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Having Trouble Paying Mortgage: Best Summary on the Internet of the Steps You Need to Take!

If you are having trouble making your mortgage payment, there is a lot of help out there, but you have to be proactive about getting it!  This is a quick summary of some of the best advice we have seen on the internet.  We urge you to take control and responsibility of the situation, as that is your best chance of saving your house.

#1 - REALIZE YOU HAVE A PROBLEM - You first need to realize that you have a cash-flow problem that needs to be fixed. The earlier you realize this the better.  Common problems are job-loss, a debilitating injury or illness to a family member, or a mortgage rate reset to a much higher rate after an initial "teaser" rate.  Know that whatever your situation, you are no alone -- there are thousands of other households in a very similar situation.

#2 - GET MORTGAGE DETAILS - You should already have this stored in a safe place.  If not, you need to contact your mortgage servicer to get the details of your loan.  Data you will need include: monthly payment (current and what will be after reset), interest rate (both before and after reset), amount owed on the mortgage, and any prepayment penalties.  You will also want to know the legal ramifications and time table of events that will take place if you do not make payments or limited payments. 

#3 - GET PERSONAL PAPERWORK TOGETHER - If you can not afford your current mortgage payment, figure out what is the most you can afford.  Loan servicers will want verification of your current situation and how it has changed.  Pay-stubs and accounts of monthly payment outflows will be needed.  In addition, you should show how you are making personal sacrifices.  This would include selling other assets, cutting down on monthly credit card expenses, cable TV, memberships, entertainment, taking a second job, etc.  Generally, loan servicers will be much more willing to consider a temporary adjustment, than a permanent one.  So if it is a jobless, estimate how long it will take you to find a job that would allow you to go back to full payment.  For a long-term illness or rate reset that simply can not be paid, a refinance or loan modification will likely be necessary.  Overall, the key is to show that you want to stay in your house, you are willing to make sacrifices to pay as much as possible, and you are organized and logical in making your case.

#4 - CONTACT A HUD-APPROVED HOUSING COUNSELOR - The U.S. Department of Housing and Urban Development (HUD) funds free or very low cost housing counseling nationwide. They’ll help you understand the law and your options, organize your finances and represent you in negotiations with your lender if assistance is required.  Note that this is very cheap option compared to many of the pay-services that are available on the internet.  Here is the link to find a HUD-approved housing counselor: http://www.hud.gov/offices/hsg/sfh/hcc/hccprof14.cfm 

#5 - CONTACT A MORTGAGE BROKER - Contact a mortgage broker to see if, and what kind, of loan you could qualify for in a refinance.  You may find that doing a refinance could solve a lot of your problem.  In addition, it will give you a good idea of the going rate right now when you negotiate with your lender.  A great place to find the most competitive mortgage rate is bankrate.com, where you can search by product for the cheapest quoted mortgage.  We would even recommend calling the 2-3 lowest rates, as a lot of times, different brokers have access to different providers.  And your particular situation may result in one firm having a cheaper rate specifically for you.

#6 - CONTACT YOUR LOAN SERVICER - This should be your last step, after you try to reduce your expenses and refinance your current loan, but realize you still can't make full payments.  You want to contact the Loss Mitigation group of your loan servicer.  The number should be on your monthly statement.  We also have this list of phone numbers for the Loss Mitigation group of the largest loan servicers in the country.  Some individuals have reported the Loss Mitigation groups being extremely helpful and willing to work towards modifying the loan, while others have indicated it has been very difficult to get even a call-back, let alone concession.  The problem can be significantly compounded if there is a second mortgage, HELOC, or Home Equity Loan on the property from a different lender, as all may have to come to agreement.  This is especially true if trying to do a short-sales (see house for less than debt on the house).   But, the best chance you have with the loss mitigation group is if you show you are committed to doing everything you can to stay in your house, you are willing to make sacrifices to pay as much as possible, and you are organized and logical in making your case.  There are numerous reports in the media of struggling homeowners having trouble reaching, let alone actually progress, with someone who can help at their servicer.  One suggestion is to make what is called a "qualified written request" under Section 6 of the Real Estate Settlement Procedures Act (RESPA).  Under section 6 of Respa, servicers are required to acknowledge any request within 20 business days and must try to resolve the issue within 60 business days.  A sample letter can be found on HUD.

NY Times Highlights More Heel-Dragging at servicers

NY Times highlights how few loan modifications have been done to-date, and the troubles individuals have had in trying to take a proactice stance in dealing with mortgage problems.

Hope Now Helping with Workouts

Hope Now, an alliance of lenders, released figures Friday showing that 183,000 borrowers received some sort of loan workout in April. That’s the highest monthly number since the beginning of the program last summer.
Loan modifications accounted for 42 percent of total workouts in April, up from 19 percent in the third quarter of 2007.  The alliance also claims 1.56 million home owners have received loan workouts since July 2007. Of those, 30 percent were permanent modifications.

The data support our view that you are much more likely to get a temporary workout than a permanent one.  The key is to have an organized plan.  Please see our great primer on what to do if you are having problems.

Are Loans Through Brokers More Costly?

Consumers who get their loans through brokers typically pay more than those who obtain them directly from the lender, claims a study prepared for the Department of Housing and Urban Development.  The study by Susan Woodward, a former chief economist for HUD, says total fees on $105,000 brokered loans were $4,000, compared with $3,150 for loans made directly by the lender.

As we have always indicated it makes sense to shop around for the best quote.  Our personal belief is the big "brand-name" lenders are not as competitive as the smaller, lesser-known-shops, which brokers have access to but you may not.  The key is to have a few brokers know that they are in competition for your business, which will likely drive down the "spread" they quote.  This is very similar to what you would do if you were buying a used car -- call several dealers, tell them what your interested, and ask for their best quote.

U.S. Senate Strikes Deal on Housing Rescue

Democrats and Republicans in the Senate have ended weeks of negotiations with a plan that would allow the federal government to insure up to $300 billion in refinanced loans for struggling home owners.

Advice for Anyone Facing Foreclosure

The NAR has posted seven tips for homeowners facing foreclosure.  These include:

* being proactice

* know the details of your mortgage

* contact a HUD-approved housing conselor

* priortize spending

*  sell other assets

Fannie Mae Loosens Lending Standards

In an effort to provide stability for the housing market, Fannie Mae has reversed the tightening standards put in place last year.  The sharp drop in housing prices last year prompted a sharp tightening of lending standards, which included putting down an extra 5% down payment in areas deemed "declining markets."  With the reversal, homeowners can again get loans up to 95% LTV -- even in markets where prices have been falling.

Overall, this is good news at the margin, as it should allow first-time homebuyers better access to loans, and also should allow more homeowners to qualify for refinancing.  Again, the Fed, government, and the agencies are all doing everything possible to stop the blood-letting in the housing market.  And their efforts have without question helped what would have otherwise been a much worse scenario.  Fannie Mae goes on to point out, however, that buyers still need to get Mortgage Insurance, which has become much more difficult in the current environment.

RealtyTrac: April Foreclosures up 4%, 65% y/y

RealtyTrac.com, the leading online marketplace for foreclosure properties, today released its April 2008 U.S. Foreclosure Market Report, which shows foreclosure filings -- default notices, auction sale notices and bank repossessions -- were reported on 243,353 properties, a 4 percent increase from the previous month and a nearly 65 percent increase from April 2007. The report also shows one in every 519 U.S. households received a foreclosure filing during the month.

"Although only about 2 percent of households nationwide are in foreclosure, these properties contribute to already bloated inventories of homes for sale, and put downward pressure on home values. Areas of California, Florida, Nevada and Arizona continue to be particularly hard-hit. Property tax bases are eroding, putting municipal budgets in peril. For example, the city council in Vallejo, California -- part of a metropolitan area with a foreclosure rate that ranked sixth highest in the nation in April -- last week voted to have the city file for bankruptcy."

NAR: 100 out of 149 MSA had Price Declines

The National Association of Realtors reported that 100 out of 149 metropolitan statistical areas had price declines in Q1.  The median existing single-family home prices was down 7.7% y/y.

This is stale data, but the trend is not expected to slow for at least another few quarters.  The key will be how the labor market holds up for the rest of the year.  The back-up in the unemployment rate has been well short of what is typically the case during recession.  Historically, job-loss is the biggest factor affecting local real estate markets.  While the reset of interest rates has dominated in the current correction, especially among more marginal buyers, if the economy can continue to post respectable growth it will provide an important pillar of support for the housing industry.

BankRate.com: Be Patient on Workouts

Bankrate.com has an article today highlighting the need to be patient in seeking a workout.  Loan servicers are overwhelmed by the number of problem loans.  Homeowners in trouble should plan for lengthy delays, numerous requests for paperwork, and be persistent.