Mortgage Default Counseling

"Housing counselors are a crucial source of assistance for distressed homeowners. Distressed homeowners working with a counselor are nearly twice as likely to receive a mortgage modification."~ Carol Galante, Acting FHA Commissioner

"The personalized work nonprofit housing counselors do to help homeowners improve their overall financial situation had the greatest effect on a homeowner not falling behind again on their mortgages in the future."~ Eileen Fitzgerald, Neighborworks America CEO

Due to the housing crisis and unprecedented increase in foreclosures, homeowners need to know their options more than ever before. At AAA Fair Credit Foundation, our certified housing counselors are trained to assist you in foreclosure prevention.

Your confidential counseling session will provide you with the information you need to understand the loan modification process. Our counselors are in contact with the largest mortgage companies on a daily basis, assisting homeowners in communicating with their lenders and in understanding the steps required for an effective resolution.

After a thorough review of your income and expenses, as well as your debt and causes of delinquency, your counselor will familiarize you with the various timelines and the different options for which you may be eligible. Loan modification programs are continually changing, and programs that were in effect yesterday may no longer be available today, so working with an experienced counselor who is up-to date on those changes will help save time.

AAA Fair Credit Foundation is a nonprofit, HUD-approved comprehensive housing counseling agency. Our HUD-certified housing counselors provide expertise to help you through a variety of issues and concerns--including homebuyer education, pre-purchase counseling, foreclosure intervention and default resolution counseling, loss mitigation and consumer debt resolution.

Foreclosure intervention counseling services are provided free of charge - there is no need to pay a private company for these services. Foreclosure Intervention Counseling and Loss Mitigation is designed to keep distressed borrowers in their homes, establish financial stability, and learn strategies to avoid similar situations in the future. Borrowers who receive housing counseling in the early stages of default are far more likely to receive more favorable terms on a loan modification compared to borrowers who go it alone. On average, counseling yields a $100 lower monthly payment and an interest rate that's five basis points lower than that offered un-counseled borrowers.

Our Housing Counselors receive ongoing training on onternal programs specific to different lenders, as well as on the federal homeowner preservation assistance programs. These programs include:

• Making Home Affordable (MHA)
• Home Affordable Mortgage Program (HAMP)
• Home Affordable Foreclosure Alternatives Program (HAFA)
• Home Affordable Refinance Program (HARP)
• Cash for Keys
• Deed for Lease Program

Time is ABSOLUTELY of the essence. The possibility of stopping your foreclosure has to do with taking action now. In cases where foreclosure is unavoidable, our counselors will help you organize an effective exit strategy that minimizes the detrimental impact on your financial outlook.

How can I avoid mortgage trouble?

• Prioritize your expenses. Prioritize your bills and pay the ones that are most necessary for the well-being of you and your family, such as shelter, food, and utilities.
• Protect your credit score. When you are experiencing a financial challenge, remember that making late payments or skipping them can seriously affect your credit score.
• Beware of scams. Beware of predatory lenders, pre-approved loan offers, and phony counseling agencies. Homeowners facing financial troubles are especially vulnerable because they are desperate to find a solution to their problems. Legitimate counseling agencies will offer their programs for free or for a small administrative charge. Check with a lawyer or your mortgage company before signing anything involving your home. Do not sign anything you do not understand. The U.S. Department of Housing and Urban Development has more information about avoiding predatory lending on their website.

Below are some potential warning signs to consider before conducting business with services that claim to assist families facing foreclosure:

• The individual, enterprise or business entity offering assistance requests payment upfront for its services.
• The individual, enterprise or business entity offering assistance is not a HUD approved counseling agency.
• The individual, enterprise or business entity offering assistance is not a registered business entity with the Department of Commerce.
• The individual, enterprise or business entity offering assistance presents the win-win scenario of temporarily placing a family facing foreclosure into another home that is controlled by the individual, enterprise or business entity offering assistance.
• The individual, enterprise or business entity offering assistance do so without contracts or use contracts that are not state approved by the State Division of Real Estate.
• The individual, enterprise or business entity mandates that only companies and or affiliates of their companies are used at all times during the transaction.
• The individual, enterprise or business entity offering assistance tells you that recently they helped someone else on your street with the same problem. This is often how individuals, enterprises and business entities gain control of neighborhoods and fraudulently inflate market values for an entire neighborhood.

What should I do if I miss a mortgage payment?

Call for help—it's the most important thing you can do. More than half of homeowners facing foreclosure did not call for help when they fell behind in their mortgage payments.

Don't make a bad situation worse. Ignoring your situation won't make it go away. Take the steps provided in this sheet to protect your home, your family, and your credit rating.

Notify the bank as soon as you know your payment will be late. Calling when you are 30 or 60 days late is better than calling when you are 120 days late. You still have some options. You must put your pride on hold if you're truly serious about stopping the foreclosure process. Remember that foreclosure is not in the best interest of lenders—lenders report that it costs up to $50,000 or almost half the loan balance each time they write off a foreclosure.

Work it out. Depending on the situation, the lender may lower the interest rate, lower the borrower's monthly payment, or enter into a repayment agreement for missed payments.

Avoid foreclosure rescue scams by calling a reputable nonprofit organization. AAA Fair Credit Foundation is dedicated to helping homeowners. counselors are trained to set up a plan of action designed just for you and your situation. (Spanish speaking counselors are also available)

For immediate assistance please call 1-800-351-4195 to speak with a Certified Housing Counselor.

Possible options for staying in the home:

• Refinance - Redo loan to lower interest rate, or lower payment.
• Re-application of Principle Prepayments - If you make an overpayment you can request the lender to redo the interest and use the extra money to cover arrearages.
• Forbearance - Agreement to suspend/reduce payments for a fixed period of time.
• Loan Modification - Written agreement that permanently changes one or more of the original terms (interest rate, pmt amount, maturity date, or amount of the unpaid principle balance.
• Reinstatement - When you are behind in your payments but can promise a lump sum to bring payments current by a specific date.
• Repayment Plan - Written agreement to cure delinquency by adding an additional amount to their monthly pmts until the loan is current.
• Selling Your Home - If catching up on payments is not possible, the lender might agree to put foreclosure on hold to give you some time to attempt to sell your home.
• Partial/Advance Claims- When an investor (Partial) or mortgage insurer (Advance) agrees to advance funds in an amount necessary to reinstate the loan.
• Community Assisted Funds - Loans or grants given to assist in curing arrearages.
• Property Give-Back -The lender can allow you to give-back your property – and then forgive the debt. Give-backs do, however, have a negative impact on your credit record, although not as much as a foreclosure. The lender might require that you attempt to sell the house for a specific time period before agreeing to this option, and it might not be possible if there are other liens against the home.
• Reverse Equity Mortgage - Seniors who have significant equity can use that equity and have lender pay them in one lump sum, in monthly payments, or in a line of credit.

Possible options if staying in the home isn't feasible:

• Full Sale - Selling the property for the highest possible price.
• Hardship Mortgage Assumption - When a qualified applicant assumes title to the property and the mortgage obligation of the borrower in default or about to be in default, even though the loan documents prohibit under normal circumstances.
• Short-sale/Pre-foreclosure sale - Sale of the property for less than the amount necessary to pay off the loan in full and the lender agrees to accept the proceeds of the sale as full satisfaction of debt.
• Deed-in-Lieu - Voluntary conveyance of title to the lender by the borrower in exchange for a discharge of the delinquent debt.
• Foreclosure - The process by which the lender takes possession of the property and kicks borrower out.

Frequently Asked Questions:

What’s the benefit of working with a HUD-approved housing counseling agency? Can’t I do this on my own?

Yes, you can work something out on your own with the bank directly and it isn’t mandatory to work with a housing counselor. However, keep in mind the process is extremely complicated and cumbersome, requires extreme dedication and persistence and LOTS of follow-up. Here are just a few of the benefits of enlisting the services of a non-profit, HUD-approved housing counseling agency.

• Housing Counselors are properly trained and certified.
• Housing Counselors have streamlined access to your lender/servicer to expedite an otherwise very long process.
• Housing Counselors help you understand the process, terminology, and available options.
• Lenders/servicers prefer to work with HUD-approved counseling agencies because they are strictly regulated and are held to the highest standards to help borrowers make the work-out option sustainable.
• Housing Counselors spend countless hours communicating with your lender/servicer and logging each interaction.
• Counselors inform you about what your best options are up-front so you don’t have to wait several months to be told you don’t qualify for a program.
• HUD-approved housing counseling agencies must provide counseling services free of charge.

I am current on my mortgage but I can’t make the payment next month, what can I do?

First, you need to assess why you can’t make the payment and figure out if the hardship is going to be resolved or on-going. It may be necessary to make some adjustments in your spending to be able to work something out. Second, seek help from your servicer or a certified housing counselor. They can let you know what your options are, and which ones would be most effective given your personal circumstances. It’s important to know that you DON’T have to be past due to get help! The earlier you seek help, the more options you will have.

Will I still get collection calls/letters when I’m working out a solution with the bank or housing counselor?

Yes. If you are past due seeking an option to keep your home, even if you are working it out with the bank directly or working with a HUD-approved housing counselor, the collection process continues because payments have not been made as per the contract you signed to get your home. This is an automatic process where letters and calls are computer-generated and made at certain milestones of delinquency. It is crucial to read all correspondence and answer those phone calls to make sure it’s not a notice of sale or something else. Let your mortgage servicer and housing counselor know when you get any of those calls/letters and they will be able to clarify what is happening or what it means.

How long do I have before foreclosure?

In Utah, you usually have about 5-8 months from the first missed mortgage payment to the foreclosure sale. This doesn’t mean you can wait until the last minute. The longer you wait the fewer options you will have available.

How long does the foreclosure prevention process take?

This depends on who your loan servicer is, how busy they are, and how far past due you are. However, it mostly depends on how quickly you can make the necessary adjustments and gather the appropriate documentation. Once we have all the necessary paperwork, we begin working immediately. Typically we usually have some resolution within 45-60 days. However, it is not always possible to save the home.

If I put my house up for sale will that stop the foreclosure process?

No. The simple act of getting a realtor or putting a for sale sign up does not stop the foreclosure process. Even if you do sell the home, that does stop the foreclosure process. If you need a short-sale, then putting the house up for sale for a few months is usually a servicer/investor requirement. Remember that you need the servicers’ permission to short-sale, or sale for less than the current loan amounts.

How do I know if I can qualify for the new home affordability modification plan?

Visit the www.makinghomeaffordable.gov Web site and go to the "loan look-up" tab. You will need to see if your loan is owned by either Freddie Mac or Fannie Mae. If not, your servicer will need to be one who’s agreed to the terms of the plan. This is found on the same website under the ‘Contact your Mortgage Servicer’ tab. Other considerations will be if the loan originated on or before Jan 1, 2009 and your front-end DTI (Debt-to-Income Ratio) and/or back-end DTI. Our Counselors can help you determine your DTI ratios with you.

How much will this cost?

Loss mitigation is something you can get for free. There are numerous companies that will charge you for this- beware of them. With that said, your servicer may ask you for a payment to have the plan go thru – a type of earnest money. It’s important to be saving as much $ as possible during this time since you typically aren’t making a mortgage payment.

Does AAA Fair Credit Foundation loan/grant money to help me?

No, we do not have any community assisted funds.

What information do I need to provide?

Most servicers request the following papers/documents: recent utility bill, budget/spending plan, last couple months of paystubs for all working parties, last 2 months of all bank statements, IRS form 4506-T, and 1-2 years of tax returns, and hardship letter/affidavit. If you are self-employed you will need to provide a Profit & Loss Statement, and YTD Income Statement. Servicer requirements are different for every loan. You will be asked for additional information specific to your loan and circumstances

Can a 2nd mortgage initiate a foreclosure?

Yes, a 2nd mortgage, or junior lien holder, can initiate a foreclosure. It’s important that if you refinance or modify the primary lien, that the other liens subordinate – or keep their secondary position. For them to foreclose the junior lien must assume the liability of the primary.

Can I still owe on a mortgage even after I’ve been foreclosed?

Previously your servicer could seek a deficiency judgment against you – the difference of what you owed them versus what they sell the property for. However, current legislation enacted in 2007 provides relief, for those who qualify, to have the deficiency forgiven from their taxable income. Because tax code can change, and may not apply to everyone we recommend you visit www.irs.gov.

How can I reduce the risk of foreclosure when I purchase or refinance my home?

Take advantage of pre-purchase counseling offered by nonprofit organizations. Homeowners can avoid trouble later on by making informed decisions while purchasing their homes. Borrowers who are most likely to keep their homes understand their mortgage options and how much they can really afford. Education also helps borrowers identify and avoid unscrupulous sellers or lenders. A recent study found that borrowers who received counseling have half the default risk as those who did not.

Avoid prepayment penalties and balloon payments. People who refinance their mortgages with loans containing prepayment penalties or balloon payments are more likely to undergo foreclosure, according to a study by researchers at the University of North Carolina. According to the study, a prepayment penalty increases foreclosure risk by about 20 percent. Mortgages with balloon payments were 46 percent more likely to go to foreclosure than loans without. Protect the equity in your home – it’s a valuable source of wealth that will build over time.

Stay on top of home repairs and maintenance. NeighborWorks® organizations provide counseling in home maintenance and repairs and rehabs that improve the value of a home. Too often emergency repairs and less-than-trustworthy contractors push a homeowner into foreclosure.

Unfortunately there is no quick-fix to the threat of foreclosure. You owe it to yourself to get the facts and remember if it sounds to good to be true it probably is. The longer you wait the fewer options you will have.

To schedule your free appointment for a Mortgage Defualt Counseling session, call 800.351.4195 or send email to housing@faircredit.org.