What to do if you’re falling behind in your mortgage payments
Financial pros have simple advice to homeowners struggling to pay their monthly mortgage bills: Don’t panic. Do call your mortgage lender.
It’s not unusual for homeowners to suddenly find it it difficult to make their mortgage payments. Some homeowners lose their jobs. Other times family emergencies – such as a long illness, a death in the family or an auto accident – sap a homeowner’s bank account. Those monthly payments that once looked so affordable now look impossible to pay.
Homeowners in this situation often make the same mistake: They let shame or fear prevent them from calling their mortgage provider. But those who do call can often find a simple solution. Mortgage lenders would much rather work out a payment plan with struggling homeowners than they would initiate foreclosure procedures.
It’s hard to blame homeowners for panicking when mortgage payments become a monthly struggle. There’s always the fear that a bank or mortgage provider will foreclose on their home. But foreclosures are actually a last resort for banks and lenders.
And often the solutions for homeowners are painless. For instance, a borrower who is struggling to make his payments may be able to secure a lower monthly mortgage bill from his lender simply by spreading his loan out over a longer period of time. That borrower will end up paying more interest during the life of his loan, of course, but the lower monthly payment might prevent future payment struggles.
Delinquent payments – as late payments are referred to in the mortgage-lending industry – have long been a problem to mortgage originators. And delinquencies typically increase during rough economic times. Researchers with the Mortgage Bankers Association of America report that as of late this year, 4.43 percent of all residential mortgage loans had reached delinquent status, meaning that borrowers were late in making their payments. At the same time, 1.16 percent of all residential mortgage loans had gone into foreclosure.
This news isn’t too bad. Douglas Duncan, chief economist with the Mortgage Bankers Association of America, said the majority of these delinquent loans fall into the category of loans that are 30 to 59 days past due. More serious delinquencies, those whose payments are 90 days late or more, have declined from the previous year, Duncan said. As the economy improves, the number of delinquent loans should continue to shrink, he said.
That doesn’t mean, though, that some borrowers won’t still struggle to make their payments. That happens no matter how strong the economy is.
As the largest purchaser of mortgage loans in the country, the Fannie Mae corporation knows about delinquencies. And officials at the company know, too, how difficult it can be for borrowers to call their mortgage lender or servicer to request help.
"For some people it is really counterintuitive," said Sandy Cutts, spokeswoman for Fannie Mae. "Some people think that if they admit that they are falling behind that their lender will swoop in and take their property. In reality it is in the best interest of all the stakeholders to work with borrowers and keep borrowers in their homes."
Fannie Mae, in fact, runs an entire program devoted to helping borrowers fend off foreclosure on their homes. The company’s Home Saver Solutions program offers four different solutions to borrowers struggling to make their mortgage payments.
Borrowers who are only slightly behind in their payments can set up a repayment plan. Those who are two payments behind can choose a loan modification. In this option a mortgage lender will spread a mortgage loan out over a longer period of time, a move that will result in a lower monthly payment.
For more serious delinquency issues, Fannie Mae offers a pre-foreclosure sale. In this option, borrowers who cannot stay in their homes for whatever reason allow their mortgage servicers to sell their property before it goes to foreclosure. This prevents the record of a foreclosure from going on a borrower’s record.
A fourth option is Fannie Mae’s deeds-in-lieu solution. Under this option, borrowers agree to deed their property back to their mortgage lender. Again, homeowners who choose this option avoid having a foreclosure on their credit record.
If Fannie Mae can be used as a barometer, the good news is that more homeowners seem to be aware of possible solutions to their mortgage-payment difficulties. Cutts says that as of August, 14,542 borrowers worked with Fannie Mae to negotiate a loan modification. During the same period, 5,715 borrowers worked out a repayment program, 1,763 choose a pre-foreclosure sale and 217 chose a deeds-in-lieu plan. In all, Fannie Mae officials have been able to work out solutions to 51 percent of the servicer’s problem loans, Cutts said. In 1997, when Fannie Mae founded the program, the workout rate stood at just 37 percent.
"It’s not in our interest to go to foreclosure," Cutts said. "Obviously if someone is going through a medical crisis, if someone has lost a job, that person panics. The last thing that person wants to do is talk to the mortgage lender. But, and I always stress this, that is the best thing to do."
