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Gross-up non-taxed Social Security benefit income

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?

jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 03:05 | Post subject:

gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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.

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 03:05 | Post subject:

pawms's picture
pawms | Joined: October 1, 2010 05:37 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

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.

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

It will be better to contact a tax adviser in this regard and take his opinion.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

The standard is 25%, but can be adjusted based on the tax bracket that you fall in.

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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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cboh1q's picture
cboh1q | Joined: March 3, 2011 03:35 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

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.

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jerry's picture
jerry | Joined: October 17, 2005 03:24 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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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tmvoy's picture
tmvoy | Joined: March 4, 2011 08:26 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I am having the same problem.

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sara's picture
sara | Joined: July 5, 2006 03:16 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi tmvoy,

Please explain your problem in details so that members/experts participating in the forums can help you with their suggestions.

Take care.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

This post is from Bankersonline.com from member listed below
arye23
Member

Registered: 03/09/11
Posts: 85
Loc: Ohio "Grossing up" means taking non-taxable sources of income (social security as an example), and adding a percentage (I've seen anywhere from 15-25%) to give it equal footing with gross W-2 wages.

Example:

Someone earning $24,000 in gross W-2 Income would have $2,000/month in gross monthly income.

Someone earning $19,200 in non-taxed social security annually would have gross monthly income of $1,600. Taking the $1,600 x 1.25 would provide a "taxable equivalent" of $2,000/month for determining "gross monthly income".

Usually, social security, disability, other types of public assistance, etc are recieved without being subject to income tax withholding. Grossing up that amount puts it on equal footing with W-2 earnings; comparing "apples to apples".

When doing this, a bank needs to be consistent in treatment, by either grossing-up or not grossing-up all types of non-taxed income.

Hope this helps...

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jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi tmvoy,

Please post your query in details. It will help me as well as other members to offer you suggestions.

Thanks

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cyndimacafee's picture
cyndimacafee | Joined: May 31, 2011 08:19 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

We have a Fannie Mae loan serviced by Flagstar Bank in which Mortgage Outreach Services initially set up our trial period. Apparently during that period, Fannie Mae instructed all of their servicers to cease using MOS to modify loans. MOS grossed up our income by 25% also, and when questioned by our housing counselor, we were told that it is standard practice for all types of loans to gross up non-taxable income by 25%, and gross "down" taxable income by 25% to "level the playing field". Flagstar Bank could not make any changes to our trial payments, but are now looking into it before they offer a permanent modification. Thank goodness MOS required us to get a housing counselor, because she has been invaluable during this whole process, and tenacious as a bulldog!

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

As cliched as it may be, for a person to have the tenacity of a bulldog in a position such as a housing counselor is an extraordinarily good thing to have.

From the tone of your post, it seems that you're getting the help that you require, Cyndi. I hope that's true.

Favorable stories, of any sort, are beneficial to the entire readership of MortgageFit.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

My loan servicer is also grossing my disability SS up by 25%. I don't have this extra money and it calculates my payment at 31% that is more than $300 more than my payent should be. I wrote to my loan servicer which is wells fargo and freedie Mac is the investor. I have been working on this for over two years. I have even talked to my Senators office in Iowa, but wells fargo still tells me that they need to gross my social security up 25%. I need to know what my next option or someone that I need to talk to.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Talk to your local attorney in this regard and check out if he can help you in this case.

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Guest, this is not something an attorney is going to want to take on, and it's also not something that an attorney can rectify. Lenders use specific guidelines - sometimes self-directed, sometimes directed by the secondary market(s).

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cyndimacafee's picture
cyndimacafee | Joined: May 31, 2011 08:19 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

This week, we received the permanent loan modification, and Flagstar Bank removed the 25% "gross up" that Mortgage Outreach Services had placed on our income. It took two long years to get to the permanent modification, but it is finally over!

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adonis's picture
adonis | Joined: October 22, 2005 05:04 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Congratulations cyndimacafee!!! :-)

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Cyndi, I'm gratified to learn of this success on your part. Unfortunately, your experience is probably typical of the effort that must be put forth. Lenders are grossly inefficient in their processing of modification requests, as noted by recent government action against three of the biggest lenders. Two years is a long time; there needs to be serious consideration given to determine what needs to be done to shorten that process.

Borrowers ought not to have to struggle so severely in their attempts to get their lenders and/or servicers to give reasonable service to the process.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

my husband and I are in a similar position where our bank took 5 months before telling us that we do not qualify for anything. I just found out today that Wells Fargo grossed up my husband's SSDI 25%. This took our income up more than $600.00 per month. If they didn't do anything, we would have saved more than $200.00 a month on a remodification plan. George you said that not all lenders gross up, can you let us know who does not follow this practice. We are so frustrated and the banks lawyers seem to be moving rather quickly since we were turned down.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

mrsmoe, you can directly have a word with your lender so that you can negotiate with him to not gross up your husband's income. This might help your situation.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

just would like to get a modification on my mortgage on my ACTUAL income....the money I actually have in my hand to pay my mortgage. Is there any program that helps you stay in your home by using what your REAL CASH IN YOUR HAND IS???

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jerry's picture
jerry | Joined: October 17, 2005 03:24 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi janner,

It will depend upon your lender as to whether or not you will be able to qualify for a modification provided you can convince your lender about your financial crisis.

Thanks,

Jerry

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