The Life of Your Loan
Prior to purchasing your home you applied for a mortgage which is a loan to pay the seller at closing. A mortgage is a lien on a property, your home that secures a loan and is paid in installments over a set period of time. The mortgage secures your promise that you'll repay the money you've borrowed to buy your home.
Mortgage payments are due and payable on the first of the month. Your loan is delinquent on day 2. You may have a payment grace period of 15 days before late fees are charged on day 16. The timing and amount of late charges vary from lender to lender. At 30 days following the due date at end of the month, your mortgage servicer's will get involved with payment reminder phone call notices to you.
At 60 days following the due date, acceleration letters are sent out advising you that the mortgage payment needs to be made or the loan will be headed to the foreclosure process. Just because your loan is going toward the foreclosure process, many options are still available.
At 90 days delinquency - time is ticking. The longer the delinquency, the more aggressive your
mortgage company becomes in collection strategies. The longer you wait to call your mortgage servicer
limited options will be available. It is important to call your mortgage servicer early and often.
At 120 day delinquency - your mortgage servicer will place the loan in the foreclosure process and
foreclosure time line varies by state. The entire balance of the loan may be due and payable immediately.
Partial payments in many cases are not allowed at this stage. In addition to the loan payments due, you
are liable for legal fees incurred by the mortgage servicer. At this point, you are in danger of losing your home to foreclosure.
Ultimately, if no workout solution is achieved the loan goes to a foreclosure sale. When the foreclosure sale has been completed, you must exit the property.
Unexpected life changes are often a contributing factor to foreclosure especially those that impact your
finances. Let's look at two potential delinquent characteristics.
1. Involuntary Default
2. Imminent Danger of Default
Involuntary Default - The reason behind why the mortgage cannot be made is no fault of the homeowner. The
hardship is unavoidable, involuntary, or beyond your control. Let's look at some Inability to pay examples:
Reduction of income
Increase of expenses
Job loss
Long or short term disability
Separation, divorce
Death in the immediate family
Or major home repairs needed immediately such as a roof leak
Imminent Danger of Default - You do not have to be delinquent to request help today. If you are in an
imminent danger of default based on facts of a specific situation and you most likely will be in default within the next 12 months, you need to call your mortgage servicer right away. Workout options are available to help keep your loan in a current status or correct the delinquency to prevent foreclosure.
We have reviewed your loan dynamics and the delinquency time line. Now let's go behind the scenes of your mortgage for a clearer understanding.
Behind the Scenes of Your Mortgage There are Four Mortgage Company Departments
Customer Service, Collections, Loss Mitigation, And Foreclosure
Let's be clear of each department's responsibility.
The Customer Service Department
Is the 1st point of contact before your payment is late.
They have limited information.
No considerable assistance in workout options.
The Collections Department
The 1st point of contact after payment is late on day 2
They provide limited options for assistance.
And the Collection Department often serves as screeners for the Loss Mitigation Department.
The Loss Mitigation Department
The loss mitigation program was designed to address serious defaults, those that continue for 90 days or more.
Many of the most effective loss mitigation actions take place in the early stages of collection before 90 days delinquent. Lenders and mortgage servicers are required to:
Consider all reasonable means to address delinquency at the earliest possible moment to minimize
financial loss to the mortgage company.
And inform borrowers of available loss mitigation options
Loss Mitigation must:
Inform the homeowner the availability of housing counseling
Exhaust their means to avoid foreclosure by utilizing one of loss mitigation workout plans whenever
feasible
And Loss mitigation is often difficult to reach. Patience and Persistence, persistence, persistence is
important.
The Foreclosure Department
Foreclosure is the legal process of obtaining title to real estate collateral which is your home in the event of nonpayment
of a mortgage debt. This usually occurs when the loan is 90-120 days delinquent.
Foreclosure department ensures that all applicable time lines, processes and laws are followed during
foreclosure process.
And continues the foreclosure process until instructed by loss mitigation department to terminate.
Beyond those 4 mortgage departments are your:
Mortgage insurer
Investor(s)
And Mortgage servicer
How do they participate in your mortgage?
The Mortgage Insurer
If you purchased your home with a convention or FHA loan with less than 20% downpayment, your mortgage loan is required to have mortgage insurance that protects the lender should you default on the loan. Your mortgage payment includes this monthly insurance premium.
The Mortgage Investor
Purchases your loan on secondary market
And sets guidelines for the mortgage servicer
The Mortgage Servicer
Facilitates the loan
They mail out mortgage statements, collect payments, they pay your city and county taxes, mortgage
insurance, and homeowner insurance when due from your mortgage escrow account.
Controls contact with the homeowner.
As you can see there are many participants involved behind the scenes of your mortgage. Now you have a clearer understanding of your loan, the mortgage company departments and their partners.
Mortgage servicers have the authority and the responsibility to use effective actions and strategies to assist homeowners who are in default, retain their homes thus reducing losses to the lender.
Your mortgage servicer or default counselors are in the best position to determine which, if any, loss mitigation strategies are appropriate in a given circumstance. While each option involves specific actions, some policies apply to all of the options, and some actions are performed whether or not any of the loss mitigation strategies are used. The options made available to the homeowner will depend not only on their circumstances, but on the type of mortgage they have.
There are two default categories.
1. Curable Default
2. Non-Curable Default
First - Curable Default
Sometimes homeowners may experience a temporary reduction in income or financial hardship, such as an illness. When this happens, they may temporarily be unable to make their mortgage payments. Once the situation improves, however, they may be able to resume the scheduled payment of the mortgage.
When the cause of the delinquency is curable and the homeowner is committed to remaining in the home, the mortgage servicer will consider workout reinstatement options to bring the loan current in the following order:
Reinstatement Option
Forbearance Option
Repayment Plan
Loan Modification Plan
Refinance Option
Chapter 13 Bankruptcy Option
Non-Curable Default
As hard as homeowners might try, sometimes financial hardships don't get turned around as quickly as they would like. These situations may include a long-term layoff, job loss, a mandatory reduction in pay, a disability or illness that results in a decrease in income or an increase in major medical expenses, or the death of the principal wage earner. In these instances, it may not be possible for the homeowner to continue to meet all of their financial and mortgage obligations and the only appropriate course of action is relinquishing ownership of the home, while avoiding the foreclosure and the massive damage that goes along with it.
When the cause of the delinquency is not curable and the homeowner is not committed to remaining in the home, the mortgage servicer will consider disposition options in this order:
Pre-foreclosure Sale
Short Sale
Deed-in-lieu of Foreclosure
Before I explain the various workout options available to prevent foreclosure, let's discuss the Workout Plan Agreement and the Loss Mitigation Package of information that will be required to be considered for one of the workout plans.
Workout Plan
An agreement between the homeowner and their mortgage servicer to prevent the loss of a home is called a loan workout plan. It will have specific deadlines that must be met to avoid foreclosure, so it must be based on what the homeowner really can do to get the loan up to date again.
The nature of the plan will depend on the seriousness of the default, prospects for obtaining funds to cure the default, whether the financial problems are short term or long term and the current value of the property.
The mortgage servicer and homeowner will execute a written agreement that clearly defines the term, the frequency of payments, and amounts due. The agreement acknowledges and states that failure to comply with its terms can result in foreclosure. An agreement may be renegotiated if the homeowners financial circumstances change; however, under a renegotiated plan, the loan should not be more than 12 months delinquent.
The Loss Mitigation Package
Homeowner's must complete an application and a questionnaire which is the "The Loss Mitigation Package".
We all know the importance of a good first impression, and in the loss mitigation world, your package of forms and supporting documents is the equivalent of your first impression. Mortgage servicers receive loss mitigation files daily and carry hundreds of pending files on their desks. They do not have time to deal with packages that look like they were filled out in a hurry and are incomplete.
It is extremely important to complete the package correctly the first time. An incorrect or incomplete
package/application can be shredded by some lenders, not accepted by another, or at the very best, can delay the approval process six months or longer. Each loss mitigation department has its own requirements as to how it likes to receive the information from the homeowner. Some require a printed version of all materials, while others allow fax or E-mail.
It is important to learn up front their policies, procedures and timelines and comply completely.
Your loss mitigation package contains information, forms and instructions provided by the mortgage servicer that you have a loan with. If you have two loans on the home, you will need to submit a loss mitigation package to each lender. Each of them is different, but they each have detailed lists of information that they require in order to process and hopefully approve, your request for foreclosure prevention.
Meet all deadlines the mortgage servicer gives you. The workout process is very time-sensitive. Every day your loan is past due is one day closer to foreclosure. These detailed loss mitigation packages must be filled out by the homeowner and can often exceed 25 or 30 pages. It requires speed, quality and accurate data from the homeowner. Submit a package to all mortgage servicers at the same time.
Information Documents
Your mortgage servicer will need you to provide them with your financials, explanations and supporting documents such as:
Pay stubs, banks statements, and or current tax return - all pages and schedules
A detail monthly "lifestyle" budget
A hardship letter and support documentation
Plus information on the property value and condition
Before you began filling out the paperwork write down the answers to the following 9 questions and include them in your hardship letter.
1. What happened to make you miss your mortgage payment(s)?
2. Do you have any documents to back up your explanation for falling behind?
3. How have you tried to resolve the problem?
4. Is your problem temporary, long-term, or permanent?
5. What changes in your situation do you see in the short term, and in the long term?
6. What other financial issues may be stopping you from getting back on track with your mortgage?
7. What would you like to see happen?
8. Do you want to keep the home?
9. What type of payment arrangement would be feasible for you?
Once your loss mitigation package has been received by your mortgage servicer
They will be review your information and documents before contacting you with solutions and
options.
If you do not hear back from the mortgage servicer in a reasonable amount of time after submitting the workout package, generally 7-10 days, contact your servicer again. Continue to follow up often.
When conversations and negotiations have begun with the loss mitigation department be sure to keep notes of all your communications including date and time of contact, the nature of the contact, the first and last name of the representative, and the outcome.
Also, follow up on any verbal requests you make with a written letter. Send your letter by certified mail, return receipt requested, so you can document what the mortgage servicer received. Keep copies of your letter and any enclosures. Expect to have more than one phone conversation with your mortgage servicer.
Loss Mitigation Workout Options - Alternatives to Foreclosure
Now let's examine each workout option available from your mortgage servicer that will help you return your loan to a current status or if appropriate an exit plan to move from the property to avoid a foreclosure filing.
I will begin with the curable workout options to bring your loan to a current status.
Reinstatement Option
Reinstatement is when a loan that has been in default is brought current and continues with the original loan terms. Your lender may agree to let you pay the total amount you are behind, in a lump sum payment and by a specific date. This is often combined with forbearance when you can show that funds from a bonus, tax refund, or other source will become available at a specific time in the future. Be aware that there may be late fees and other costs associated with a reinstatement plan.
Forbearance Option
Forbearance buys time. Your lender may offer a temporary reduction or suspension of your mortgage payment while you get back on your feet. Forbearance is often combined with a reinstatement or a repayment plan. The delinquent amount can be suspended or reduced for a fixed period or cured through a lump sum payment at a designated time.
Repayment Plan
This is an agreement that gives you a fixed amount of time to repay the amount you are behind by combining a portion of what is past due with your regular monthly payment. At the end of the repayment period you have gradually paid back the amount of your mortgage that was delinquent and your loan is returned to a current status.
Refinance Option
This option is not for everyone. It is a new loan that pays off your existing mortgage loan which may have different terms and there are fees associated with the process. Qualifications will include the verification of:
The source and amount of your income
Your credit score
Your debt to income ratio
And the property value
Loan Modification Option
Changes one or more terms of the original mortgage agreement, usually:
Interest rate changes and/or
Length/term of the mortgage
Loan Modification
May result in a lower payment amount
Must result in a fixed interest rate
Will allow delinquent payments to be added to back of loan
And a portion of the mortgage debt may be forgiven when the loan balance is higher than the home
value known as a deficiency.
Let's look at an example of a loan modification: The length of the term of a mortgage can be extended to 40 years, a reduction of the mortgage interest rate by 1-2 % over 24 months and the reduction of the principal balance amount by up to 25%.
Our last curable workout option is a Chapter 13 Bankruptcy
This is a debt consolidation program. It provides the homeowner the ability to cure the default over an extended period of time (30-60 months) while maintaining the current monthly payment. However, this does not change the terms of the mortgage, and since the homeowner cannot afford the current regular monthly payment, they may not be able to afford the current payment plus the minimum payment due under the consolidation program.
Now let's review the Non-curable default exit plans to vacate the property and avoid the foreclosure proceedings which will be less damaging to your credit score and if owning a home in the future is your goal these options will allow you to qualify for a mortgage much sooner than having a foreclosure or repossession on your credit profile.Mortgage servicers will consider disposition options in this order:
Pre-Foreclosure Sale
Short Sale
Deed-in-Lieu of Foreclosure
Pre-Foreclosure Sale
Allows a borrower in default to sell their home and use the sale proceeds to satisfy the mortgage debt in full.
Short Sale
If you can sell your house but the sale proceeds are less than the total amount you owe on the mortgage, your mortgage company may agree to a short sale also known as a short payoff and write off the portion of your mortgage balance that exceeds the net proceeds from the sale.
A short sale must be approved by the mortgage servicer, owner of the loan and the investor
The house must be sold at fair market value
The homeowner has control over the timing of the transaction and their move from the property
The transaction can be completed at no cost to the homeowner
Deed-in-Lieu of Foreclosure:
A Deed-in-lieu of foreclosure is a cancellation of your mortgage if you voluntarily transfer title of your property to your mortgage servicer. Usually you must try to sell your home for its fair market value for at least 90 days before your mortgage servicer will consider this option.
A deed-in-lieu of foreclosure may not be an option if there are other liens on the property, such as second mortgage, judgments from creditors, or tax liens. The homeowner is required to vacate the property at the time the documents are signed or other negotiated date. Under this program the mortgage servicer can help the homeowner with relocation assistance up to $2,000.
Let's go over some tough questions you must ask yourself
When facing foreclosure there are some very sensitive and tough questions that you must consider honestly
1. Is the financial difficulty likely to continue indefinitely?
2. Are you beginning to recover from the financial set back?
3. Is homeownership still a viable and affordable option?
4. Would your family be better off in a less expensive rental situation at this time?
5. Are there non-essential expenditures that can be eliminated from the household budget?
6. Will you be able to stick with a crisis budget?
7. What makes it so difficult to think about foreclosure during times of crisis is that you are so focused on the problem at hand and not likely to have the time or energy to think about how it could impact other aspects of your life. You dont have to go through the foreclosure prevention process alone. You may find it necessary to work with a counselor.
Housing, Credit and Legal Counseling
Housing, credit and legal counseling resources are available today. Working with a counseling agency can assess your situation, answer your questions, go over your options, prioritize your debts, and help you prepare for discussions with your mortgage servicer. Foreclosure avoidance is a partnership. You and your counselor must work together to find a realistic, permanent solution.
A Counselor's Role Is To Help You, the Homeowner, By:
Listening to your story and analyze your situation
Understanding your needs and objectives
And evaluate your situation, the willingness and ability to repay the mortgage
Your counselor will:
Explain the foreclosure timeline
Determine if your expectations are realistic
Identify any time constraints and deadlines you face, especially a foreclosure sale date
The will also:
Evaluate which foreclosure avoidance workout plan is best for you
Explain your options in helping you make realistic workout choices to bring the mortgage current
Your counselor will
Assist you in completing your spending plan budget, collect necessary income and expense
documentation and other information required by loss mitigation
And immediately begin working with your mortgage servicer on a resolution
If necessary you're Counselor:
Will request a delay of a foreclosure sale date
And continue to review other options, such as bankruptcy, that do not require your lenders consent
To Find a Legitimate Counselor consider calling:
A HUD Housing Counselor at (800) 569-4287
The Homeownership Preservation Foundation at (888) 995-HOPE
Or the Credit Law Group for legal counseling at (800)-508-0041
Making Home Affordable Program
On February 18th, the Obama Administration announced the Making Home Affordable Program, a
comprehensive plan to stabilize the U.S. housing market.
If you are a homeowner who has a solid payment history on an existing mortgage owned by Fannie Mae or
Freddie Mac, a conventional loan you may qualify for a refinance to take advantage of today's lower mortgage rates or to refinance an adjustable-rate mortgage into a more stable mortgage such as a 30-year fixed rate loan.
For those who are struggling to stay current on their mortgage payments, you may qualify for a loan
modification to lower your payments on the first and second mortgage that you can afford.
To learn more about the Making Home Affordable Program visit the website.
www.makinghomeaffordable.gov
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To determine if your loan is owned by Fannie Mae or Freddie Mac, visit these websites.
Beware of "Rescue Offers"
There are companies that appear reputable but are not. Scams can create even deeper problems for you.
Remember: Only your mortgage servicer can approve a workout plan. Beware of so-called foreclosure rescue firms that charge fees to help you with your mortgage servicer.
Identifying a Legitimate Counselor
If you are researching agencies on your own, consider the following:
Most HUD-approved housing counseling services are free, so if an agency charges a fee, look very
carefully at what type of services you are being charged for.
And inquire if the counselor is accredited by a recognized accreditation organization?
Other questions to ask:
How long has their company been in business?
Do they have audited financial statements?
Do they have community presence? In other words, does it have branches that are open to the public?
Do they have the required licenses to do business in the state where you live?
Have complaints been filed with the Better Business Bureau in the community where it is located?
Do they provide a written "Action Plan" after each counseling session?
Let's look at some financial warning signs that you may be experiencing today buy not aware of.
Financial Warning Signs
There may not be a major life change to signal potential trouble you simply may be having a difficult time properly managing your finances. Don't be fooled into thinking your credit card problems won't affect your mortgage. It is important to realize that financial difficulties in one area can, and often do,spill over to other areas. These difficulties are all warning signs of financial problems that can lead to foreclosure on your home if you do not act quickly. They include:
Maxing out credit cards
Using credit to pay for day-to-day expenses, such as groceries, utilities, etc.
Being unable to pay your bills on time
Paying only the minimum amount on credit cards
Applying for new credit cards after maxing out on existing ones
Having to choose which bills to pay
In Closing - We most likely will see a continued increase in delinquencies, loan defaults and foreclosures through 2009 and well into 2010.
Communicate, Communicate, And Communicate - Is my sincere gift of advice for you today. When you are having financial trouble keep the lines of communication open with your mortgage servicer and creditors.
Contact a housing counselor or legal advisor as soon as possible.
Please:
Open and respond to all notices in the mail from your mortgage servicer.
Call your mortgage servicer immediately and ask for help.
Know the true extent of the gap you need to manage by making a list of your monthly spending and
comparing it to your monthly income.
I am a REALTOR, Real Estate Broker, and a truly caring concerned citizen who truly wants to help homeowners achieve their homeownership goals. My contribution is providing you with information that will assist you in making a decision that will help you more than it harms you. If selling your home and saving your credit is your final decision I am trained and here to help. If you are not sure and need help deciding please contact a counselor. I hope this information has been helpful. You can call me with any questions and info on our next seminar. Please Complete the form below for help.
Chereda Miller, Short Sale Specialist, Loss Mitigation Counselor
404-925-7575
chereda@cheredamiller.com