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Behind on Payments? Lender May Have a Solution

Apr 28, 2010

Posted by

Julie Garton-Good

Julie Garton-Good has designed the "CCREC" (Consumer-Certified Real Estate Consultant) designation and training course, sanctioned by the National Association of Real Estate Consultants (NAREC) for ag Read more

If, like millions of Americans, your mortgage is behind, the last thing you may feel like doing is contacting your lender. But the reality is, that should be the fi rst step you take when delinquency looms. In fact, in today’s foreclosure climate, contacting your lender may provide solutions that create a win/win for both you and the lender.


The purpose of doing so is two-fold: to inform the lender of your inability to make the payment and to see if there are any remedies available with the lender. With the massive amount of current foreclosures, most lenders are increasingly willing to work with homeowners to find ways to stopgap their losses.

Previous market surveys by Roper Public Affairs and Media in conjunction with Freddie Mac in the secondary mortgage market found that 61% of late-paying borrowers were not aware of the existence of workout options with their lenders even though 75% of borrowers remember being contacted by the lender regarding the delinquency. The good news is that the earlier you contact the lender regarding your inability to pay, the more potential options there may be.


The first possible solution to explore with the lender could be forbearance. It’s an agreement with the mortgage company to temporarily pay less than the full amount of your mortgage payment, or perhaps pay nothing at all for a period of time.

For example, if you’ve lost your job, the lender might allow you to make only a partial payment and resume paying the original payment once you find new employment.

Terms of forbearance can require “reinstatement” requiring you to make a lump sum payment of the unpaid sums at sometime in the future following the forbearance period. This could be from a tax refund you’re expected to receive or some other expected source of income.

Another possibility with the lender is a repayment plan. This is an agreement that gives you a fixed amount of time to repay the delinquent amounts by combining a portion of what is past due with your regular monthly payment. At the end of the repayment period, you would have paid back the amounts of your mortgage that was delinquent. This is often a more difficult option for the borrower since the regular payment was tough to handle previously, let alone a higher one required on the repayment plan.

A third approach for delinquent mortgage payments is loan modification. It’s a written agreement with the lender that permanently changes one or more of the original terms, often your interest rate, in order to make payments more affordable. Common loan modifications include adding missed payments on to the existing loan balance or extending the number of years you have to repay. While you would be increasing the total amount of interest paid over the life of the loan, it’s far better than losing your home to foreclosure.

The good news for consumers is that national bank and thrift servicers implemented more than 680,000 home loan modifications and new payment plans in the third quarter of 2009 to help homeowners prevent foreclosures, according to a report released recently by the Office of the Comptroller of the Currency and the Office of Thrift Supervision. This represented a 69 percent increase over the previous quarter.

A fourth lender remedy, depending on your loan type, is the Obama Administration’s housing affordability initiative available until June, 2010. This government- subsidized alternative offers two different potential solutions for borrowers: (1) refinancing mortgage loans, through the Home Affordable Refinance Program (HARP) to make existing payments more affordable; and (2) modifying mortgage loans, through the Home Affordable Modification Program (HAMP). In general, you may qualify for a mortgage modification if: 1) You occupy your house as your primary residence; 2) Your monthly mortgage payment is greater than 31 percent of your monthly gross (before tax) income; 3) Your loan amount does not exceed $729,750, the current Fannie Mae and Freddie Mac loan limits (and they initially purchased your loan), and 4) You are unable to afford your current payment. Final eligibility will be determined by your mortgage lender.

For a comprehensive set of questions and answers regarding the programs, visit One of the best resources to review for additional help in working with your lender is at (The U.S. Department of Housing and Urban Development).