders are establishing and maintaining long running professional relationships with debt advisors and non-profit organisations whose speciality is in organising debts and repayment plans to rebuild personal finances in such a way that aims to prevent any further defaults or arrears in a very tough financial climate. While the FDIC has provided a concise and fair set of guidelines for loan modification, this is realistically only a fraction of solving the problems facing us. Surviving the global recession will involve much more than loan modification; it will require a complete re-education on managing personal finances.