As mortgage delinquencies rise, more homeowners will need to negotiate workouts with mortgage companies. When you fall behind on payments, your chances of getting cooperation from the mortgage servicer are better if you follow the following guidelines:
Respond to the mortgage company’s phone calls and letters
Academic researchers have found that, in about half of foreclosures, the delinquent borrower never talked to the servicer.
“Our biggest challenge is getting folks to respond,” says William Rinehart, vice president and chief risk officer for Ocwen Financial Corp., a large servicer of subprime mortgages in West Palm Beach, Fla. “They feel that if they just ignore it, it will go away.”
It won’t.
Seek advice and negotiating help from a third party
Before making a deal with the servicer, describe your situation to an attorney, accountant or a knowledgeable mortgage person, advises Neil Garfinkel, a lawyer with Abrams Garfinkel Margolis Bergson law firm in New York City.
When you are in danger of foreclosure, “those are perilous waters and you want to make sure you have a good adviser who can maybe serve as an intermediary to the lender,” Garfinkel says.
Another place to go is a housing counseling agency or a consumer credit counseling service. “I urge people to get some kind of help with this process, to the extent that they can,” says Michelle Lewis, president of Northwest Counseling Service, an agency in Philadelphia that offers mortgage counseling.
Know whether your problem is short-term or long-term
Mortgage servicers offer two broad types of workouts, depending upon whether the borrower’s troubles are short-term or long-term.
An expensive car repair is a short-term problem. So is missing work because of an illness or injury that you recover from. Long-term issues result from things like permanent disability, divorce or the death of a working spouse.
If you don’t know how long the problem will last, get in touch with the servicer anyway.
Decide what you want and ask for it
For short-term problems, the mortgage company is likely to offer a forbearance. Most commonly, this entails adding a set amount to each month’s payment. “They can just keep making payments till they get back on track. That’s a forbearance plan,” says Teresa Bratcher, Ocwen’s director of foreclosure prevention.
Longer-term problems that reduce income, such as disability, are sometimes solved by loan modifications. Theoretically, any term of a mortgage may be modified: the rate can be lowered, the final payoff date can be moved back, and even the amount owed can be reduced.
Modifications, Rinehart says, “are measures that we enter into thoughtfully and in a minimum of situations, because, ideally, we’re trying to recover the maximum amount of principal and interest for the investor who owns the loan. So modifications are used sparingly.”
Document income and expenses, and keep all correspondence
Before negotiating a deal, gather all the information you need, starting with any correspondence from the servicer. “That includes anything unopened, as well,” Lewis says. Don’t throw away envelopes from the servicer -- postmarks sometimes can make the difference between being eligible or ineligible for relief, Lewis says.
Collect everything that relates to income and expenses: at least a month’s worth of pay stubs, three years’ worth of W2s and tax returns, three to six months of bank statements, several months of all bills, including utilities, auto payments, credit cards, student loans, child support.
“They also need to include everything that documents why they fell behind,” Lewis says -- an employer’s notification of reduced hours or a layoff, an invoice for an auto repair or a furnace replacement, a shutoff notice from a utility.
Be persistent in your quest to talk to the right people at the mortgage company A mortgage servicer has two platoons of employees who talk with delinquent borrowers: the collections department and the loss mitigation department. Ask for the loss mitigation department, which consists of people who negotiate forbearances and modifications.
When you finally get through, tell your story, answer the questions about income and expenses, and request an application for forbearance or modification, and say, “I want to know all the things I’m eligible for.”
“What they’ll get back from the lender is a push to get an agreement then and there,” Lewis says. Don’t agree to anything immediately. “Otherwise, they may agree to something that they cannot afford,” Lewis says. “Fill out an application and let the lender make an offer first,” and then consider it for 24 hours. Talk it over with an adviser. Accept the offer if it’s a good one; otherwise, make a counteroffer.
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