Call the lender
For a homeowner, realizing that they can no longer afford their monthly mortgage payment is a daunting experience. This could be due to any of a number of factors, including an adjustable rate mortgage where the rate is about to go up; a reduced income due to a job loss or business slowdown; a medical situation; a divorce; or other reasons.
Whatever the situation, borrowers need to contact their lender as soon as they know that they are in a position to miss a payment. Letting the lender know ahead of time shows that the borrower is being responsible about the situation and alerts the lender that they may be asked to do some type of loan modification.
Borrowers that are up front with their lenders, let the lenders know about their situation and are interested in hearing about options allowing them to keep their homes will go a long way in moving the process forward.
Time is of the essence. The fact is, while missing a mortgage payment or paying it more than 30 days after it is due will have an adverse impact on a borrower's credit, most lenders will normally only start foreclose proceedings after a borrower has missed three consecutive payments. Therefore, the earlier the borrower initiates contact, the more time there will be to put a plan into place.
When calling their lender, borrowers should ask for the Loss Mitigation department. If unsure of the number, call the customer service phone number on the monthly mortgage statement. Calling Loss Mitigation during normal business hours offers the best chance of getting through to someone.
Government and online resources
There are many online resources to help borrowers navigate the loan modification process. In addition, government agencies such as Fannie Mae, Freddie Mac and HUD/FHA all have extensive information on loan modifications and avoiding foreclosure.
The government has also established a number of programs to assist homeowners in obtaining loan modifications, information on which is available through the agencies named above.
Document your Situation
Before contacting their lender, borrowers should write a hardship letter stating how they came to arrive in their current situation, and how they plan to move forward from it.
Two of the first questions that a lender will ask a borrower looking for a loan modification are how much they are earning each month, and how much they spend each month.
Borrowers should also prepare a statement of all income and expenses in a given month, including tax returns, credit card payments, loan payments, utilities, food, phone, etc., and have it ready for the lender when they are on the phone.
From these numbers lenders can determine how much a borrower should be able to afford for a mortgage payment each month.
Borrowers that have this information available to the lenders appear much more organized and motivated to resolve their situation than someone who is either unable or unwilling to provide it. The process of a loan modification is long enough, and minimizing the number of phone calls, and the number of people to have to work with will reduce stress levels for all involved.
Document all calls with the lender. This means times, dates, names of lender representatives, titles, and information what was discussed. Borrowers will most likely be working with more than one person, and being able to recall details form memory of conversations that happened days or weeks prior is a near impossible task.
Work with your lender
The process of working with a lender to work out some type of arrangement or loan modification enabling a borrower to keep their home can be a drawn out, and at times a seemingly frustrating one.
Keep in mind that the situation that lenders currently find themselves in is unprecedented in the history of mortgage lending, and calling them overwhelmed would be an understatement. A little patience will go a long way.
What if my lender says they are going to foreclose?
If a lender intends to foreclose on a property, they file a document that is called a Lis Pendens, which tells the borrower that the lender that they have started the process to take back the property. Depending on what state the property is in, the process will involve the judicial system.
Contacting the lender though, even at this point will let them know that the borrower is interested in keeping the property, and the process of working toward that can start.
Warning signs of mortgage payment struggles ahead
Borrowers making their mortgage payments on time, but in the distant future see their expenses rising should contact their lender as well. This rise in expenses could include a mortgage payment increase, the replacement of an aging vehicle, or major home repairs such as a new roof or furnace. Borrowers unable to save money for the proverbial rainy day may be able to start saving again with a lower mortgage payment.
A borrower that anticipates an employment status change, such as their office closing should contact their lender as well.