Nobody likes to take a call from the collections department. It doesn’t matter if the call is about a credit card, a utility bill, a bounced check or anything else that may be delinquent. Avoiding the issue may seem like a good strategy to those who really hate conflict, but it is usually the worst thing you can do. This is especially true when it comes to a mortgage.
Your lender does not want your house. Yes, they may be very forward in telling you that foreclosure could happen if you do not pay, but they would much rather have a good loan than face the headache of the foreclosure process, reconditioning a property and finding a way to sell it. In the current economic climate, lenders are more desperate than ever to keep you in your house, but they cannot do it unless you talk to them.
Consider this: Freddie Mac has estimated the cost of a foreclosure to the bank to be around $60,000. Officials at HSBC have estimated that the average loss on a foreclosed home is 20 to 25% of the value of the loan. This means that on a $400,000 home, they could lose $80,000 to $100,000. Doesn’t it make sense that the bank would prefer to cut its losses?
In order to work with you, the lender needs to speak to you. The sooner they can speak to you, the better your chances of working a deal with them. In another article, titled “Mortgage Options to Avoid Losing Your Home”, the specifics of what types of deals you may be able to obtain are spelled out. This article will deal only with what you need to do and what you need to be prepared to provide if you want to avoid foreclosure.
• Find out who actually owns your mortgage and deal with them directly. In most cases, you are making your payments to a company that is merely servicing your loan. That company may not be in a position to make the best deal with you. The actual owner of the mortgage has the most to lose if you reach the point of foreclosure and thus has the most to gain by working something out with you.
• Ask to speak with the “Loss Mitigation” department. Almost every lender has such a department. Those that didn’t in the past have created one because the losses from foreclosure have become so extensive. The collections department has one job: get money from you. The loss mitigation department is there to try to help you either keep your house, or at least make the process of losing it less painful, less expensive and less stressful.
• Don’t wait until they have already begun the foreclosure process. Your best deal will come when the bank has not already spent a lot of money with attorneys. Remember, to work something out, you need to make it easier and less expensive for the lender as well as yourself.
• Be prepared to show need and ability. The loss mitigation department usually has many different options to help you keep your home, but they need to see that you can make some sort of payment and you need to show them that there is a legitimate reason for your delinquency. Too many people are simply taking advantage of bad economic times to try to get a better deal. You will need to be able prove your income and explain your circumstances if you expect to get help.
• Understand that you may need to make sacrifices. You are not going to get a lot of sympathy from your lender if you own a 40 foot boat or you drive almost new luxury cars that are paid in full. You may have to consider liquidating some assets and downsizing to items that fulfill needs and not expensive desires.
• Don’t lose your home in order to salvage credit cards and personal loans. You may have to stop paying unsecured debts altogether or at least put them on a Debt Management Plan or even a Debt Settlement Plan. It might be a good idea to consult with a certified credit counselor at a credit counseling agency to find out about your options with your other debts. A reduction in payments on your other debts could make more of your income available to help save your home.
• Don’t abandon the property or let it deteriorate. Even when there is no way you can keep your home, because of the current difficulties in selling a home, the lender may be willing to offer you some assistance. Some lenders are letting people stay in homes and maintain them for little or even no rent just to keep the value up. Others are offering thousands of dollars in relocation money to people as long as they leave the house in good condition. Be sure you discuss these options with your lender if you are in the worst-case scenario of losing your home. You may find that the lender will make your transition easier or even profitable.
• You don’t have to do it alone. There are HUD approved housing counseling agencies that may be able to help you work something out with your lenders for little or no cost. There are also companies out there that will charge you a fee for their services, but unless the services include a legal challenge to the loan documents, they are unlikely to be able to do more than a HUD approved agency.
If you live in South Florida, DMCC is a HUD Approved Housing Agency that may be able to help you. If you live outside South Florida, you can contact HUD at (800) 569-4287 for a list approved agencies in your local area. For FHA insured loans, if you feel your lender is not being responsive to your requests for help, you can call (800) CALL- FHA.
DMCC is a 501 (c)3 nonprofit organization committed to educating consumers on financial issues and providing personal assistance to consumers who have become overextended with debt. Education is provided free of charge to consumers, as well as personal counseling to identify the best options for the repayment of their debt. To speak to a certified credit counselor, call toll-free 866-618-3328 or email contact@dmcconline.org.
