What To Do If You Can't Pay Your Mortgage
Before reading further, I'd like you to take three long breaths. Come on, just do it...one...two...three. Now realize you aren't alone in this crisis and there are people who do care and are willing to help.
You also should know the people trying to help and answer your questions are humans too; most likely overwhelmed, under-trained and quite possibly stressed about similar things as you. It's just the effects of managing through a crisis. That said, I want to share some of what I've learned as a 20+ year mortgage banking executive who's been helping people stay in their homes.
1. We're In A Crisis. What's Your Situation?
When a crisis hits or an economic downturn happens, many of us find ourselves impacted. You might have a reduction in income, an increase in household expenses, or a health emergency. Whatever the circumstance, you need to do some basic budgeting homework to determine where you are financially.
How much money do you have? Is there money still coming in? How much do you owe? When are bills due and how long can you last without becoming delinquent on your bills? These are some basic questions you'll need to answer in order to clearly understand and articulate your financial situation. It also helps to keep you focused on what things are/aren't important for you and your family.
2. I've Done My Homework. The Situation Is Dire. Now What?
There are a number of programs in the United States that can provide mortgage assistance to borrowers. Some of these are run by government agencies such as HUD (Credit Counseling), Freddie Mac (My Home: Getting Help), and Fannie Mae (Know Your Options program) while others are run by banks and other financial institutions that may have held onto your mortgage when you first got it instead of selling to a government agency. They could have their own assistance programs separate from federal/state governments.
While it's important to know "who owns" your mortgage, as the types of assistance you're eligible for will vary, your first line of contact to get help is your mortgage servicer—the company you send your monthly mortgage payment to. After you've done your financial homework, it's time to be proactive. Contact your servicer and tell them your situation.
3. What Should I Expect From The Call With My Servicer?
The mortgage industry has general guidelines on borrower assistance but each servicer may handle it in a slightly different way. Some may send you to a website to fill out forms and upload your income/expense documents before talking to you about options. Others may mail you information with a form you'll have to return within a certain amount of time. Whatever the method, there are some basics you should understand.
A) The Agent Will Verify They Are Allowed To Talk To You - Every time you call, your servicer will need to verify they are authorized to speak to you. For security purposes, all servicers must validate that they are speaking with an authorized person on the account. This will typically be the borrowers who are on the mortgage note but may also be individuals who the borrowers have designated (in writing to the servicer) can discuss their account. Note, if you are not the account holder or one of these designees, the call agent cannot discuss anything about the account—period (and you might as well hang up).
B) Do You Want To Stay In Your Home? - Once agents validate they are authorized to speak to you and have listened to your situation, they may ask, "Do you want to keep the property or sell?" At this point, don't stress. What they are doing is capturing information to help them figure out what options might be best for you. Borrowers do have two basic types of options: 1) keep (retain) the property but try to negotiate a way to pay back the loan, and 2) sell or transfer ownership to someone who can take on the responsibility of home ownership. Examples of the latter option are short sales and deed in lieu. These foreclosure alternatives are BIG decision points so as you receive information and sign documents, it is imperative you read the fine print and ask questions on anything you are unsure of.
C) You Have Retention Options - There are a number of programs borrowers may qualify for in order to stay in their homes. Some options may require little documentation. However, these days, servicers are requesting more information up front in order to evaluate borrowers for all assistance options at once. You may hear your customer service agents refer to this as putting your information through the "loss mit waterfall." What they are doing is plugging your income/expense and asset/liability information into a model that has eligibility rules for each of the assistance options they are allowed to offer. What comes out is an analysis of all the programs you qualify for given your situation. Some options may be as simple as a repayment plan or as complex as modifying the interest rate and length of your mortgage. What you need to understand and ask questions on is how each option works, what you're required to do to "cement the deal," and what happens if something goes wrong. I'm iterating this next point again. When looking at the options your servicer presents you, it is critical to read/understand the fine print and ask questions when something isn't clear BEFORE you sign anything.
D) Keep Good Records - Each time you contact your servicer, you should note the date/time of the call, who you spoke with, what you discussed, and what you agreed were the next steps. Make sure you confirm those points with the agent before you hang up. If the servicing representative told you they were sending you a form to fill out, ask when you should expect it in the mail and who/when you should call if it doesn't arrive. If you are filling out an online form and not sure about what supporting documentation you need to provide, call the servicer back and ask. If you don't, it may delay your application for assistance or worse yet, make you ineligible for help.
4. Keep Organized And Don't Procrastinate With Your Paperwork
As I noted before, depending on the situation, your servicer might request you provide additional information or fill out a borrower assistance package that includes a notification letter, an application for assistance, an FAQ, and a flyer on fraud. If you are requested to fill out one of these, don't procrastinate. You must send the completed application and required supporting documentation in order for the servicer to determine eligibility.
Borrowers typically have 30 days to return the packet. After that, servicers must acknowledge receipt five days after their mailroom receives the package. If the application is complete, servicers have up to 30 days to provide borrowers with an evaluation notice letting them know what options are available.
Throughout this process, it is imperative you keep track of when the deadlines are, and when you should expect acknowledgements/the evaluation. If you sent your full response package by registered mail on the 1st and it's the 15th and you haven't gotten an acknowledgement letter, you should call your servicer and ask for a status update. Remember to be patient, proactive, organized, and persistent. There are a lot of people needing help.
5. How Long Does The Process Take?
On average, I've seen folks helped from a week to 60 days or more depending on the assistance options and on how responsive they and their servicers were to each other. What I recommend is to ask your servicer what their step-by-step process is; look for and understand all deadlines from their communications to you (call agent, emails, letters etc); get receipt confirmation for documents you send; and estimate when you should receive a response back from your servicer and call them if that time has passed. Yes, this may seem like a lot of work in light of already stressful times. However, your home is a huge asset and being organized and understanding the borrower assistance process will make things run more smoothly.
That being said, I know some folks love getting into the detail and might want to know exactly how long. It's difficult to nail down one or two numbers as timelines are driven by rules coming from a combination of regulators, mortgage insurers/guarantors, and investors. Given that, I'm referring to one example—Freddie Mac's servicer guide Section 9102.5 Borrower Solicitation & Communications. It provides a very detailed outline as to what servicers must do regarding borrower contact for Freddie Mac owned loans. Other investors may have similar information posted. You can try googling, "<company name> mortgage borrower assistance options" to search for their policies/procedures.
6. Should I Get A Lawyer?
Every situation is different and you may or may not want to consider a lawyer. I'm not a lawyer, never practiced law, and can't give guidance; I'm providing my view for informational purposes only. If you're not sure about your situation, I'd say you might want to look into an attorney who specializes in providing mortgage-related legal advice.
7. Tips & Final Thoughts
Over the past two weeks, I've had a lot of questions/concerns from people who feel they will have difficulties in the coming months. Their jobs are at risk. They can't pay their mortgage and aren't sure they'll have enough money to handle any personal healthcare crisis. My purpose for writing this article is to let people know there are options to keeping a roof over your head and not to worry. The process starts with taking stock of your situation and having a conversation with your servicer.
- Do your financial homework before contacting your servicer.
- Don't procrastinate or wait until the last minute to call, fill out paperwork, or make decisions.
- Determine whether you want to keep or sell your property.
- There are many different types of assistance—some you qualify for, others you don't. Your servicer will explain which ones are (and are not) available to you and why.
- Read all paperwork carefully. If there is something you don't understand, ask your servicer before you sign any documents.
- If your situation is complex, obtaining credit counseling or an attorney is not a bad thing.
- Getting through the process takes time. Don't get frustrated.
Big shout out to Noel Villapando, one of the best loss mitigation technical analysts I know, who helped keep the article "on point."
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