In Part I of the Preventing Foreclosure series, you received an introductory look at how to stay in your home, either through bankruptcy proceedings or via negotiations with your mortgage lender. In Part II of this six-part series, we’ll elaborate on the ins and out of working with your mortgage lender, including timelines, terms, and what to say when starting this important dialogue.
Part II – Working With Your Lender
The best time to contact your lender is when you’re current on your mortgage and haven’t missed any payments, but you recognize tough financial times are ahead and that this may change in the near future. Now, more than ever, lenders are willing to negotiate with home loan borrowers, if only to reduce the number of foreclosures they're currently dealing with. In some cases, lenders are even acknowledging the “borrower blues,” and reaching out to at-risk clients themselves.
For example, Bank of America almost presumes a payment problem with their Home Loan Help website page asking borrowers to choose the statement (and undesirable situation) that most closely describes their own:
- I am current on my mortgage, or I just missed my first payment.
- I think I will have trouble making my mortgage payments soon.
- I have missed more than one mortgage payment.
- I have received a foreclosure notice.
- I want to know more about the federal government’s Making Home Affordable program.
Do it sooner rather than later.
As a result, take advantage of this trend by contacting your lender as soon as your recognize a problem. The sooner you call, the sooner you’ll be able to work out a solution with your lender. Keep in mind, if you've already missed several monthly payments, it may be too late, and the lender may move ahead with a foreclosure.
Your lender may accept a late payment, partial payments for a several months (though you may have to agree to make up the difference later), or agree to redo the terms of your loan.
What to say when you contact your lender.
Here's what you should ask for in lender-language. (And by the way, you'll probably need to get to the right department first -- it may have a name like "loss mitigation.")
With a forbearance, you make a reduced payment, or no payment, for an agreed-upon period. In most cases, the lender will require you to make up the difference at a later time and is therefore more likely to agree to this option if you can show that you have a bonus, tax refund, or some other extra money coming your way.
Your lender may agree to allow you to make up your missed (or reduced) payments once your loan is reinstated on a specific date.
Your lender could agree to alter the terms of the loan so that you can better afford the payments. For example, the lender may agree to add your missed payments to your loan balance, to stretch out your loan over a longer term (which will lower your payments but result in more interest over the life of the loan), or to convert an adjustable rate to a fixed rate mortgage.
Keep in mind, however, lenders have so far shown a reluctance to permanently modify your loan. You may have heard of the government's "Making Homes Affordable" program. The idea behind the program was good in principle. However, the bill gave far too much leeway to lenders. If anything can be learned from the economic crisis that led to the current recession, it's that if you give bankers too much wiggle room, they will exploit homeowners. And that is exactly what is happening.
As of 9/1/2009, 362,348 homeowners have been approved for "trial" modifications. Of that number, only 1,711 have been turned into permanent modifications. Why would a lender want to put a homeowner in an indefinite trial modification? Because as long as you're continuing to pay the lower amount, they get a stream of payment. Whats more, the servicer continues to collect servicer fees, which are often elevated for trial modifications. The end result is that your loan is not getting paid down, your house is losing equity, but the banks and their servicers are making out like bandits. For more information on the mortgage modification scam, visit: http://www.billsbills.com/mortgage_modifications.php
For more details on how to conduct negotiations regarding your pending foreclosure or how bankruptcy might be an option, contact The Law Offices of John T. Orcutt.