Delinquent Mortgage Loan Borrower - What To Do?

(January 28th, 2008)

There are millions of people in America right now who are classified as sub-prime mortgage borrowers, meaning they either have bad credit, very little down payments and lots of credit card debt. What happens if someone is a sub-prime borrower and cannot afford to make the monthly payments on his/her mortgage anymore? Here are 10 smart steps to follow if you fall in to such a problem.

i) Inform your Lender - If you know you are going to miss next month's mortgage payment, inform your lender immediately. Do not wait for them to call you and harass you, take the initiative and inform them. Lenders like on time loan payments, but they also like borrowers who keep them informed and communicated. Lenders value information, so you should not hesitate. It is also recommended to inform the lender in writing, because in case he takes you to court, you have a written proof of good faith and intentions.

ii) Come Clean on Your Financial Situation - If your lender asks you questions, come clean. Do not hide your personal assets, or your financial situation. If you have credit card debt, do not hide this from the lender. Infact, inform him that because you are paying a lot of interest towards credit card debt, you are having trouble paying the mortgage, etc. Be credible in your dealings and communication. If you lie to the lender, he will probably force you into foreclosure; so don't!

iii) Calculate How Much You Can Pay - If you cannot make the full mortgage payment, that's OK. How much can you afford to pay? 50%? 75%? Communicate this to the lender. The lender might consider a mortgage refinance, or rescheduling of your debts, or some other program. But if you do not communicate this information, the lender doesn't know anything and cannot do anything for you! Here are a few precautions before you give a final number to your lender
- Communicate a lower number than you think. This is because you may be too optimistic at the time, and might not actually be able to pay the final number you speak.

- You could probably lose your job after or an unfortunate event could happen, couldn't it? Therefore, give a lower figure.

- Always give your figure in a range, starting from lower to higher. For example, start off with $700 per month, and add to it, $780 per month or arrive at your final figure of $850 per month. Do not work downwards, from $850 per month to $700 per month, this will just annoy the lender. Cognitive psychology states that bad news should be released all at once, while good news should be revealed in pieces. With this example, you are doing just that!

iv) Make regular lower payments - If your lender agrees to accept a lower monthly payment, do not default on this! Make regular on time payments for many years, and this will build your credibility with your lender. If you default on the lower payment, you're in for some hot soup! Do not think of paying 100%

v) Keep a Copy of All Correspondence - Keep a copy of all the letters you write to the lender, as well the letters you receive back from the lender. In case you ever need to go to court, at least you have written proof of your good intentions and faith. The judge will be a lot more sympathetic towards you if you have written proof of your good intentions to be a responsible borrower. But if you have no written proof, the judge might think you are just irresponsible and deserve to be punished.

vi) Talk to a Real Person - Get to know your mortgage lender and talk to him one on one as a person. If you cannot talk to them one on one, talk over the phone and keep at it. Try to make them understand that you are just a human being and can fall behind on your obligations.

vii) Get Written Contracts - If your lender agrees to accept a lower payment from you, get a written copy of this contract. They can call it whatever they want; repayment plan, debt rescheduling, provisional workout, etc. Rather than hoping you will pay your mortgage this month and every month, lenders would rather make a repayment plan agreement with you making sure you pay EVERY month. This takes off a lot of stress off their heads.

viii) Consider a Mortgage Refinance - Consider taking out a mortgage refinancing loan - Mortgage refinancing is when you take out a new secured loan in order to pay off your current mortgage loan (that is usually at a higher interest rate). The new loan is "secured" against your current home or property meaning that if you fail to make payments towards the new loan, the lender has the right to possess your home in order to cover his losses. Home mortgage refinancing is typically done when you have a mortgage on your house and borrow a 2nd loan in order to pay off the first one. It is therefore very important to know whether the money you will save from refinancing into a 2nd loan exceeds the costs & fees of taking out that loan.

viiii) Offer to Build More Equity - If you have some savings left that is not part of your monthly emergency fund (6-8 months), offer to pay this money towards the house, thus lowering your total mortgage balance, monthly interest costs and your monthly payment as a whole. This is known as a Buy Down Mortgage Refinance.

viiiii) Consider Financial Help - Talk to a reputable credit counselor who specializes in dealing with new homeowners. He can hook you up to a debt relief or reduction program that can benefit you immensely.

v) Sell the Property - The last option you have is to sell your property. If the price you are getting for selling your home is greater than what you paid for it (including mortgage balance + closing costs + all other fees), then it's worth selling your home, taking the profit and investing it elsewhere. If you cannot sell your property and no one wants to buy it, inform the lender of this. If he takes you to foreclosure, he will have a hard time selling that property as well. Chances are, he will want you to stay in the home and pay him the lower mortgage payment.