What should you do if you are among the millions of homeowners who can’t pay their mortgage because of our current economic crisis?

Lenders and the federal government are starting to understand that current events cause people to fall behind on their mortgage payments.

If you are unable to make your payment, there are options that may be available to assist you to either stay on track, or handle the inevitable.

Communicate, and be Organized

If you are having trouble and need help to pay your mortgage, you first need to contact your loan servicer. This is the company that you make your monthly payments to, not always the same place you got your mortgage home loan. Have your loan number and property address ready when you call, along with any other important documentation you may have. When you call, you will need to give them a brief explanation of your current circumstances, recent income documents (such as pay stubs; benefit statements from Social Security, Disability, Retirement, or Public Assistance and unemployment benefits), and bank statements and tax returns for past 2 years. If you are self-employed, have your tax returns or a year-to-date Profit and Loss statement available for reference.

You will also need to know the status of your other debts like credit cards, student loans, car loans and so on. Get a free copy of your credit report so that you have the same information as the lender when you call.

The more documentation you have, the more compelling and convincing you can make your case.

What Are Your Options?

Your lender is the best source to explain the programs that they can offer to you. But in generally you need to either modify the loan, get payment assistance, or dispose of the property. Let’s look at some options for each:

Keeping Your Home – Home-ownership Retention Options:

house-of-money If you want to keep your home and have the ability to resume monthly payments (either now, or in the near future), one of these programs may be available to you:

Loan Modification - This option changes the terms of your loan without refinancing and may include adding delinquent payments to the balance of your loan (repaid over the remaining term). A loan modification (or Loan Mod) changes the terms of your current loan without refinancing and may include adding delinquent payments to the balance of your loan (repaid over the remaining term). You will need to provide documents with updated financial information for all parties on the loan, along with verification of income. Upfront funds may be required in order to complete the loan modification process. The process typically takes 30 days to complete, but may take longer, and is really designed for those that still have income even if it is reduced (like a salary cut). See this recent posting on how to qualify for a mortgage loan modification.
Repayment/Special Forbearance Plan - Your lender, mortgage insurer and investor may agree to delay any foreclosure or other legal action if you promise to repay the delinquent amount over a specified period of time. You may be able to delay any foreclosure or other legal action if you promise to repay the delinquent amount over a specified period of time. You will be pre-qualified for a special repayment/forbearance plan, and once you are approved, your plan will be monitored by us during the repayment period, until the loan is brought current. In the event your loan is transferred to another Servicer, the new Servicer will monitor your Repayment/Forbearance Plan. You will need to provide updated financial information for all parties on the loan, verification of income, any certified upfront funds that may be required to complete the process. The repayment plan process typically takes 15 to 20 days to complete, but may take longer.
Partial Claim for FHA Mortgages - You may be eligible to receive funds from HUD to bring your FHA mortgage loan current. If you have an FHA loan, ask your servicer about this. There will be a separate set of documentation required and the mortgage loan servicer will submit a request to HUD to advance the funds necessary to bring your loan current. Now that the government is involved, the process typically takes 30 to 45 days to complete, but may take longer.

Selling Your Home – Property Disposition Options:

house-for-sale A lot of folks are “walking away” from their homes because they are so deeply underwater or “upside down” on their loan because they have the double whammy of decreased property values and an increase in interest rate and payment on an adjustable rate mortgage. In any case, you need to contact your servicer to see what your options are before mailing in the keys. If you are not interested or are unable to keep your home, the following programs may be available:

Short Sale - You may be able to sell your property at its fair market value even if the sale’s proceeds are less than what is owed on your loan. This option provides you with an opportunity to sell your home quickly, while attempting to preserve your credit rating. At the close of escrow, if the short sale is approved, the proceeds are wired to the lender. To participate in a short sale, you will need to provide updated financial information for all parties on the loan, completed short sale documents (such as the purchase agreement, HUD documents etc.), verification of income, interior and exterior appraisals. Once you have listed the home and found a buyer, a short sale typically takes 60 days to complete, but may take longer. This option may have tax implications, so check with a financial or tax advisor.
Deed-in-Lieu of Foreclosure - You may be able to deed the property to the lender/servicer and avoid a lengthy foreclosure. For information on how this will affect your credit rating, you need to consult an independent tax advisor. This option relays to the credit bureau that the financial situation was mitigated. If approved, the Deed-in-Lieu documents are forwarded to the lender’s attorney’s office to complete the process. In addition to updated financial information for all parties on the loan and an appraisal, you will need to provide clean title reports (to ensure that the property is free and clear of any liens or encumbrances) and verification that the premises are vacated. The process typically takes 75 to 90 days to complete, but may take longer.

None of this is fun, but is reality. Get yourself an attorney who has done a few dozen of these transactions before you sign anything. And start sooner rather than later as the lenders are slammed with requests right now.