Home Loan Delinquency and Foreclosure Help

The mortgage foreclosure pandemic has not yet abated.  While investors talk about a rebounding stock market 1000’s of new foreclosure filings continue to be processed. 

For some home owners the foreclosure process can be a bitter end to poorly fitting monthly mortgage payment.  In these cases, the mortgage amount and monthly commitment probably never matched the household income.  Servicing the mortgage payment combined with the new homes expenses and recurring monthly living expenses was a budgeting nightmare the day the mortgage loan was signed.  But for others, the late mortgage payments and impending foreclosure are not a product of risky lifestyle decisions and too much consumption but standard income stresses like the loss of a job, divorce and unexpected financial calamities.

The economic crisis has made it hard for a number of homeowners who were not having trouble in prior months finding it hard to now make ends meet.  For some of these people who were finding it difficult to make their mortgage payments, they have been able to save their home from foreclosure.  For those borrowers who do nothing, they could lose their home if they continue to ignore the problem and do nothing

If you are having trouble making your payments, sift through the mess to understand what the underlying financial problem is and seek help sooner rather than later.  The longer a home loan borrower waits to call, the fewer options they will have.

One of the first steps to make in times of financial distress and when experiencing payments problems is to analyze your monthly expenses and income and to see where savings can be made.  Dramatic savings made have to made, if necessary.  As your try to fix the household budget leaks, make sure to understand then consequences of mortgage payment delinquency and the foreclosure process so you know what you are up against if you can not realign your budget.

Review the mortgage loan contract you signed when your mortgage lender loaned the money necessary to buy the house or more likely, the last home loan refinance transaction since that will be the mortgage that is secured against the house.  The mortgage loan agreement will cover the terms under which you agreed that if you can’t repay the home loan, the mortgage lender can foreclose to take ownership of the house.  If you do not pay your monthly mortgage payment, you are technically in default on your mortgage. 

State laws vary, but generally, a mortgage loan that is as little as 90 days delinquent can be considered in foreclosure and the process of foreclosing on the home may begin.  Your mortgage lender may send a notice indicating that they are starting foreclosure proceedings, but a homeowner should not wait fro this document to arrive.  It is important to take steps to prevent a foreclosure as soon as you realize you are having trouble paying the monthly mortgage payment.

The good news is that there has been a tremendous amount of pressure applied to banks and mortgage lenders that originate and service mortgage loans to take prudent attempts to find solutions for homeowners having trouble making their mortgage payments.  Contact your mortgage loan servicer (the company that collects your monthly mortgage payments) to discuss your options as early as you can.  Many home loan servicers are expanding the options that have made available to their borrowers.  It is certainly worth calling your mortgage loan servicer even if you had a request that was denied in the past.  Mortgage loan servicers are getting a tremendous amount of calls from distressed borrowers.  Be persistent and try to be patient but by all means find out what your home loan lender or servicer can do for you. 

While you will want to discus any and all options the mortgage lender may have, one option that is being sponsored by the present administration is home loan modifications.  Many home loan servicers implemented new loan modification programs in 2009 to assist homeowners experiencing financial difficulties by lowering their monthly mortgage payments.  Plus, many home loan servicers are participating in the government’s Making Home Affordable Program as well as working with non-profit counseling agencies through HOPE NOW. 

In a mortgage loan modification, the home loan servicer and the home loan borrower agree to permanently change one or more of the mortgage’s terms to make the monthly mortgage payments more manageable for you.  The changes could include reducing the mortgage rate, extending the term of the loan, creating a forbearance on the past due interest or forgiving principal, or a combination of these factors.

With the government sponsored loan modification program in order to be eligible, the home must be the primary residence, the mortgage loan balance must be no more than $729,750 for a single-family home, the monthly mortgage payment (on a first mortgage) must be more than 31 percent of the borrower’s gross monthly income, and the homeowner must either be having trouble meeting mortgage payments or be at serious risk of falling behind.  Don’t worry if you had a bankruptcy filing, this does not automatically disqualify a homeowner from participating in a loan modification program.

With this program, the participation of home mortgage lenders and home loan servicers is voluntary.  However, the U.S. Treasury added incentives to mortgage loan servicers to modify loans to make them affordable.  Part of the program includes the ability to reduce the mortgage rate to as low as 2 percent, and next, if needed, to extend the length of the loan to 40 years.  If that isn’t enough to make the mortgage loan affordable, the home loan servicer may defer repayment on a portion of the mortgage loan, which may result in a large balloon payment that will be due at the end of the home loan term.  Another option under the home loan modification program is be for the home loan servicer to forgive some of the loan principal, but technically there is no requirement for the home loan servicers to make the concession.

If the mortgage rate is modified under the program, the modified interest rate will remain in place for five years, and then it will increase gradually by up to one percent per year until it reaches a cap prescribed by the program.

The web site www.makinghomeaffordable.gov provides homeowners with detailed information about the programs.  The Web site can help home loan borrowers determine if you may be eligible fro the program, but be aware that even with government pressure, only the home loan servicer of your loan can tell you if you qualify.

In general, you may qualify for a loan modification under the Making Home Affordable Modification Program (HAMP) if:  your home is your primary residence; you owe less than $729,750 on your first mortgage; you received your mortgage before January 1, 2009; your monthly payment on your first mortgage (including principal, interest, taxes, insurance and homeowner’s association dues, if applicable) is more than 31 percent of your current gross income; and you can’t afford your mortgage payment because of a financial hardship, like a job loss or medical bills.

If you meet these qualifications you must contact the mortgage loan servicer.  Once you start communication with the mortgage loan servicer you will need to provide some documentation for the mortgage servicer or mortgage lender that may include: information about the monthly gross (before tax) income of your household, including recent pay stubs, your most recent income tax return, information about your savings and other assets, your monthly mortgage statement, information about any second mortgage or home equity line of credit on your home, account balances and minimum monthly payments due on your credit cards, account balances and monthly payments on your other debts such as student loans or car loans and a completed Hardship Affidavit describing the circumstances responsible for the decrease in your income or the increase in your expenses.

The government has also sponsored a program called the Home Affordable Refinance.  This part of the program is intended to help homeowners who have been unable to refinance into mortgages with a lower mortgage rate because their homes have decreased in value.

In general, to qualify for a mortgage refinancing under this program, homeowners must have an existing mortgage owned or guaranteed by Fannie Mae or Freddie Mac (government-sponsored enterprises that help ensure funds are available for home buyers at affordable interest rates), be current on their mortgage, and have a first mortgage that does not exceed 105 percent of the property’s current market value.

The interest rate and any refinancing fees will be set by each mortgage lender.  It will be necessary to call your mortgage lender or home loan servicer to find out if your loan is eligible.  For those home loan borrowers who already know that their mortgage loan is held or guaranteed by Fannie Mae or Freddie Mac, these organizations can be contacted directly at 1-800-7FANNIE or 1-800-FREDDIE to see if you qualify for this program.

The bottom line is that homeowners who currently have a hard time making their monthly mortgage payments should contact their mortgage loan lender or mortgage loan servicer or a reputable counseling agency as soon as possible to discuss options.  Home loan borrowers who are in distress should also be very careful in dealing with organizations that encourage borrowers to cease making payments or walk away from their home while also promising to repair their credit. 

Here is a partial list of mortgage foreclosure prevention resources:

Government Mortgage Modification Programs:

Making Home Affordable
www.MakingHomeAffordable.gov
www.FinancialStability.gov
Hope for Homeowners (H4H)
http://portal.HUD.gov
(800) CALL-FHA or (800) 225-5342

Foreclosure Assistance and Counseling:

U.S. Department of Housing and Urban Development (HUD)
www.HUD.gov
www.HUD.gov/offices/hsg/sfh/hcc/fc
(800) 569-4287

Homeownership Preservation Foundation (HopeNOW)
www.995hope.org
(888) 995-HOPE or (888) 995-4673

NeighborWorks America
www.FindaForeclosureCounselor.org
www.NW.org/network/home.asp

FDIC Foreclosure Prevention Website
www.FDIC.gov/foreclosureprevention
(877) ASK-FDIC or (877) 275-3342