Mortgage Modifications Help Cut Debt-to-income Ratio

Since its initiation last year, more than 500,000 struggling homeowners have applied for assistance under the federal government's Home Affordable Modification Program.

According to a recent government assessment of the program, many homeowners who have had their mortgage modified due to loss of income, excessive payments or the illness of a borrower have been able to improve their debt-to-income ratio and save money through HAMP.

Through December, the front-end debt-to-income ratio - which analyzes a consumer's expenses to their monthly earnings - of homeowners who have achieved a modification through the program has fallen by an average of nearly 14 percent.

In addition, the average back-end debt-to-income ratio has fallen by nearly 15 percent. This figure takes into account a consumer's debt payments to their monthly gross income.

The median monthly savings for borrowers active in the program was $527 before modifications. However, due to the changes in their payment ratios, the government estimates it has saved these homeowners more than $4.5 billion since HAMP was enacted.

Despite its help to many homeowners, some government officials have criticized the program and have even recommended that it be disbanded to cut costs.