If you find yourself in a bind and can't make mortgage payments, don’t panic. You are not the first person to be in this position, and you will not be the last.
There are programs designed to help you deal with your current crisis and guide you back to a fiscally stable future with the opportunity to stay in your home and avoid foreclosure.
As soon as you realize you are having a problem making your mortgage payments, contact your lender. Your instincts may tell you not to do this for fear you will set in motion a chain of events that will cause you to lose your home.
The truth is, lenders are not anxious to kick anyone out of a home. They are much more willing to work with you than to go through a lengthy, expensive foreclosure process.
Your lender may be able to help you resolve your problem by offering you one of the following programs. Lender programs are at the discretion of the lender and not all lenders offer all of them.
--Reinstatement– If your money problems are temporary, a simple reinstatement program might be an option. This involves an agreement between you and the loan servicer for you to pay the entire past-due amount, plus late fees, interest or penalties, by a date acceptable to both you and the servicer.
--Forbearance – In a forbearance program your lender will lower or even suspend mortgage payments for a period. At the end of the forbearance period you resume payments, including a lump sum or additional payments to bring the loan current.
--Loan Modification– Loan modification allows your loan servicer to permanently change one or more terms of your contract to make your payments easier to manage. This could include reducing the interest rate or extending the length of the loan. There are potential tax implications to a loan modification. You should check this out with your tax adviser or the IRS. (For more on debt forgiveness, see No Debt Forgiveness for the Tax Man.)
Making Home Affordable Programs
The federal government’s Making Home Affordable (MHA) program started in 2009 as a way to help struggling homeowners avoid foreclosure. The program is set to end Dec. 31, 2016. To be considered for most MHA component programs, your application must be submitted on or before that date. (Hardest Hit Fund, or HHF, is an exception – see below.)
--Home Affordable Modification Program (HAMP) – A loan modification under the Home Affordable Modification Program (HAMP) may be an option for you. To qualify, your home must be your primary residence, you must owe less than $729,750 on your first mortgage and you must have taken out that mortgage before Jan. 1, 2009.
Additional information and “next steps” are available here.
--Home Affordable Foreclosure Alternatives (HAFA) – If you can’t pay your mortgage and are interested in moving to more affordable housing, you may be a candidate for a short sale or deed-in-lieu of foreclosure through HAFA.
Additional information about HAFA, as well as what to do next, is available here.
--Home Affordable Unemployment Program (UP) – If you are unemployed and that’s making it hard for you to make your mortgage payments, this program may provide much-needed help by reducing or suspending mortgage payments for up to 12 months.
--Hardest Hit Fund (HHF) – HHF programs exist in 18 states and the District of Columbia. These programs are designed to help by providing loan modification, mortgage payment assistance and transition assistance.
The HHF programs vary by state. More information including links to each state’s program can be found here.
HHF deadline applications in some states conclude Dec. 31, 2020. In other states, the deadline has already passed.
Federal Housing Administration (FHA) Programs
The FHA provides programs that its lenders must use when appropriate. If you have an FHA-insured loan, one of these programs might be for you.
--Special Forbearance– Under FHA Special Forbearance your lender may reduce or suspend your payments to give you time to overcome a loss in income. This may be followed up with a special payment plan to allow you to make up the missed payments.
--Mortgage Modification– Like all loan modifications, FHA Mortgage Modification involves a permanent change to your loan through which payments you failed to make can be added to your loan balance. Other possible modifications include a change to the interest rate or to the length of the loan.
--Partial Claim– This involves a second (interest-free) loan to bring your original delinquent loan up to date. You do not need to pay off the second loan until you pay off your first mortgage or sell your home.
--FHA-Home Affordable Modification Program (FHA-HAMP)– This program is similar to the HAMP program under MHA. It combines an enhanced partial claim with a loan modification. Under the FHA-HAMP, the new (interest-free) partial claim loan will bring your mortgage current, and it can include an additional amount to reduce your existing loan balance by up to 30%.
As with the regular partial claim loan, this loan must be paid back when you pay off your first mortgage or sell your home.
Housing and Credit Counseling
A housing or credit counselor can help you weigh your options and, what’s more important, help you avoid problems in the future.
Contact the local office of the U.S. Department of Housing and Urban Development (HUD) or the housing authority in your state, city or county for help in finding a housing counseling agency near you.
You can also contact the nonprofit Homeownership Preservation HPF partners with mortgage companies and others to help consumers avoid foreclosure.
Watch Out for Scams
In addition to legitimate credit counselors, there are also scam artists who exist only to separate you from your money. Avoid them at all costs.
Scam websites, emails and phone solicitations often feature people with official sounding titles such as Foreclosure Prevention Specialist. Some even use the word HOPE in their title to create the illusion they are affiliated with the Homeownership Preservation Foundation (described above).
The Bottom Line
Not being able to make mortgage payments is frightening. Fortunately, the programs described here cover almost any financial situation a homeowner might face. Aside from contacting your mortgage lender to let it know you are unable to make your payments, the next most important step to take is to seek advice either locally or through HPF.
Finally, as the FHA advises, don’t sign any papers you don’t understand and don’t be talked into refinancing before you explore all other options.