How to negotiate with your mortgage loan servicer

If you fall behind on your mortgage or other significant financial obligations, one of the first important steps you can take is to talk to the lender about your situation. There are several different things you need to have ready in order to do that. If you’re having trouble making the payments, contacting the lender sooner rather than later will give you the most possible options. Many loan servicers (organizations who look after your loan) have expanded options available to borrowers and it’s worth calling the servicer to ask, even if your request has been turned down previously.

Servicers are receiving plenty of calls, so be persistent and patient if you’re not able to reach your servicer on the first try. There are multiple options available to individuals who are struggling to make their mortgage payment.

Making Home Affordable Program

You may qualify, for example, for a loan modification under the ‘Making Home Affordable‘ modification program if you meet the following criteria:

You obtained your mortgage before January 1, 2009, you owe a less than $729,750 on your first mortgage, your home is your primary residence, you can’t afford your mortgage payment due to a financial hardship like medical bills or a job loss and your payment on your first mortgage is more than 31% of your current gross income.

In the event that you meet these qualifications, contact your service provider. Some of the information you will need to provide to your loan servicer should be prepared before you call the loan servicer directly. This includes:

Your most recent tax return
Your mortgage statement
Details about your savings and other assets
The before-tax income of your household
Account balances and minimum monthly payments and credit cards
A hardship affidavit explaining your circumstances
Monthly payments on other debts like car loans or student loans

Tips and Options for Avoiding Default and Foreclosure

If you are not eligible for the “Making Home Affordable” modification program, you still may have other options to protect your house. If you’ve fallen behind on your payments, there are multiple foreclosure prevention options with a loan servicer. These include:

Forbearance, in which your mortgage payments are suspended or reduced for a period you and your servicer agree to. At the conclusion of this time, you must begin making your regular payments in addition to a lump sum payment, or partial payments, for a number of months in order to bring the loan current again. This could be an option if you have suffered a temporary loss of your income like you might experience if you suffered a disability and are currently unable to work.
Repayment plan. In this option your servicer gives you a fixed amount of time in order to repay the amount you are behind. The mortgage arrearages are added to your regular payments, and spread out over time. This could be an option if you have missed only a few payments. Keep in mind that Chapter 13 bankruptcy may be a better option in this scenario.
Reinstatement. If the problem paying your mortgage is temporary, you may wish to pursue reinstatement. This means you would pay the loan servicer the past due amount plus any penalties and late fees by a date you both can agree to. This would be a lump sum payment, paid all at once, to bring the loan current.
Selling your home. Depending on the specifics of the real estate market in your geographic area, you may be able to sell your home to give you some of the funds you need to pay off the mortgage in full. Some lenders will allow for a short sale, where the home’s sale price will not satisfy the mortgage, i.e., you are “underwater” on your home.
Loan modification. In this situation you and your loan servicer agree to permanently change one or more of the terms of the mortgage contract to make the payments easier for you to keep up with. This could mean extending the term of the loan, adding this payment to the loan balance or reducing the interest rate.
Personal bankruptcy may be considered a last resort option. However, it can be a good opportunity for you to start afresh if you are overwhelmed with the prospect of trying to get caught up. A bankruptcy will show up on your credit report, however, many people we work with are able to regain good credit within a couple years. It’s also important to keep in mind that a period of delinquency will usually already have harmed your credit. When a credit score has already taken a hit, there is very little downside to filing for bankruptcy.

Before throwing in the towel and giving up, make sure you reach out to your loan servicer to get more information. It’s unlikely that you’re the first or last person to request these details and there are probably many programs available to help you. You never know until you ask. You may be able to avoid more serious actions like foreclosure simply by asking your loan servicer if alternatives are available. Getting back on track and being able to make a deal with the loan servicer can relieve some short-term pressure and help you keep your house, too.