Don’t Ignore the Problem

Many people avoid contact with their lender about mortgage troubles because they feel embarrassed discussing money problems with others. Or sometimes people believe that if lenders know that they are in trouble, the company will automatically rush to a collection agency or foreclosure. This is not the case. It is very important that you respond to mail and phone calls from your lender, because the first notices you receive will offer good information about foreclosure prevention options.

Contact Your Lender

Before you have any conversations with your mortgage company, gather this information and be prepared to discuss it:

• Loan documents/ type of mortgage
• Loan account number
• Recent proof of income documents
• Benefit statements (Social Security, disability, unemployment, retirement, public assistance)
• Tax returns
• Household expenses
• Check the foreclosure laws and timeframes in your state at the State Government Housing Office
• The amount of equity in your home: Market value – Balance due on mortgage(s) and/or home equity loans

Then think about how you would answer the following questions:

• What happened to make you miss your mortgage payment(s)?
• How have you tried to resolve the problem?
• Is your problem temporary, long-term, or permanent?
• What changes in your situation do you see in the short term, and in the long term?
• What other financial issues may be stopping you from staying current with your mortgage?
• What type of payment arrangement would be feasible for you?

Contact your mortgage lender to discuss your circumstances as soon as you realize that you're unable to make your payments. Make sure to let them know that you are serious about keeping your house, including reducing your spending, prioritizing your debt or taking a second job. Most mortgage companies are willing to work with customers they believe are acting in good faith, and those who call them early on. The longer you wait to call, the fewer options you will have.

In addition to contacting your mortgage company, you should consider contacting a reputable housing counselor. The Department of Treasury and the Department of Housing and Urban Development have created the Hope Now Alliance. The Alliance includes housing counselors, mortgage servicers, investors and others in the mortgage industry who are working to help distressed homeowners save their homes from foreclosure.

Working with Your Mortgage Lender

After providing your lender with information on your circumstances, you might qualify for a loan workout option.

If your problem is temporary, one of the following options may work for you:

• Reinstatement: You pay the loan servicer the entire past-due amount, plus any late fees or penalties by a specific date.
• Forbearance: Your lender may allow you to reduce or suspend payments for a short period of time. At the end of the suspended period, you will pay your regular payment plus an additional agreed-upon amount that will cover the payments that were not made during the forbearance period.
• Repayment plan: You may be able to get an agreement to resume making your regular monthly payments, plus a portion of the past due payments each month until you are caught up.

If it appears that your situation is long-term or permanent your options may include:

• Mortgage modification: Your lender may be able to change the terms of your original loan to make the payments more manageable. Your loan could be permanently changed in one or more of the following ways:
  • Adding the missed payments to the existing loan balance.
  • Changing the interest rate, including making an adjustable rate into a fixed rate.
  • Extending the number of years you have to repay.
  • If your mortgage is insured, your lender might help you get a one-time interest-free loan from your mortgage guarantor to bring your account current. You may be allowed to wait several years before repaying this loan.
• Use your assets: Do you have assets-a second car, jewelry, a whole life insurance policy-that you can sell for cash to help reinstate your loan? Can anyone in your household get an extra job to bring in additional income? Even if these efforts don't significantly increase your available cash or your income, they demonstrate to your lender that you are willing to make sacrifices to keep your home.

Whether your situation is temporary or long-term, you should review and prioritize your spending. You should also consider federal housing programs, such as FHASecure. This program is a refinancing option that gives credit-worthy homeowners, who were making timely mortgage payments before their loans reset but are now in default, a second chance with a FHA insured loan product. There may be additional options available if you are a veteran.

Mortgage Solution Scams

Most mortgage professionals are trustworthy and provide a valuable service by allowing families to own a home without saving enough money to buy it outright. But dishonest or "predatory" lenders do exist and engage in lending practices that increase the chances that a borrower will lose a home to foreclosure. Borrowers facing unemployment and/or foreclosure are often targets of predatory lenders because they are desperate to find any "solution." Some abusive practices include:

• Offering to repay the mortgage or sell the property if you sign over the deed and move out. This usually leaves you still owing the debt but without your house.
• Foreclosure prevention companies or “specialists” that charge you a hefty fee for information and services your lender or a HUD-approved housing counselor will provide for free if you contact them.
• Scam artists who tell you that you will be able to remain in the house as a renter and eventually buy it back if you sign over the deed to your home.

If you receive a proposed solution that seems too good to be true, it probably is. Before signing to take on additional mortgage debt, refinancing, or signing over your title, contact a HUD-approved housing counseling agency.