As the housing market tries to right itself a harsh new reality has hit home for many Americans; too many bills and not enough money. There are numerous state and federal programs that are geared towards trying to keep struggling Americans in their homes by reducing their monthly mortgage payments. The trouble with reducing a borrower’s mortgage is that it may not be the end all solution to their financial woes.
The U. S. Treasury reports that currently the median housing expense is 44.8% of the average Americans pre-tax earnings and the median total debt is listed at 77.5%. These numbers represent a public that is literally drowning in personal debt. The recommended amount of total debt should represent no more than 50% of a person or couples pretax income. As unemployment rates remain at record high levels, more and more Americans have had to turn to their personal lines of credit to cover their monthly bills in the absence of a payroll check. This type of existence can only last for a short period before the accumulation of debt consumes the borrower.
At best, permanent federal loan modification programs can help to reduce a borrower’s monthly payment by 25%. This reduction does nothing for a borrowers remaining debt. Most borrowers are referred to some form of credit counseling services to assist. A representative at LSS Financial Services in Deluth, Minnesota, stated that clients who sought foreclosure prevention services had an average total debt ratio of 77% and owed an average of $18,000 in unsecured debt. These clients showed at average budget deficit of $1,247 per month. The only way for most of these impending foreclosure clients to remain in their homes would be if they underwent a complete financial overhaul that includes permanent federal mortgage modification, personal credit counseling and some form of debt forgiveness relief from their other creditors.
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