Job Loss: Loan Modification & Forbearance

A mortgage is a financial responsibility like no other. It’s a contract, one you need to ensure you always meet the requirements to even if you are facing a lost job mortgage holder. However, what can you do if you simply cannot make payments on time? What if you just need a month or two off while you get caught up? This is when mortgage loan modification and forbearance may provide you with some support.

Mortgage Delinquency Rates for Conventional Loans

What is Loan Modification?
Loan modification changes the terms of your existing loan, such as a temproray reduction in the payment amount. It may also mean an interest rate reduction. Modifying the loan could make it easier for you to repay, especially if the lender is willing to do this for you without creating a financial hit on your credit score. It may be possible if you can prove to your lender that you just need a bit of help and you still have the means to continue to make payments.

What is Forbearance?
Forbearance is an agreement between the lender and the delinquent borrower. If the lender agrees, it agrees not to take legal action against you to foreclose on the home. Rather, you promise to make payments according to a new schedule. Over time, you’ll still pay back what you owe to the lender, but they are giving you a bit more time to do so. Forbearance can work if you can show your lender you can get caught up. You must have the financial means to do so in a reasonable amount of time.

What About PPI?

When you obtained your loan, you may have purchased PPI, or payment protection insurance. If you purchased it, now is the time to apply it. It provides you with up to 12 months of protection if you are unemployed (or meet other criteria). After this period, you are able to resume making payments on the loan as agreed. This is a form of insurance that you pay for a period of time.

Take a closer look at your financial documents. If you have PPI, contact them immediately upon losing your job to get protection in place.

Mortgage assistance relief services may be able to help some individuals as well. These organizations have to abide by the Mortgage Assistance Relief Services Rule, which limits the fees that they can charge and the type of advertising promises they can offer. However, these programs are designed to work as an intermediary between you, the borrower, and the lender. The goal is always to work out a deal to help you get caught up. You don’t need to use these services. Most lenders will work with you.

Several programs now exist that may be able to help you with forbearance and loan modification. In all situations, the lender has to agree to the changes. Yet, most will if you are an unemployed mortgage borrower without the means to repay your debt as originally agreed.

The Home Affordable Modification Program is one tool you may have available to you. Often called HAMP, this program helps those who have an FHA-backed mortgage loan to get help reducing their mortgage payment. If you qualify, it can help you with an interest rate reduction or reducing how much you owe. Forbearance is also an option within this program. In short, it allows for consumers to get help encouraging lenders to work with them to modify their loan. The benefit is that the lender can help you avoid foreclosure.

All of these program options, including loan modification and forbearance, rely on one thing. That is your ability to make payments. When you have a job loss, mortgage payments are not just hard to make, but sometimes impossible to make. More so, if you are still unable to make payments or your income drops and you cannot keep making payments, you could find yourself facing the same consequences.

While you should explore these program options, it is always important to recognize this only works if you can get into a new job faster. Don’t put off calling your lender. The sooner you reach out for help, the better.

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