Mortgage Options

Find the right solution for your home mortgage problem.

While it is almost always up to the home loan lender, many times lenders will be willing to work with borrowers who are having financial trouble. Because foreclosing on homes is a very expensive process for banks, especially when many homes today are worth less than the amount originally borrowed, lenders are often open to negotiations.

Some of the most common mortgage loan options include:

Forbearance
This option is primarily for people who have had a short-term setback such as loss of work, injury, or other event that made it temporarily impossible to make their payments. They are now able to meet the original obligation, except for missed payments that they cannot afford to make up immediately. Their lenders may allow them to "catch up" over a period of time. This arrangement is not typically recorded in the public record; however, if the homeowner fails to meet the terms of the agreement, the lender will generally call all those amounts immediately due.

The lender receives most or all of the amounts owed to them within a short period, after which the mortgage is considered current. Late payments are not removed from the credit report.

Modification
Home loan modification is when a mortgage lender agrees to permanently modify the terms of the loan in order to make the payments affordable to the borrower. Lenders may agree to some combination of the following:

Postpone or eliminate a rate adjustment or reduce a fixed rate, resulting in the same or lower payment.
Extend the terms of the loan (such as amortize the loan over 40 years rather than the traditional 30 years), thereby resulting in a lower payment. Of course, it also results in additional interest over the new term of the loan.
Add late fees, missed payments, and other charges to the principal, resulting in a longer term, but with no requirement to immediately pay back those additional amounts.

Modifications are typically recorded in the public record; however, since there is no new debt, the only cost is that of recording the change in the agreement - there are no new taxes or fees associated.

The lender will still receive all its principal, but will forego some interest or extend the time to help the homeowner. Late payments are not removed from the credit report.

Refinance
In a few cases, a homeowner's credit score and other factors will allow the homeowner to qualify for a completely new loan, which their lender (or a new lender) will approve. Part of that process involves a pay-off of the old mortgage in full. This option, of course, makes sense only if the homeowner can, by refinancing the debt, obtain better terms than the old mortgage. This is new financing, and if your state or county charges fees and taxes for new loans, those amounts will be an additional cost associated with this option.

Lenders will normally not refinance if there are late payments, but even in those cases when they do, those late payments are not removed from the credit report.

Refinance Under H.R. 3221
In July, 2008, President George W. Bush signed the Housing and Economic Recovery Act (H.R. Bill 3221) in to law. Among its provisions was one that provided for refinancing of mortgages for certain homeowners. Even though it took effect on October 1, 2008, the specifics of implementation are still being worked out. Some homeowners will be able to refinance their mortgages based on the current value of the home. Unfortunately, it is too soon to give specific advice on who will qualify under this new law. If a homeowner can qualify with late payments, those late payments are unlikely to be removed from the credit report. Read more about the program here.

In testimony during hearings on this bill, several major lenders indicated that this refinancing option was a "tool that we may use", but acknowledged that they preferred solutions that did not require a "principal write-down", i.e., a reduction in the amount owed. As a tactic for reducing the number of people who apply for refinancing under this new law, lenders are pro-actively offering loan modifications to homeowners who are in default. These offers may not be the lenders' best offers and our affiliates may be able to help negotiate a better arrangement for you.

Short Sale
A short sale is sometimes an option when the amount owed on a mortgage loan is more than the home is able to be sold for. Basically, because the lender knows they will probably have to foreclose on the home if no solution is reached, they will sometimes allow borrowers to sell the home at market rates and accept that amount as payment in full, even though it does not cover the whole loan. In some cases, you could be liable for income taxes on the difference - especially if it is not your main residence. Consult a tax advisor before making this decision.

Deed In Lieu
Where none of the above will work, but the lender is willing, the homeowner may simply give the property to the lender. This avoids the foreclosure action, but still may affect the homeowner's credit score adversely.

Foreclosure
Depending on a number of factors, the other solutions above may have a negative affect on the homeowners credit score, but none come close to the negative impact of a foreclosure. A foreclosure will usually remain on the homeowner's credit report for at least seven years and will, in most cases, keep the homeowner from qualifying for a mortgage as long as that foreclosure remains on the record.

Bankruptcy
Just as with credit card and other unsecured debt, filing a bankruptcy case will stop a lender from moving forward with the foreclosure, but only temporarily. Under current law, the lender can eventually get the house if the homeowner does not pay according to the terms of the mortgage.

A bankruptcy case will postpone the time the homeowner needs to move out of the house, and relieve the homeowner of any personal liability for the difference, between the amount owed and what the lender gets at a foreclosure sale. The effect of bankruptcy and a foreclosure on a person's credit score is significant.

Still Have Questions On Mortgage Loans?

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