Tips for the Borrower
- Communicate with your lender as soon as you realize you have a problem.
- If faced with a choice of which bills to pay, always pay the mortgage first.
- Other creditors do not have the ability to take your home.
- Mortgage payments should be your number one priority.
Lenders Don't Want Your Property - Why Lenders Do Not Want to Foreclose
- They are in the business of making loans, not selling houses.
- The legal foreclosure process is expensive.
- It takes an average of 6-9 months for a property to sell, during which time the lender is not receiving monthly payments.
- Overall, lenders lose money on foreclosed homes.
- If there is any way to avoid foreclosure, a lender will usually try to help you find it.
Strategies for Preventing Foreclosure
- Lender Loss Mitigation programs.
- Develop a realistic budget.
- Explore the alternatives to foreclosure.
Questions a Lender/Servicer Will Consider in All Options
- "Hardship" vs. "Chronic Delinquent"
- Short-term vs. long-term problem
- Whether you have the ability to keep the home
- Your ability to recover from mortgage delinquency or anticipated unaffordable mortgage payments while maintaining mortgage payments and other expenses will be assessed.
Be Prepared to Discuss with Your Lender/Servicer and/or Housing Counselor:
- Status of Loan: What level of delinquency are you in? If not currently delinquent, at what point is your mortgage unaffordable?
- Reason for Delinquency: What is the reason you fell behind in payments or what will cause you to become delinquent?
- Homeowner Motivation: Do you want to remain in the property?
- Income/Assets: Assessment of all income sources and assets.
- Debts/Liabilities: Assessment of all debts and liabilities.
What the Lender/Servicer and/or Housing Counselor Needs to Know
- Reason for Delinquency
- What happened to cause you to fall behind? (e.g., illness, loss of income, etc.)
- What do you anticipate will hamper your ability to make your payments at the current level?
- Have your circumstances improved or changed?
- This information helps determine whether you will be able to handle future payments so you can convince the lender to work with you.
- Motivation
- What do you want to do? Do you want to stay in the house or do you want to sell it?
- Income
- What is your income now?
- Is it stable and steady?
- Is it enough to afford the regular monthly payments to get caught up with the past due amount?
- A lender will be reluctant to work out a plan if you do not have the capacity to make regular payments.
- Status of Delinquency
- How far behind are you on your mortgage payments?
- How much do you owe?
- Why do you owe this?
- What state of the foreclosure process are you in?
- These factors determine which options are available (i.e., someone who is two months behind will have different options than someone whose house is going to be foreclosed on in the near future).
- Assets
- Do you have any money saved up from the periods in which you were not making payments?
- Do you have any assets that will allow you to get money?
- Do you have a 401(k) you can borrow from?
- Do you have funds available to enter into a workout plan?
- Note that many lenders require a deposit.
- Debts
- Do you have debts that have monthly payments?
- Do you have other collections or judgments?
- Is anyone threatening to garnish your wages?
- Are you current on your property taxes and insurance?
- Debt is used to establish how much you can really afford or if the property is simply unaffordable.
- Property
- How much is the property worth?
- What condition is it in?
- How much equity do you have?
- This information is used to determine whether refinancing or selling is an option.
- Type and Terms of the Loan
- Is it an adjustable rate mortgage?
- Is there a balloon payment? Is the payment due?
- What is the balance?
- This information is used to determine what type of workout options, if any, are feasible.
- Two Types
- Mortgage delinquency is cured and you stay in the home.
- Mortgage delinquency is not cured and you must move.
- Documents Typically Required by Lenders for Loan Modification Review
- Budget
- List of your monthly income and expenses.
- Be cautious! A high debt level will result in a denial for assistance.
- Hardship
- Letter, in your own words, describing the reason for default.
- If delinquent, mention how much can be applied towards the delinquency.
- Income Documents
- 30 days of pay stubs. If self-employed, 12-month Profit and Loss Statement.
- Most recent W2s.
- Most recent bank statements.
- If You Wish to Stay in the Home, You Typically Have Eight Options:
- Reinstatement
- Occurs when the loan is brought current by paying the total amount past due.
- Payment Suspension
- Repayment Plan
- You bring the delinquent mortgage current within a specific period of time by making normal payments plus additional scheduled payments towards the delinquency.
- Generally used when you have had a temporary reduction in income which has been resolved.
- Lender (if conventional) has no obligation to accept any amount less than the full amount in arrears. The repayment plan must be negotiated with the lender.
- Forbearance Agreement
- All parties agree to delay foreclosure or other legal action. You promise to pay the arrearage or the debt by a specified date.
- In some instances, payments can be reduced or suspended for a period of time.
- Generally used if you have a temporary financial setback.
- More commonly used with FHA loans than with conventional loans.
- Partial Claim and Borrower Assistance Programs
- Loan Modification
- Modification of one or more of the terms of the mortgage.
- Generally used when there is a change in your ability to make payments.
- You must be able to keep the payments current after the modification.
- Modifications include reduced interest rate, change in mortgage product (i.e., ARM to fixed), extension of the maturity date, etc.
- Bankruptcy
- In some cases, Chapter 13 may allow you to make monthly payments - in addition to regular payments - to catch up on arrears. Please contact an attorney.
- Refinance
- You must have significant equity to qualify for a new loan. Most lenders will not make a loan with more than 60-65% loan-to-value. Federal programs are now available that will allow you to refinance with little or no equity in your property, if you qualify. Go to makinghomeaffordable.gov.
- HUD Hope for Homeowners, Fannie Mae, and Freddie Mac.
Who Approves the Workout Agreement?
- Identify the decision makers.
- Many times the servicer must get the investor's and/or the insurer's approval - they will not enter into a workout agreement if it jeopardizes their lien position.
- Be sure to get the workout plan in writing!
The Lender is Less Likely to Agree to a Repayment Plan If You:
- Have broken a previous repayment agreement.
- Have been chronically late with payments.
- Have recently received the loan.
- Do not have any back payments saved up.
- Owe more than three payments.
- Are not able to catch up within 4-6 months.
- Will not be able to afford the regular monthly payments.
Recommendations for Calling the Lender/Servicer and/or Talking to Your Housing Counselor
- Have your loan number, property address, and social security number for mandatory account verification purposes.
- Ask to speak with the loss mitigation department, rather than customer service or collections.
- Explain why payments are overdue.
- Know your monthly budget before calling.
- Also let them know how you have changed your spending habits and can reasonably make payments.
- Your financial situation
- Type of mortgage
- Investor holding the loan
- Different investors have different criteria.
- Ask your servicer for the investor.