Q: I am a 47-year old divorced mother of two, employed full time and I am having trouble paying my mortgage. I don’t receive any child support, which is one reason I’m having trouble with my bills.
I called my mortgage company for assistance. I have owned my home for about 5 years (since my divorce). I have been 28 days late in paying my monthly mortgage payment quite a few times, but I always managed to work it out.
But this will be the first month that I really can’t pay my mortgage at all. I spoke to the loss mitigation department of my mortgage company and they sent me paperwork to complete. The paperwork looks like short-sale paperwork.
Are loss-mitigation and short sale the same things? I don’t want to sell my home. I am just interested in trying to lower my payments if at all possible.
I have a decent interest rate now of 5.5 percent, and believe I have an FHA loan since I am paying a FHA mortgage insurance premium each. I also filed bankruptcy about a year ago.
Do you have any advice for me? Is loss mitigation a good way to go?
A: Understanding the jargon will give you a better idea of what options you have.
First, loss mitigation is the lender’s name of the department that allows it to mitigate or lessen the lender’s loss if you default entirely on your mortgage.
Lenders have different ways they work with customers that are defaulting including offering a payment furlough (where you simply don’t make a mortgage payment for a few months, but that amount plus interest is added to the back end of your loan); a short sale (in which you sell the home even though it is worth less than the mortgage balance owed and the lender forgives the rest), a deed-in-lieu of foreclosure (where you surrender your property to the lender instead of having the lender foreclose); and then foreclosure (where the lender takes your house).
Lenders might also offer to modify your loan, either through the government’s Making Home Affordable (HAMP) program or through a private loan modification. If you are approved for a permanent loan modification, they will modify the terms of your loan so that your payment is no more than 31 percent of your gross monthly income either by artificially lowering the interest rate, stretching your loan term to 40 years, or, in some cases, forgiving principal so that you’re paying less.
I’m sure a loan modification sounds like the solution to your problems. However, only about 10 percent of the homeowners who apply for a Making Home Affordable (HAMP) loan modification get one. Those are terrible odds.
Another chunk of homeowners are getting permanent loan modifications directly from their lenders. You can apply for a loan modification by going to MakingHomeAffordable.gov and starting the process. But there is no guarantee that you will receive a loan modification.
If you have an FHA loan, you may be able to get the interest rate on your loan lowered by getting an FHA streamline refinance. But I’m not sure how much help it will be to lower the rate even a full percentage point. If you can’t make the payments in full, lowering the payment by $50 or $100 may not help.
Some borrowers are able to get a short refinance. A short refinance – not available to current FHA homeowners, allows the borrower to refinance the loan under certain circumstances where the loan balance is brought down and a new FHA loan is give to the homeowner.
You need more help than I can give you, particularly when it comes to looking over your documents and determining what those documents will do for you. I suggest you contact a HUD-certified housing counselor (you can find one online at HUD.gov or call the Hope for Homeowners hotline at 888-995-HOPE) who can walk you through the options you have.
Good luck, and let me know what happens.