December 29, 2008

Borrowers look for mortgage modification

By Marcie Geffner •

Homeowners who can't afford their mortgage payments can get a better deal from their lender. But the process is complicated and potentially onerous, and concessions are offered only to borrowers who earn neither too much nor too little income to meet the lender's guidelines.

"If they can afford to pay, they should pay. If they can't afford to pay, we need to make sure they have a fighting chance to make the new payments and pay back the loan over the long term," says Thomas Kelly, a spokesman for J.P. Morgan Chase, which also owns the Washington Mutual, or WaMu, and EMC brands.

Payment must be affordable, but also pay off loan

An "affordable" payment typically is defined as a targeted percentage of the borrower's monthly gross income. Thirty-eight percent is common, though some lenders use a lower or higher figure, usually between 31 percent and 41 percent. The new payment must be sufficient to pay off the loan, sometimes with the term extended to 40 years or some of the principal deferred until the loan is refinanced or the home is sold.

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