Get Above Water: When You Are Struggling to Make Mortgage Payments

By: AARP Education & Outreach | Source: AARP.org | April 16, 2007

Many borrowers are struggling to make their mortgage payments. It may be because they were attracted to an adjustable rate mortgage (ARM) that at first had affordable monthly payments. Now that the interest rate has adjusted upward, the only direction most ARMs are headed these days, the homeowner can't make the new higher payments. They may have been manipulated into a loan they cannot afford to repay. They may have been convinced that because they had less than perfect credit the only way they could refinance was with a loan with high fees and high interest rates. Whatever the promises that the loan was right for them, too many homeowners now feel that they are drowning in debt and at risk of losing their homes.

Save Your Home
If you have that sinking feeling, there are some things that you can do to save your home. If it is not too late, refinance. See if you can refinance your mortgage with a reputable lender to get out of zero-interest or ARM loans into a fixed interest loan. The payments may be higher but you'll be glad you locked into a fixed payment.

New Relief in 2009 for Distressed Homeowners
Distressed homeowners may now be eligible for the “Making Home Affordable” plan. The “Making Home Affordable” plan has two key components; a refinancing program for borrowers who want to refinance but have little equity in their homes, and a mortgage modification program to help reduce mortgage payments for at risk or struggling homeowners.

The refinance program will allow qualified homeowners to replace their current loan with a new loan at a lower interest rate resulting in lower monthly mortgage payments. It is for homeowners who put money down and made their mortgage payments on time. However, through no fault of their own, the value of their homes dropped so low they are now unable to refinance under current rules. 

The mortgage modification program will allow distressed homeowners to work with their lender to change the terms of their current mortgage loan. The new terms could result in a lower mortgage rate and payment. It is for borrowers that have experienced a serious hardship, such as a significant drop in income, unavoidable and unanticipated healthcare costs, or other serious hardships. The program is designed to prevent foreclosure.

Here are the details of both plans and actions you should take:

The Making Home Affordable Refinance plan
This plan will help homeowners take advantage of today’s lower mortgage rates despite a decrease in the value of their home.
It is available to homeowners who have a solid payment history on an existing mortgage owned by Fannie Mae or Freddie Mac.
It is available until June 2010. 
Answer these questions to determine if you qualify:

The Making Home Affordable Modification plan

If you answered “Yes” to all of these questions, you may qualify for a Home Affordable Modification.

The next step is to gather the following for when you contact your lender:

After you have gathered these items, call your mortgage company and ask to be considered for a Making Home Affordable Modification.

Get more information about these programs along with self-assessment tools and calculators to give you the resources you need to determine whether you might be eligible for a modification or a refinance under the Making Home Affordable program. You can also connect with free counseling resources to help with outstanding questions; locate homeowner events in your community; find a handy checklist of key documents and materials to have ready when making that important call to you servicer as well as FAQs from borrowers in similar circumstances; and much more.

More Options

• Talk with a credit counselor. Good counselors should sit down with you-preferably face-to-face-to help you work out a budget and find ways to manage your mortgage payments.
• Talk with a housing counselor. HUD supports some housing counseling agencies that provide free assistance about how to keep your home out of foreclosure.
• Sell and downsize. This may sound painful but you can try to sell your home, pay off the mortgage and use your remaining equity to purchase a more affordable place to live. This is better than losing your home and all of your equity.
• Consider bankruptcy. Talk with a bankruptcy lawyer to find out if bankruptcy might be the better way to save your home.

Watch for False Help

Watch out for predators who want to take advantage of homeowners who are falling behind in their payment or are at risk of foreclosure. According to the National Consumer Law Center, foreclosure rescue scams come in at least three versions:

Phantom help: The "rescuer" charges outrageous fees for a few phone calls or some paperwork that the homeowner could easily do, none of which results in saving the home. This predatory scam gives homeowners a false sense of hope and prevents them from seeking qualified help.

The lease/buy back: In this scam, homeowners are deceived into signing over title with the belief that they will be able to remain in the house as a renter and eventually buy it back over time. The terms of these scams are so onerous that the buy-back becomes impossible, the homeowner gets evicted, and the "rescuer" walks off with most or all of the equity.

The bait-and-switch: The homeowners think they are signing documents to bring the mortgage current, but instead actually signing over the deed to their home. They usually don't even know they've been scammed until they're evicted.

Safety Tips

To avoid getting into even bigger problems:

• Never deal with anyone who contacts you with offers to help if you are already in foreclosure. Ignore those street signs that say "We buy homes!" or "Save Your Credit."
• Never sign any documents related to your home — or add a co-owner to your deed — without first getting advice from an independent source you trust, like a legal service attorney or community counseling service.
• Be sure you thoroughly understand any document you are asked to sign. Don't rely on what someone says they mean. Get all promises in writing, get copies of everything you sign, and never leave any blanks in the document.
• Be sure your loan agent is employed by a lender that is licensed or registered and therefore authorized to sell mortgages in your state. Check with your state department of housing or licensing.
• As Jean Constantine-Davis, a senior attorney for AARP Foundation Litigation, says, “The worst thing people can do is bury their heads in the sand. The second-worst thing is dealing with people that are making promises that will make matters worse.”

Predatory Loan Help

If you think your lender is dishonest, for example you discover you paid fees you were not told about or you were required to buy credit insurance, report it.

• Call your county office of consumer affairs or consumer protection. You can find the phone number in the government listings of the phone book.
• Call your state attorney general or state office of banking. Those numbers will also be in the government listings in the phone book.
• Report to the Federal Trade Commission.
• Ask a lawyer to look at all of your loan document to see if there are state or federal laws that would let you get out of the loan.

Action Steps

• Get information from AARP about selecting a reputable housing counselor.
• Spot the tricks used by predatory lenders to steal the equity from your home.
• Read what the Federal Trade Commission says about how to stop foreclosure rescue scams and where to get genuine help.
• The U.S. Department of Housing and Urban Development as a guide to avoiding foreclosure.