Can a struggling homeowner trying to save their home really afford to reimburse the Illinois Hardest Hit Program (IHDA) 31% of their Existing Gross Monthly Household Income (which is probably closer to 40% of their NET SPENDABLE INCOME)? Can a struggling homeowner sustain that monthly contribution payment to IHDA during their enrollment in the program? 31% represents the Front-End Housing Ratio Rule the Treasury Dept. uses for the Hardest Hit Program in each State, a program supposedly intended for financially struggling homeowners (the Treasury Departments Making Home Affordable HAMP program also uses a 31% Rule)? The 31% Rule … is pure insanity and places a real strain on the homeowner’s ability to pay all their monthly bills and still set aside money for emergency savings.

Ever since the “Excesses” in the mortgage industry that came to a screeching halt in 2008 when our economy went into a tailspin, the mortgage industry has quietly lowered the 31% Front-End House Ratio for the average homeowner (but, still bases it on Gross Income). Of course, higher housing ratios still exist for those homeowners flush with money to spend. To date, the FHA has lowered the Housing Ratio to “29%”, Fannie Mae and Freddie Mac now recommends less than “28%” for loans they invest in, and conventional mortgage lenders now average “28%”. But not the Department of the Treasury that set up the rules, they won’t budge from 31% + of a homeowners Gross Monthly Household Income.

Back in the 70′s and 80′s the Front-End Housing Ratio hovered between 22% and 25% of a person’s “NET” INCOME. Guess what, with a more rational approach to housing costs, less people ran into mortgage problems because their mortgage payment didn’t take such a big chunk out of their “NET” spendable income. When times got difficult, homeowners could still pay the mortgage without struggling, but not true these days! How do you budget and pay your monthly bills? Do you use a Gross Income calculation or do you use a NET INCOME calculation? Most people (probably everyone in America) budget and pay bills from the NET INCOME (but not the Department of Treasury, they are immovable in their thinking).

BOTTOM LINE, homeowners having financial problems are still being placed in jeopardy through the application of archaic government rules. Struggling homeowners are being expected to use 31% + of their GROSS INCOME toward a mortgage payment when the industry has wisely reduced that obligation to 28% or less. Something is really wrong with this Treasury Rule! Our Department of Treasury (along with the Hardest Hit Program in each State) needs to be realistic when it comes to housing expenses. Let’s return to those sensible days when housing costs were less than a quarter of a person’s NET INCOME.

[NOTE .. Hope that you are not on Social Security Disability or Social Security Retirement if you also reach out for Federal HAMP assistance. If you are, besides the 31% Rule, Treasury will add 25% more to your Social Security Award Amount and then claim you have all this extra “funny money” which you can’t even; spend, invest, stuff under the mattress, etc. (they call it; “Income Grossing Up”) to budget and pay your monthly bills to include any HAMP mortgage modification payment].