Foreclosure Bailout Information

The government's foreclosure bailout program, unveiled on Wednesday, February 18th, doesn't start until March Fourth. At that time it's up to the homeowner to contact their lender. And that's when lenders start taking applications for loan modifications.

In the meantime, gather the paper work like you would with any refinancing and do what housing counselors are doing ... learn all you can about the program.

The government program is meant to stop home values in the Tri-State and nationwide from falling. The help is for people behind on their payments and even those who aren't behind but are at risk of that happening.

An offer of an interest rate reduction or even principal reduction could be the catalyst behind making things "better". It could help many two income families that are now one income due to job loss.

In general you qualify if your mortgage payment is greater than 31 percent of your gross monthly income. It's voluntary on the part of lenders but the program also allows for bankruptcy judges to modify mortgage terms and that may be motivation.

This program isn't for homeowners already in foreclosure, "It's likely that if you're already in foreclosure this may have a spillover effect to improve the modifications we can get."

Housing counselors understand the frustration of homeowners who aren't in need of mortgage help and see tax money used on others but point out if your neighbor's home is in foreclosure your home value drops by thousands.

"The government today said $6000, but studies in Hamilton and Clermont say it's $10,000."

This isn't for people who just want a better interest rate. But if you do qualify for the program and haven't been late on your payments, I've been told loan modification should not impact your credit rating.

Finally, if this program might be for you consider having a housing counselor walk you through it. Call 211 for a referral.

Contact Your Lender Immediately

Many people avoid calling lenders about money troubles because we:

1) Feel embarrassed discussing money problems with others.

2) Believe that if lenders know we are in trouble, they will automatically rush to a collection agency or foreclosure (seize property for failure to pay a mortgage debt).


But lenders want to help borrowers keep their homes because:

1) Foreclosure is expensive for lenders, mortgage insurers and investors.

2) HUD and private mortgage insurance companies and investors like Freddie Mac and Fannie Mae require lenders to work aggressively to help borrowers facing money problems.


Lenders have workout options (choices) to help you and:

1) These options work best when your loan is only one or two payments behind.

2) The farther behind you are on your payments, the fewer options are available .


Don't assume that your problems will quickly correct themselves:

Don't lose valuable time being overly optimistic.

Contact your mortgage lender to discuss your circumstances as soon as you realize that you're unable to make your payments.

Look forward to your lender being willing to explore many possible solutions, without guaranteeing any one particular solution.


Finding Your Lender

Check the following sources to contact your lender:

Your monthly mortgage billing statement

Your payment coupon book

Information to have ready when you call:

Your loan account number

A brief explanation of your circumstances

Recent income documents:

+ Pay stubs

+ Benefit statements from Social Security, disability, unemployment, retirement, or public assistance

+Tax returns or a year-to-date profit and loss statement, if self-employed

+A list of household expenses

Expect to have more than one phone conversation with your lender. Typically, your lender will mail you a "loan workout" package. This package contains information, forms and instructions. If you want to be considered for assistance you must complete the forms fully and truthfully and return them to your lender quickly. Your lender will review the complete package before talking about a solution with you.

Explore Solutions With Your Lender

First and foremost, if you can keep your mortgage current, do so. But if you find you are unable to make your mortgage payments, you might qualify for a loan workout option. Check with your lender to see which option may be available. Some options may not apply to your loan if it is not insured by FHA.

If your problem is temporary - call your lender to discuss these possibilities:

Reinstatement: Your lender is always willing to discuss accepting the total amount owed in a lump sum by a specific date. Forbearance may accompany this option.

Forbearance: Your lender may allow you to reduce or suspend payments for a short period of time and then agree to another option to bring your loan current. A forbearance option is often combined with a reinstatement when you know you will have enough money to bring the account current at a specific time. The money might come from a hiring bonus, investment, insurance settlement, or tax refund.

Repayment plan: You may be able to get an agreement to resume making your regular monthly payments, plus a portion of the past due payments each month until you are caught up.

If it appears that your situation is long-term or will permanently affect your ability to bring your account current - call your lender to discuss options:

Mortgage modification: If you can make payments on your loan, but don't have enough money to bring your account current or you can't afford your current payment, your lender may be able to change the terms of your original loan to make the payments more affordable. Your loan could be permanently changed in one or more of the following ways:

1) Adding the missed payments to the existing loan balance.

2) Changing the interest rate, including making an adjustable rate into a fixed rate.

3) Extending the number of years you have to repay.

Partial Claim: If your mortgage is insured, your lender might help you get a one-time interest-free loan from your mortgage guarantor to bring your account current. You may be allowed to wait several years before repaying this loan. You qualify for an FHA partial claim if:

1) Your loan is between 4 and 12 months delinquent

2) You are able to begin making full mortgage payments again

When your lender files a partial claim, HUD will pay your lender the amount necessary to bring your mortgage current. You must sign a promissory note, and a lien will be placed on your property until the promissory note is paid in full.

The promissory note is interest-free and is due when you pay off the first mortgage or when you sell the property.

Prioritize Your Debts

You will need a new, tightened budget if you lose a job. Prioritize your bills and pay those most necessary for your family: food, utilities and shelter.

Failing to pay any of your debts can seriously affect your credit rating, but if you stop making your mortgage payments you could lose your house. Try these suggestions to keep your home:

1) Whenever possible, use any income available after paying for food and utilities to pay your monthly mortgage payments.

2) If your employment income has stopped or been reduced, first consider getting rid of or cutting back on other expenses (such as dining out, entertainment, cable, or even telephone services).

3) If you still do not have enough income, consider cashing out other financial resources like stocks, savings accounts, or personal property that may have value like a boat or a second car.

4) Take any responsible action that will save cash.

Besides speaking with your lender, you may want to contact a nonprofit consumer credit counseling agency that specializes in helping restructure credit payments. Credit counselors can often reduce your monthly bills by negotiating lower payments or long-term payment plans with your creditors. Trustworthy credit counseling agencies provide their services free of charge or for a small monthly fee tied to a repayment plan. Beware of credit counseling agencies that offer counseling for a large upfront fee or donation.

For consumer debt advice, contact www.debtadvice.org

When you call a credit counseling agency, they will ask you to provide current information about your income and expenses. Make sure you ask if the agency has a charge before you sign any documents!

Other Foreclosure Possibilities

Sale: If you can no longer afford your home, your lender will usually give you a specific amount of time to find a purchaser and pay off the total amount owed. You will be expected to use the services of a real estate professional who can aggressively market the property.

Pre-foreclosure sale or short payoff: If you can't sell the property for the full amount of the loan, your lender may accept less than the amount owed. Financial help may also be available to pay other lien holders and/or help towards some moving costs.

You may qualify if:

1) The loan is at least 2 months delinquent

2) You (or your real estate professional) can sell the house within 3 to 5 months

Assumption: A qualified buyer may be allowed to take over your mortgage, even if your original loan documents state that it is non-assumable.

Deed-in-lieu of foreclosure: As a last resort, you "give back" your property and the debt is forgiven. This will not save your house, but it is less damaging to your credit rating. This option might sound like the easiest way out, but it has limitations:

1) You usually have to try to sell the home for its fair market value for at least 90 days before the lender will consider this option

2) This option may not be available if you have other liens, such as other creditor judgments, second mortgages, and IRS or state tax liens

Predatory Foreclosure Lending Scams

Most mortgage lenders are trustworthy and provide a valuable service by allowing families to own a home without saving enough money to buy it outright. But dishonest or "predatory" lenders do exist and engage in lending practices that increase the chances that a borrower will lose a home to foreclosure. Beware especially of those who make high risk second mortgages. Other abusive practices include:

Making a mortgage loan to an individual who does not have the income to repay it.

Charging excessive interest, points and fees.

Repeatedly refinancing a loan without providing any real value to the borrower.

Borrowers facing unemployment and/or foreclosure are often targets of predatory lenders because they are desperate to find any "solution". Homeowners receive many refinance offers in the mail saying they are "pre-approved" for credit based on the equity in their homes. Borrowing against your house may seem attractive when you are struggling to pay your mortgage and other bills. But stop and think about this: if you can't make your current payments, increasing your debt will make it harder to keep your home, even if you get some temporary cash.


Beware of scams

Equity skimming: In this type of scam a "buyer" approaches you offering to repay the mortgage or sell the property if you sign over the deed and move out - usually leaving you with the debt and no house. Signing over your deed does not necessarily relieve you of the responsibility of paying the loan.

Phony counseling agencies: charging for counseling that is often free of charge. If you have any doubt about paying for such services, call a HUD-approved foreclosure housing counseling agency toll free at (800) 569-4287 or TDD (800) 877-8339 before you pay anyone or sign anything.


Do not sign anything you do not understand. It is your right and duty to ask questions

Information is your best defense against becoming a victim of predatory lending, especially for a desperate homeowner

Where to report suspected predatory lending:

Homeowners can either visit the Stop Mortgage Fraud website or call toll free (800) 348-3931 to get information on what steps to take to file a complaint. Homeowners who call will also receive a booklet containing information found on the website.