Raise your hand if you can make ends meet with debts eating up 60% of your gross monthly income?
No hands? Anyone?
OK, now look at this chart (via Calculated Risk) and make a guess as to how successful the Home Affordable Modification Program (HAMP) will be.
What it shows us is that among those granted permanent modifications, the median debt to income ratio is 59%. That is jaw-droppingly high.
To put that into context, a 36% debt to income ratio is generally considered affordable, and if you are seeking a new loan, you’d be hard pressed to exceed 45% even with exemplary credit and would need some, as we say in the trade, “compensating factors.”
I think we can safely assume that many of these permanent modifications (being touted as success stories, mind you) are probably still sinking ships. We wish the borrowers the best of luck of course.
What’s more telling is that these numbers are indicate something else: That the real problem is that too many households are simply awash in debt, and “fixing” the mortgage can be a very far cry from fixing the finances of a given household.