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If your three to 24 payments behind on your mortgage and it’s either owned or guaranteed by Fannie Mae or Freddie Mac, there is a program designed for you. It's called the Streamlined Modification Initiative. You must have a mortgage that’s a first lien (first mortgage) that you’ve had for at least a year and your long-to-value ratio must be equal to 80% or more.
One of the best things about the Streamlined Modification Initiative is it that doesn't require you to file any paperwork as does the HARP 2.0 program. Instead, you should receive an offer from mortgage lenders. If you receive one of these letters and choose to refinance, you will make your new payments on a three-month trial basis. Then, if you did make those payments on time your modification will become permanent.
The way this program works is that either the term of your loan will be extended or your interest rates will be reduced. If the termof your mortgage is extended it will probably be for 30 or 40 years.
The one downside of the Streamlined Modification Initiative is that it does nothing to reduce your principal balance. For example, if you owed $90,000 before your Modification, you will still owe $90,000. But the change made in your mortgage could still mean big savings especially if you have a high-interest loan that you’ve been unable to refinance to a very low interest rate. If you had a $200,000, 30-year fixed-rate mortgage with a 5.5% interest and you were able to get it modified to a 40-year term at a 4% interest rate, your monthly payments would go from around $1135 to $835, which would be a difference of $300. We don't know about you but we would certainly like to have an extra $300 a month in our pocket.
"Help, I'm facing foreclosure"
If you fall for behind in your payments and your lender is threatening foreclosure, don't despair. There are solutions for even this. The important thing is that if you receive a letter from your mortgage holder threatening foreclosure, be sure to contact the company immediately. Explain why you're having a problem meeting your payments. Be prepared to provide information about your monthly income and expenses. If you are able to convince the mortgage company that your problem is a short-term one and that you have a plan for handling it, your lender may be more willing to work with you.
A second alternative if you have an FHA-insured loan is to contact and HUD – approved housing counseling agency. This can be a valuable resource as it will have information on programs and services offered by the US government and by community and private organizations that might be able to help you.
It's also possible that you could get what's known as a Special Forbearance. If you have legitimate reasons for having missed your mortgage payments, your mortgage holder might be willing to arrange a repayment plan based on your financial situation. You might even be offered a temporary reduction or suspension of your mortgage payments.
As an alternative to this, you might be able to get a mortgage modification. This is similar to the Streamlined Modification Initiative in that you would refinance your debt or extend the length of your mortgage loan. If you can get your monthly payments reduced to a more affordable level, this can help you catch up. If you can show your mortgage holder that you've recovered from your problems and can afford the new payment amount, you might qualify for a refinance or an extension. Here’s a short video that explains more about this program and how you would qualify.
A pre-foreclosure sale is a third alternative. This is where you avoid foreclosure by selling your house for less than the amount required to pay it off. You must be at least two months behind to qualify for a pre-foreclosure sale and an appraisal of your home's value will need to show that it's worth less than the amount you all on your loan.
Finally, you can voluntarily "give back" the house to your lender. This won't save your home but it's not as damaging to your credit rating as would be foreclosure. This is called deed-in-Lou a foreclosure. To qualify for it you must:
Be in default and not qualify for any of the other options
Have tried to sell the house before foreclosure and were unsuccessful`
Do not have another FHA mortgage in default