Gross-up non-taxed Social Security benefit income

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pawms1

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Post Posted: Sat Sep 18, 2010 3:31 pm    Post subject: Gross-up non-taxed Social Security benefit income
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I am disabled and receive untaxed Social Security Disability Insurance (SSDI) benefits and tax-free Veterans Administration disability compensation totaling $2,612/month. I recently applied for a loan modification through the Home Affordable Modification Program (HAMP). My lender, GMAC Mortgage, LLC, estimated my gross monthly income to be $3,265 ($2,612 by 125%), which is $653 more than I receive per month. Why is this $653 added to my total monthly benefit amount to estimate my gross income? If I actually received an additional $653 each month I wouldn’t be seeking a loan modification?
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Icon Mini Profile jameshogg
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Post Posted: Mon Sep 20, 2010 2:21 am    Post subject:
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Hi pawms,

It is quite surprising to me that your lender has added an extra amount to your monthly income. I would suggest you to contact your lender and ask him to clarify the reasons for the same. He will clarify the reasons to you.

Thanks
Icon Mini Profile gmakerley
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Post Posted: Mon Sep 20, 2010 6:34 am    Post subject:
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Lenders calculate ratios based on gross income. Since your SS is not taxed, it is essentially a net income, for the purpose of calculation. Since what they're trying to do is reach a specific ratio of debt to income, what they're doing is not really something to worry about. It is standard industry practice to "gross up" SS, child support, alimony, etc. It's really much more of a method by which to equate that income with wage income, and though it may seem that they're doing you a disservice, they're really not.

This may not have unraveled all your confusion, I realize. Write again, if you need further clarification, please.

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Post Posted: Fri Oct 01, 2010 5:38 pm    Post subject: Inequities of HAMP for Non-taxed Income Recipients
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First, thanks to jameshoqq and gmakerley for responding to my inquiry. I really appreciate you taking the time to address my concerns.

Second, however, it still seems that I am getting the short end of the stick. On August 1, 2010, my monthly mortgage payment increased from $990.99 to $1,042.45 (includes property taxes, insurance, and HOA dues).

Grossing up my SSDI and VA benefits to equate my non-taxed income with wage income from $2,612/mo. to $3,265/mo., is $653/mo. that I do not receive, cannot spend, save, invest, or expect to receive in the form of a tax refund. So, I am still at a loss on how grossing up my non-taxed income is not a disservice to me.

To qualify for a HAMP loan workout plan, GMAC calculated my debt-to-income (DTI) ratio by multiplying my grossed up income by 31% to determine my estimated monthly mortgage payment: $3,265/mo. multiplied by 31% equals an estimated monthly mortgage payment of $1,012.15, lowering my monthly mortgage payment by $30.30/mo.

If GMAC were instead to calculate my DTI using my non-taxed income total of $2,612/mo. to determine my estimated monthly mortgage payment: $2,612/mo. multiplied by 31% equals an estimated monthly mortgage payment of $809.72, significantly lowering my monthly mortgage payment by $232.73/mo.

And, as I said previously, the $653/mo. added to my non-taxed income of $2,612/mo. is money I do not receive, cannot spend, save, invest, or expect to receive in the form of a tax refund. This is $653/mo. of non-existent money that does nothing less than penalize me for receiving non-taxed disability benefit and compensation income.
Icon Mini Profile gmakerley
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Post Posted: Thu Oct 07, 2010 12:43 pm    Post subject:
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The key here is that the 31% figure is what they've got to arrive at in order for you to qualify for what they're working on. That $809.72 you mentioned may not be within the realm of what they can do. Perhaps the lowest they can bring your payment to and keep it within the guidelines of the program is where they landed.

In that way, it's beneficial to some (obviously not all) borrowers to have their SS income grossed up.

Ask them if they have a different program that you can slide into. Lenders these days, especially those as large as GMAC et al, have scads of programs that they can consider for you. Depending on the gravity of your situation (how late you are), your ability to make payments at a certain level, and who their investors are (a critical part of it), they may well have something that you'll fit into.

Don't give up - there are people who are 2 years out in terms of their delinquent payments who are still working with lenders and obtaining modification programs that suit them.

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Joan Orke

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Post Posted: Mon Jan 10, 2011 12:34 pm    Post subject: grossing up
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I too have a fixed income that was grossed up 125%. I don't question the grossing up, that is standard. But why 25%? When I first received my mortgage they grossed it up 15%.
Using 25% would assume that I am in a 25% tax bracket and I am no where near that.
What is the industry standard when people are applying for first mortgages?
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Post Posted: Tue Jan 11, 2011 9:41 pm    Post subject:
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It will be better to contact a tax adviser in this regard and take his opinion.
wdavey

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Post Posted: Thu Jan 13, 2011 10:58 am    Post subject: Gross up
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The standard is 25%, but can be adjusted based on the tax bracket that you fall in.
Icon Mini Profile gmakerley
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Post Posted: Tue Jan 25, 2011 2:17 pm    Post subject:
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A tax advisor is not going to know the details on how a mortgage lender grosses up non-taxable income. That's just plain bad advice, unfortunately.

I agree that 25% is the standard; though I've found that it's not industry-wide. Many lenders don't gross up at all.

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Alice Arney

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Post Posted: Thu Feb 03, 2011 7:26 pm    Post subject: Grossing Up Taxable Social Security Benefits for HAMP qualif
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I have 3 sources of monthly income; one being Social Security Benefits of $26.8K. My total income for tax years 2009 and 2008 was high enough that I had to pay federal income against 85% of my social security. For tax year 2010 my total taxable income dropped in half down to approx. $43K, of which $26.8K was from SS. In Nov 2010 I applied for the HAMP and did qualify, however CitiMortgage is grossing up my TOTAL SS by 25% even though my CY 2009 1040, line 20b shows that over $22K was taxable. HAMP Guidelines 6.1.1 state that only the non-taxable SS should be grossed up.
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Post Posted: Thu Feb 03, 2011 8:06 pm    Post subject: Continuation regarding CitiMortgage Grossing Up Taxable SS
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Should CitiMortgage be grossing up the taxable portion of my SS? I have been fighting this battle with them for several weeks. Their answer is that they gross up everybody's SS, and if I don't like it I don't have to enter into the HAMP. I tried to explain that over $22K of the $26.8K was taxable My God . . . all they have to do is look at my 1040 for CY 2009 & 2008 which they have copies of and see that I paid taxes against 85% of my SS. With my first Trial Period payment due on Feb 01, I went ahead and paid what I feel is an inflated mortgage payment (by approx. $400 per month). I'm I way off base or are they wrong. I can't get anybody at either CitiMortgage or the HOPE Help Line to give me the time of day. I'm going to continue to fight this until I run out of options. I'm ready to get my congressman involved!
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Post Posted: Tue Feb 08, 2011 12:08 pm    Post subject:
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You might as well call your congressman. Citibank is following pretty standard procedure, I believe, but you are also correct in noting that taxable SS ought not to be grossed up. Of course, that's the rule for mortgage qualification. My understanding (using knowledge of what Wells Fargo has done) is that all SS is grossed up...period.

Does that make it eminently fair when you're seeking a modification and the ordinary adjustment is only on non-taxed income? No, it doesn't. You'll likely have no luck whatsoever in convincing anyone at Citibank to accept your stance, so get on the phone to your congressman and see if he can't straighten things out. That seems to be your best option.

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Post Posted: Thu Mar 03, 2011 4:58 pm    Post subject: I am fighting with Wachvia Motgage right now.
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I am fighting with Wachovia Mortgage right now. I was told to apply for a mod and after my initial review we had been informed we qualified. My wife is working two jobs and I am disabled.

We received a letter stating that saying the request was denied because "Your loan does not meet imminent default criteria"

They now say we make too much income. We are not paying our credit card bills or auto loans so as to save the home.
The bank is using the formula that adds 1.2% to my SS disability income and as my wife is paid bi-weekly so they also add to her gross income. They are showing we gross $824.00 more per month than we actually do.

I said my wife should then quit her 2nd PT job so we qualify. They said then we may not make enough. They also said you are making your payments so you seem to have extra income.
This is also part of a class action lawsuit against Wachovia Bank. They actually said if we qualified they would take $65K from the loan balance, offer us 2% interest and lower our payment by $650.00 per month. A conventional 30 year loan. We have been in this house for 28 years. Help.
Icon Mini Profile jerry
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Post Posted: Fri Mar 04, 2011 2:01 am    Post subject:
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Hi cboh!

Welcome to forums!

If you're paying off the mortgage debts on time, then the lender will think that you're comfortable making the payments. Moreover, most lenders offer mortgage relief to those borrowers who are already delinquent on their mortgage payments.

Thanks,

Jerry
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Post Posted: Fri Mar 04, 2011 9:27 am    Post subject: I am having the same problem.
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I am having the same problem.
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