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In order to qualify for a loan modification, the borrowers must demonstrate that a hardship exists and that they cannot continue to pay the existing level of mortgage payments. In addition, the borrowers must demonstrate that they can and will make monthly payments at a reduced level that is acceptable to the real estate lender. In short, the borrower / applicant must provide to the lender, a credible hardship letter, required documents, and proof of current income.

Lenders evaluate front end income to debt ratios and back end income to debt ratios as defined below:

Front End Ratio is principal, interest, taxes, insurance and homeowner association fees divided by the total gross income. This ratio generally should not exceed 38%.

Back End Ratio is the same as above except that all other debt is added in. This ratio generally should not exceed 45%.

Reasons often cited to justify a loan modification include the following:

• Increase in monthly payments
  
  
• Period of unemployment
  
  
• Income has been reduced
  
  
• Divorce or separation
  
  
• Medical problems and bills
  
  
• Excessive debt
  
  
• Business failure
  
  
• Property damage
  
  
• Incarceration
  
  
• Military service
  
  
• Job relocation
  
  
• Death of spouse or family member