Things happen. You got behind on your mortgage a few months ago because of a loss in wages. Now, you are panicking and getting nervous to call your lender because you are afraid losing your house is the only option.
“This feeling of no hope is very prevalent among people who are behind on their mortgage payments,” says Melinda Opperman, senior vice president of community outreach and industry relations at Springboard Nonprofit Consumer Credit Management, Inc. This nationwide financial education and counseling organization is a HUD-approved center that helps struggling homeowners via telephone nationwide or in person in nine states.
A repayment plan might just be the answer you are looking for that could save you from losing your house to foreclosure or a short sale.
“A repayment plan is taking the delinquent amount of mortgage and spreading it over several months to get rid of the delinquency. It does increase the mortgage monthly payment,” she says.
It doesn’t adjust the mortgage terms or change the loan. That would be called a loan modification. A repayment plan just temporarily helps the tardy delinquent home owner catch up.
Opperman says that Springboard counselors have seen repayment plans work the best for those who are 5 months or less behind in payments.
“After six months or more, there is a higher break rate. But that doesn’t mean the clients who are six months or more behind aren’t ready for a loan modification,” she says.
In a repayment plan, for instance, the homeowner’s monthly mortgage is $1,000. He is behind five months or $5,000. A repayment plan is agreed upon by the homeowner and the original lender for six months. That means the delinquent charges would be spread out at the cost of $833.33 per month for six months. The homeowner would pay the new temporary mortgage payment of $1,833.22 per month would be paid the next half year to get caught up.
“It’s up to the lender to make the final determination of how many payments, but often a homeowner can freeze a foreclosure process if they can show they can do the repayment plan,” she says. “Sometimes, the homeowner can even figure out their own repayment plan if the home isn’t already in foreclosure.”
It’s much easier, of course, if you are only one or two months behind, she says. But you start adding in the late fees and the bill goes higher and higher each month.
Repayment plans have been around a long time. However when the housing crisis was occurring, counselors didn’t have as many options in our tool belt as they do now.
“We had forbearance and a couple of other options to help people out,” Opperman says.
Forbearance is when your mortgage payments are reduced or suspended for a period you and your lender agree to, according to Federal Trade Commission’s Consumer Information website. At the end of that set time, you begin paying your regular mortgage along with a lump sum payment or additional partial payments for a number of months to bring the loan up to date.
That would be hard for some people to come up with if they can’t afford the house they are living in in the first place, Opperman says. But it can work for those who have had a reduction in pay such as a disability leave or laid off temporarily.
“We tell our clients that even if they have had housing counseling a few years ago to call back. Their circumstances might have changed, and we have more ways to help them now,” she says.
There are a lot more state and federal programs available to get people back on their feet and keep them in their homes.
“The foreclosure rate is still going strong in many areas. In fact, it’s double the rate it was before the housing crisis,” Opperman says.
But many times, people just don’t know where to turn after not being able to pay a few months of their mortgage.
“They are embarrassed. They are ashamed. That is what we hear the most when they call in,” she says. “But counseling is free, and our counselors are non-judgmental. It is really important that consumers understand that when they call for help they can be very proud. They are not alone.”
The mortgage crisis is not over for many people. And now Opperman says that thousands of homeowners are going to experience big monthly spikes in their payments for home equity lines of credit (HELOCs) coming due.
“People who opened home equity lines of credit in 2004 during the peak of the market are getting notifications that these are coming due,” she says. “We have clients who tell us that their monthly payments will go up $400 to $500 a month.”
According to a report by Moody’s Investors Service, a homeowner with a $40,000 Heloc balance and a $210,000 mortgage at 4 percent will see a monthly increase of $300 when that equity line converts into a 10-year amortizing loan. Up to this point, the homeowner was only paying the interest, not the principal.
“This might be the time to call a counselor,” Opperman says. “We can diagnose the problem and analyze someone’s current financial situation. That’s the essence of a counseling session.”