Doug Duncan, chief economist for the MBA, says the weak economy contributed to the slight rise in late mortgage payments. He points out that the number of homes in foreclosure decreased. Foreclosures probably will increase later because they tend to lag behind delinquencies.
Persistence counts
If you find yourself behind on your home loan, stay in contact with your mortgage servicer. Be persistent if you don't get help immediately. Ask to talk to someone in the loss mitigation department. Have the calls logged so there will be a record that you are handling the problem responsibly.
Your options depend on whether the financial problem is permanent or temporary. At first, you might not know. When you're laid off, you know you'll find another job eventually, so unemployment looks like a temporary problem. But Hunt says that many people find they've taken a permanent tumble down the salary ladder. If you lose a $60,000 job and eventually have to take one that pays $35,000, you have a permanent problem that requires a drastic restructuring of the budget.
Even if the problem is temporary, Hunt says you should go through your budget and pare it of unessential items such as long-distance calls ('tis better to receive them than to give), cable TV, new clothing and dining out. "If the choice is to stay in my house and eat peanut butter and jelly sandwiches, then that's what I gotta do," she says.
If some bills must go unpaid, it's better to let unsecured credit cards go. The mortgage, car loan, utilities, food and insurance are higher priorities.
The good options ...
Once you have revised your budget, you'll be able to review your mortgage options. The best one, if you can do it, is called reinstatement. That's when you're behind on your payments for a month or two or maybe more, and you send the lender a check for the entire past-due amount. Just like that, you're current on your mortgage payments.
Think it's impossible to raise that much cash quickly? "You'd be surprised at how many people have an extra car that they don't need that they could sell," Hunt says. "Or a recreational vehicle or an antique desk in the basement."
Another option is a catch-up plan. Say you fell $2,000 behind in your mortgage payments while you were unemployed. Now you have a job, and you can afford your regular mortgage payment plus $500 a month. The lender might let you catch up for four months.
Some lenders will add the past-due amount to the back of the loan, in effect extending it a few months. Others will divide the past-due amount over the loan's remaining term, increasing the monthly payment a few dollars.
In rare cases, the lender might modify the loan by reducing the rate, or offer a "silent second," in which payments on the past-due amount are deferred until the house is sold.
... The not-so-good options ...
Not all lenders have the flexibility to offer the above options. In any case, the longer you wait to negotiate with your lender, the less likely you are to come up with a workout agreement.
If you fall more than three months behind without working out some sort of agreement with your lender, you are likely to face foreclosure and eviction. Before that happens, the bank might hire someone like Joe Smith, founder of a Cincinatti-area company called Default Mitigation Management. Smith is sort of a cross between a bill collector and a credit counselor.
"We tell the borrower, 'We're not going to chase you,'" Smith explains. "If you're interested in working something out and want us to keep working with you, we will. If you aren't interested, we won't bother you, and the bank will foreclose on you."
He says he has referred borrowers to a credit counseling service, persuaded one family to sell an antique car to settle a delinquent second mortgage, and even discovered that a borrower had been defrauded in a "land-flip" scheme involving a crooked lender and appraiser.
Smith is in a growing business. Mortgage delinquencies picked up from April to June, according to the Mortgage Bankers Association. The MBA reports that 4.62 percent of home loans were at least 30 days late in the second quarter -- up from the first quarter, but down down from the same period a year before.
Doug Duncan, chief economist for the MBA, says the weak economy contributed to the slight rise in mortgage delinquencies.
... And the worst options
After the workout possibilities have been exhausted, it's time to let go of the house. This is a difficult step, emotionally. "They've worked really hard to have this house and now they're faced with losing it," Hunt says. When her housing counselors talk to these borrowers on the phone, "you can hear the Kleenex coming out," Hunt adds. "It can be pretty difficult."
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There are easy ways and difficult ways to give up a house. "Our advice would be to contact the lender and say you want to sell the house," Hunt says. "Ask if they will give you time and help to make that happen." If you're not too far behind in your payments, and you have remained in contact with the lender every couple of weeks, you probably will be given time to list the house with a real estate agent and sell it. The lender probably will insist that you hire a Realtor instead of trying to sell it yourself.
Perhaps you owe more than the house is worth because the house is in disrepair or values in your neighborhood have declined. In that case, the lender might accept a "short sale," in which you sell for less than the loan amount and you and the lender walk away with your financial losses.
Then there is the "deed in lieu of foreclosure," in which you hand over the keys and transfer the deed to the lender, which forgives your mortgage. Then the lender sells the house.
With all of these options, the borrower has some say in the matter. That's not the case in foreclosure, the legal process by which the lender takes the house and evicts the borrower. Foreclosure happens to those who delay too long.
"The worst thing to do is wait so long that you don't have any options left," Hunt says. |
