Navigating Your Mortgage Crisis

• When dealing with a mortgage crisis, it’s easy to feel overwhelmed and unsure about your next steps. To help you navigate this challenging time, it’s vital to understand that different lenders offer diverse workout options tailored to assist homeowners during financial difficulties. The first step in this process is to learn about your loan specifics. It’s essential to ask your servicer these key questions: Who owns my loan? Who stands to lose the most if this loan goes into foreclosure? If you’re unsure about any aspects, don’t hesitate to consult a certified housing counselor. These professionals can provide you with expert advice and help create a plan specific to your situation.

Understanding Workout Options

A ‘workout option’ is a plan or solution that your lender can offer to help you maneuver your mortgage crisis and avoid the drastic step of foreclosure. However, before a workout option can be offered, your servicer needs to understand your financial situation thoroughly, and they’ll need specific documents from you to do this.

Essential Documents for Hardship Assistance. Typically, the documents required include:

1. Hardship Letter: This is a letter explaining your financial difficulty. It should provide details about the events that led to your financial distress, your current situation, and how you hope the lender can assist you.
2. Financial Statement or Budget: This should reflect your income and expenses. It gives your lender an insight into your financial situation and will help them understand your ability to repay the debt.
3. Income Statements: Recent income statements (pay stubs) for all financial contributors in your home from the past thirty days provide a clear picture of your household’s earning capability.
4. Federal Tax Returns: The last two years of federal tax returns can give your lender an overview of your annual income trend.
5. Bank Statements: Provide three to six months of checking and savings account statements.

The nature of these documents is to provide your lender with a holistic view of your financial health. Some servicers may allow more informal presentation of this information, while others may have specific forms they require you to complete. It’s important to gather and provide all requested documents promptly to expedite your hardship request process.

Short-Term Workout Options

After reviewing your documents, your servicer will suggest workout options that best fit your situation. These options can be divided into short-term solutions (3 to 12 months) and long-term solutions (for permanent changes in financial situations).

Short-term solutions are designed to provide immediate relief to homeowners undergoing temporary financial difficulties:

1. Reinstatement: All servicers are required to pursue a reinstatement as the first option for resolving a delinquency. A reinstatement occurs when a homeowner pays all delinquent mortgage payments and past-due amounts, making the mortgage current. A homeowner may reinstate a delinquent mortgage at any time, even after foreclosure proceedings begin or while a relief or workout plan is in progress. A reinstatement can be partial with a repayment option or full bringing the mortgage completely current.
2. Repayment Agreement: This option will allow you to eliminate the delinquency by making your regular house payment AND some of the past due amount for a certain number of months. This method works best if you had temporary financial difficulties, are now able to maintain financial stability, AND have enough money to pay the extra amount owed each month. Do not agree to an unrealistic plan—if you default on a workout package agreement, your lender will not be as likely to work with you in the future.
3. Special Forbearance: Some servicers offer a reduced payment plan for a set period, allowing homeowners to get through a temporary financial crisis. The expectation is that once the crisis has passed, the homeowner will repay the amount that was in forbearance through a repayment plan bringing the mortgage current. 

Long-term Solutions (when your financial situation has changed permanently):

1. Loan Modification: This involves altering your original loan terms to make them more manageable based on your current financial circumstances. This could include reducing your interest rate, extending the loan term, or recalculating the loan to incorporate the past-due amounts and fees or a combination of these options
2. Special Mortgage Protections: If your loan is from the Federal Housing Authority (FHA)/HUD, Fannie Mae, or Freddie Mac, you could be eligible for added foreclosure protection options, such as:
   • Forbearance: If you have a reasonable chance to recover from the crisis and begin paying again, the lender may agree to reduce or suspend payments for up to 12 months. After the period ends, you make the original payment and a small installment on the missed
     payments each month. Do not agree to an unrealistic plan—if you default on a workout package agreement, your lender will not be as likely to work with you in the future.
   • Partial Claim (HUD loans only): If you are 4 to 12 months behind but have not recovered from the crisis, the lender can loan you money to get your monthly payments caught up. HUD pays the lender and puts an interest-free loan as a lien against your property. When you sell or refinance, you pay the partial claim loan back.
   • Home Saver (Fannie Mae loans only): This is an unsecured personal loan and is payable over 15 years at a fixed rate of 5% that is designed to bring a delinquent loan current. No payments will be required nor will interest accrue during the first six months. Borrower must qualify for this option.
   • Assumptions: A mortgage assumption permits a qualified applicant to assume both the title to the property and the mortgage obligation from a homeowner who is currently delinquent in the mortgage payments.
3. Refinancing with another lender: Refinancing is a way to get a new mortgage with better terms. The FHA and Michigan State Housing Development Authority (MSHDA) have developed loan products for borrowers undergoing a mortgage crisis, provided you meet specific criteria:
   • Refinancing is only an option when these criteria are met:
     1. You have a high enough credit score to refinance.
     2. You owe less on your home than the current market value of the home. 
     3. You have enough income to support the new mortgage amount including your insurance and taxes. 
     4. You would have a lower interest rate or longer payment period than on your existing mortgage. 
     5. You refinance a first mortgage and a second mortgage into a single mortgage that is affordable and includes taxes and insurance. (Having two mortgages is not a requirement to refinance. However, if there are two mortgages, the new originator will consider both mortgages in a refinance).
   • When refinancing, consider these points:
     1. Shop „til you drop. Compare interest rates, length of the loan, and closing costs.
     2. Get an idea of what you would qualify for, and then apply to a reputable lender.
     3. Do not assume that you can only get a high interest loan.
     4. Review the loan documents carefully with a real estate attorney, if possible, to be sure you are getting what you asked for!
4. Reverse Mortgage: This option is for homeowners over 62. It involves converting your home’s equity into cash, with payments not due until you move or pass away. It is a VERY expensive mortgage and may not solve your financial problems, but in some
   circumstances, it is a good choice.  
5. Bankruptcy: This is a legal status that can temporarily halt foreclosure, giving you time to bring the mortgage current. However, the implications of bankruptcy are severe and should only be considered after careful discussions with a qualified attorney.

Remember, swift and timely actions during a mortgage crisis can save your home and provide a workable solution. Don’t wait to seek help; the sooner you start this process, the more options you’ll have available to y