How to Get Help with Mortgage Payments

If homeownership is the American Dream, then foreclosure is the national nightmare.

Foreclosures have increased in 2022, though the numbers should be kept in perspective. That’s because the federal government issued a moratorium on foreclosures during the COVID-19 pandemic that lasted through July 31, 2021.

So, while foreclosures in Q3 of 2022 were 57% higher than a year prior, that is still lower than pre-pandemic. However, ATTOM, which provides real estate and property data, projects foreclosure numbers will return to “normal” – about one in every 4,400 homes – in the middle of 2023.

Which means lenders are putting the sympathy card back in storage.

Escape routes exist for those who need mortgage assistance and are facing foreclosure. Finding the routes and staying on them requires a willingness by homeowners to work through a difficult situation.

Assistance could come in the form of government programs, or flexibility on rates and payments from lenders.

What Happens If You Can’t Pay Your Mortgage?

Losing a home will leave a negative mark on your credit rating that could take years to eliminate. It’s imperative to consider every option available to ensure you keep making mortgage payments.

Lenders do understand some of the reasons for non-payment, among them job loss, injury, illness, the death of a spouse, divorce or separation, or medical debt. Lenders may make accommodations, but you also should consider contacting a nonprofit credit counseling agency for information about dealing with mortgage and other debt.

Here’s a timeline of what you might expect if you can’t pay the mortgage:

• Mortgage lenders typically give a grace period for late payments, perhaps 15 days.
• If the payment is not made by the grace period, the lender will assess a late fee.
• If 30 days pass the payment still hasn’t been made, the loan goes into default and the lenders notify credit bureaus.
• If you miss two consecutive payments, the lender has to tell you your options for keeping your home, which start with making payments.
• Lenders also have to send a written notice of your options, and how you can learn more.
• A lender cannot file for foreclosure until a loan is more than 120 days past due.
• Lenders also must wait to see if modifications or other alternative programs are reviewed before starting a foreclosure procedure.
• Once the foreclosure notice is filed, courts are notified, and the situation quickly turns dire.

Should you ever need it, you can get expert advice from a housing counselor approved by the U.S. Department of Housing and Urban Development. There is little or no cost to you, and you can find a counselor in your area by visiting consumerfinance.gov or by calling the Homeownership Preservation Foundation’s foreclosure prevention assistance line at 888-995-HOPE (4673).

If you completely stop paying your mortgage what happens is certain: You will lose your home.

But there are ways to reduce payments in emergencies, and your lender probably will be ready to discuss them. It’s important that you provide evidence of your ability to resume making payments after a short-term crisis has passed.

If you lack a plan, or your income has fallen below what is needed to pay your mortgage long term, it is less likely a lender will offer mortgage relief.

What to Do If You Can’t Pay Your Mortgage

The first thing to do if you can’t pay your mortgage is probably the last thing you want to do: Let your mortgage lender know the situation.

It is best to stay ahead of the situation with your lender because said lender can be your best resource and ally in a crisis. Explain the circumstances, the steps you’re taking to restore your financial status, and your intent to come through the crisis and resume monthly mortgage payments.

The next call you should make is to a Housing and Urban Development (HUD)-approved housing counselor. This is easier than it sounds, as the Consumer Financial Protection Bureau provides an online “Find a Counselor” tool.

You can prepare for that process by learning about the kinds of options a counselor may discuss:

• Mortgage Loan Modifications
• Mortgage Forbearance
• Short Sale
• Mortgage Principal Reduction
• Short Pay Refinancing
• Deed In Lieu of Foreclosure
• Property Tax Payments
• Renting Your Home
• Bankruptcy
• Government Programs
• FHA Loans
• VA Loans
• USDA Loans
• Charities

Mortgage Loan Modifications

Home loan modifications are especially valuable for those who can refinance due to a change in financial status. A modification adjusts the terms of your mortgage to make it easier to repay, at least in the short term.

There are different modification approaches, including reduced interest rates, a longer repayment period, lowering the remaining principal owed or a plan that adds missed loan payments to the balance owed. Your lender will tell you what options are available. You should review modification strategies so you’re prepared to discuss the alternatives and know which one might work best for you.

Veterans who can certify that they currently live in or did live in a home backed by a VA loan are eligible for an interest rate reduction refinance loan (IRRRL). Under this program, veterans would replace their current loan with a new one that could mean a lower interest rate. Those with a variable interest rate could change to fixed and see a lower payment.

Mortgage Forbearance

Mortgage forbearance is when the lender allows you to reduce or pause monthly payments. Millions of families took advantage of this option during the pandemic.

It’s important to remember that pausing payments does not mean they go away. You must repay any missed or reduced payments at some point in the future. If you took advantage of mortgage forbearance during the COVID-19 crisis and skipped the full 12-month allotment, you owe 12 monthly payments. The very slight bit of good news is that the federal government has ruled you do not have to repay the missed months in a lump sum. Call your lender to see what terms they may be offering.

How to Request a Mortgage Forbearance

Make the request directly to your loan servicer, by mail over the phone. The servicer decides whether to grant a forbearance, but it is in their interest to help you return to paying your loan. Under the 2021 CARES Act, you can request a forbearance of up to 360 days, and you cannot be foreclosed upon while under forbearance.

Mortgage Refinance

Refinancing means getting a new loan to replace your current one. Most consumers refinance to get a lower interest rate on their loan, which means lower monthly payments, which means help with the monthly budget, which means an easier way to make those payments.

Obtaining a mortgage refinance means applying for a new loan and choosing the rate and length of the loan. The money you receive in the refinance goes to paying off the existing loan. Once that is done you then start making monthly payments on the new loan.

If your credit score is good and the refinance rate is lower than the mortgage causing problems, a refinance could be a good option.

Short Sale

A short sale is when someone sells their house for less than what they owe on it. The money from the sale goes to the lender, who can either forgive the balance owed or ask for a deficiency judgment against the borrower that would require the borrower to pay off whatever amount is still owed.

A short sale is a viable choice for homeowners who know they can’t keep up with the monthly payments and simply want to get out from under that debt before the lender forecloses on the property.

Be sure to understand the implications. A short sale can negatively affect credit scores, and some states consider forgiven debt taxable income.

Mortgage Principal Reduction

A lender can offer to reduce the mortgage principal, which reduces the amount owed and might lower the interest rate on the loan to make payments more affordable. The end result is the borrower can stay in the home and avoid foreclosure.

This was a very popular solution to the home financing problems that resulted from the real estate crash in 2008. The federal government created the Home Affordable Modification Program (HAMP) that helped financially distressed homeowners stay in their homes at payments they could afford.

The government still assists distressed borrowers through its Making Home Affordable program.

Repayment Plan

Anyone who has missed mortgage payments may benefit from a repayment plan. This comes through a lender who is willing to work out a plan to help those in arrears “catch up.”

Plans like these spread the past-due amounts owe over several months. Once completed the borrower is back to the starting point in terms of what is owed. The benefit to the lender is this plan ensures the lender is repaid. It helps the homeowner keep up with payments, and the homeowner does not face foreclosure.

Short Pay Refinancing

Short pay refinancing is another option lenders can offer. This approach pays off your existing mortgage, then gives you a new mortgage at a reduced balance.

This helps both parties avoid foreclosure. The bank loses less money than it would in foreclosure and the homeowner retains control of the property with payments they can afford

This program is best suited for borrowers who have a good income, but have seen their property value take a dive, for whatever reason.

Deed in Lieu of Foreclosure

This approach means turning the property deed over to the lender in return for no longer being responsible for the mortgage. Doing so means the lender won’t foreclose on the property.

The deed in lieu of foreclosure will appear on your credit report, but packs far less negative impact than foreclosure. Thus, a deed in lieu of foreclosure can be a double win for distressed homeowners, if they can get the lender to agree to settle things this way. The lender is not obligated to do this and may reject the idea if the property value has sunk dramatically, the house is in bad shape or there are liens against your property.

Property Tax Payments

If you’re only a few hundred dollars away from being able to afford your mortgage and property values have decreased where you live, you could ask the local tax collector to re-assess the value of your property. If it gets lowered, your tax bill goes down with it.

That may produce enough money to get you over the hump and avoid foreclosure. It may be a longshot, but worth a try if things are tight.

Renting Your Home

Moving out of the house requires a balancing act. The rent collected must exceed the monthly mortgage payment, and you must move to a place where you can live rent-free or very cheaply.

Renting also means you become a landlord and that means new responsibilities and expenses. You’ll be responsible for increased income tax, maintenance and repairs and repaying missed mortgage payments.

On the plus side, apps like AirBnB and VRBO make it easier for potential renters to find you and for money to be exchanged seamlessly.

Bankruptcy

Filing for bankruptcy is a sure but complicated way of stopping a foreclosure. When you file for bankruptcy (either Chapter 7 or Chapter 13), the court issues an automatic stay, which prevents creditors, including mortgage lenders, from attempting to collect the debt.

The automatic stay remains in place until the bankruptcy case is settled.

For Chapter 7 bankruptcy filings, that usually means 3-6 months, during which you have a chance to come up with the money needed to avoid foreclosure. If it’s a Chapter 13 bankruptcy filing, it could delay foreclosure for as long as 3-5 years, but only if you stay current on mortgage payments.

Filing for bankruptcy may successfully stall foreclosure, but the effect of bankruptcy will have a negative impact on your credit report for 7-10 years.

Government Help with Mortgage Payments

The federal Housing and Urban Development office in your area can provide guidance on plans that may help with mortgage payments. Visit the agency’s website or contact a state social services office. HUD and other agencies offer mortgage payment grants to homeowners with hardships.

FHA Loans

The Federal Housing Administration is a major player in all facets of home ownership and mortgage lending. Up to 20% of mortgages nationally are FHA loans.

FHA loans are eligible for programs not included in the 2021 CARES Act. No lump-sum repayment is required after your loan has been in forbearance. And your loan may be eligible for a “standalone partial claim” – essentially a zero-interest second mortgage that is paid after your original mortgage is paid off

VA Loans

Veterans Administration loans are really guarantees behind loans obtained from lenders such as banks and credit unions. A VA loan doesn’t require down payments or mortgage insurance for qualifying veterans.

The VA also provides counseling and separate programs to help if you fall behind on your monthly payments.

USDA Loans

The US Department of Agriculture guarantees loans in much the same way as the VA. USDA programs are very much in line with the 2021 CARES Act, which was designed to help homeowners cope with the financial impacts of COVID-19.

Homeowners behind on their mortgage payments can apply for a 180-day forbearance plus a 180-day extension, if necessary. At the end of the forbearance, the lender must offer a written repayment plan.

Homeowner Assistance Fund

This fund was a product of the American Rescue Plan. The law provided $9.9 billion to prevent defaults, foreclosures and/or have utilities turned off. Funds from the program may be used to help with mortgages, utility payments, homeowners’ insurance and other defined purposes.

Priority is given to those with the greatest hardship, with almost $500 million specifically designated for native Tribes.

Organizations and Charities That Help with Mortgage Payments

Some charities help with mortgage payments. Each has its own eligibility requirements, so you need to discuss your situation with the charity to learn if you qualify for assistance. In some instances, the charities refer you to other organizations that might be able to help.

Here are a few groups to consider:

• Government help. The Consumer Finance Protection Bureau (CFPB) has a web page that can link those struggling to pay their mortgage to groups that can help in each state. If your loan is owned by Fannie Mae or Freddie Mac, you may be able to delay making payments for a temporary period. You will not incur late fees or face foreclosure during that time. Check here to see if Freddie Mac owns your loan, and to find help. Check here for Fannie Mae.
• The United Way: United Way has local chapters throughout the country that offer advice and sometimes emergency financial assistance. You can reach the agency’s hotline by dialing 2-1-1.
• Lutheran Social Ministry. This is a national group with a Rent and Mortgage Assistance program that can provide help for one month’s payment.
• The Alliance for Stabilizing our Communities. Funded by a grant from Bank of America, this alliance includes the National Urban League and the National Coalition of Asian-Pacific American Community Developments among its founding members. Designed to help multicultural families, it can help those who contact them at 1-866-842-3391.
• NeighborWorks America. This group can provide help to those who can’t pay their mortgage and face foreclosure. contact NeighborWorks America or call 202-760-4000 to talk to counselors and see what help may be available.
• Catholic Charities: Though part of the Catholic Church, this agency assists people of all religions, races and backgrounds. Catholic Charities offers emergency financial aid and a counseling program to help homeowners find long-term remedies for their financial problems.
• Salvation Army: The Salvation Army has a storied history of providing aid to the needy. In some instances, it offers emergency rent and mortgage aid. Homeowners need to show that they have received a foreclosure notice from their mortgage lender and demonstrate that they will have enough income to resume repaying their mortgage after the crisis passes.
• St. Vincent de Paul Society: This is a ministry in some Catholic churches. SVDP provides emergency assistance to those coping with a crisis. This can include mortgage aid, help locating employment and transportation assistance.
• Local Charities: An assortment of church groups offer aid. If you are a member of a congregation, ask what might be available. Also consider community action agencies, an assortment of groups throughout the country that work with government programs and charities to help the needy.
• Family and friends: This can be tricky and should be a last resort. Family and friends probably would provide the best terms and payoff rate, but if things go sour, it usually is the end of the friendship or a real burden on the family. If you go this route, draw up a loan agreement and stick with it.

Keep in mind that many charities have limited money to help. As housing prices have increased in recent years, so have monthly mortgage payments. If you have a large monthly payment, you might find it difficult to find an agency with the funds to help.

Mortgage Help If You Are Unemployed

The Home Affordable Unemployment Program (HAUP) was created by the federal government to help homeowners who have lost their job

HAUP offers banks and mortgage companies incentives to modify home loans and offers up to 12 months of forbearance to homeowners who are unemployed and receiving unemployment checks.

Homeowners must be 90 days delinquent on mortgage payments and in danger of defaulting on their loans. The home must be their primary residence, they must owe less than $729,750 on it and not have benefited from previous help in the HAUP program.

Contact your mortgage provider to find out if they participate in the program.

Homeowner Assistance for Victims of COVID-19

Some plans have been put in place to help those hurt by the COVID-19 pandemic. A COVID Payment Deferral allows borrowers to defer 12-18 months of payments to a non-interest-bearing balance. This option is available to those whose COVID hardship has been resolved (often through forbearance) and who can resume making payments.

Typically, the amount deferred/owed is moved to the end of the loan. Freddie MAC allows a deferral of up to 12 months of payments. Fannie Mae’s applies to 18 months. You would use the payment deferral program for the entity that holds your loan.

The benefit of the program is that your loan is no longer in arrears when the forbearance ends. Instead, the loan is current at the end of the forbearance plan.

Is Selling Your Home an Option?

One way to avoid foreclosure is to sell your home – especially if you have equity in the home. This is true even with rising interest rates in 2022.

Homeowners who have seen the value of their home rise – the average home value went up an incredible 24% in 2021 – but don’t have the income to make monthly mortgage payments, should consider selling.

Check with local real estate agents to gauge the resale value of your home and whether selling your home will cover what’s left of your mortgage and taxes.

Selling and downsizing would relieve the pressure of foreclosure and help you avoid the negative impact it would have on your credit score.

Avoid Foreclosure Scams

Con artists like to target people with financial difficulties. To avoid being taken in by a foreclosure relief scam, don’t trust callers who offer deals that seem too good to be true or offer to cure your mortgage problems for a fee.

To avoid mortgage scams, become familiar with tactics the scammers use. HUD operates a program in conjunction with several other groups to help homeowners identify scams and report them. For information, call NeighborWorks America at (888) 995-HOPE (4673) at any time.

Other pitches to view suspiciously include an unsolicited call from someone who claims to represent your mortgage lender and starts asking you for sensitive financial information, or someone without credentials who offers to help you get back on track if you sign over your deed.

Housing Discrimination

Housing discrimination is illegal under federal law. Lenders and loan servicers can’t discriminate against borrowers, including when borrowers are in a difficult situation.

If you have faced discrimination when dealing with possible foreclosure, or at any time, you should file a fair housing complaint through the Department of Housing and Urban Development or the Consumer Financial Protection Bureau.

This is important to protect yourself, and also to discourage discrimination against others.

Get Professional Help Exploring Options

Professional resources are available for homeowners who find themselves in need of assistance. They include Public Housing Counselors provided by the US Department of Housing and Urban Development. These counselors are capable of helping with all housing-related situations.

Lawyers can handle issues related to a foreclosure proceeding, but there will be fees involved. And they may be hefty.

Credit Counseling is available from nonprofit credit counselors trained to help navigate situations involving credit card debt, medical debt and also home ownership. Credit counseling is free.

The first stop always should be your lender. They don’t want to foreclose because it costs them far more to foreclose a home than to work with the consumer on finding an affordable mortgage payment. Ask them for assistance and you will be surprised at how willing they are to keep you in the home.

If that doesn’t work, research the many programs offered by the Department of Housing and Urban Development, the federal agency that oversees housing issues in the United States.

Beyond that, consider a HUD-approved nonprofit credit counseling agency as another source of help for mortgage and housing counseling. They can look at your income and expenses and offer suggestions that could create enough room in your budget to make payments on your mortgage.