Decide what you want and ask for it
For short-term problems, the mortgage company is likely to offer a forbearance. Most commonly, this entails adding a set amount to each month's payment. "They can just keep making payments till they get back on track. That's a forbearance plan," Bratcher says.Lewis says any forbearance agreement should be "forward-moving" -- it should be the full mortgage payment, plus a portion that pays off the arrearage over time. "You don't ever want to go onto a payment plan, particularly if you can afford it, that involves less than a full monthly payment," she says, because you don't want to keep adding to the amount owed.
Longer-term problems that reduce income, such as disability, are sometimes solved by loan modifications. Theoretically, any term of a mortgage may be modified: the rate, the final payoff date, even the amount owed.
"Modification is designed for a homeowner who doesn't have future prospects of being able to maintain the current mortgage payment or the projected one, if they're anticipating a rate jump, over the long term," Lewis says. "It is designed for long-term relief, so we know that their income isn't going to change much over the next 20 years."
Modifications were once viewed by the industry as an extreme measure. Now, with foreclosure having affected roughly one out of every 54 homes last year, modifications are more appealing.
The government's new Making Home Affordable plan will probably make modifications even more attractive. The plan creates uniform standards for modification. In the past, the lending industry has cited a lack of such standards as a roadblock to successful modifications.
The plan promises servicers $1,000 for each loan a servicer successfully modifies. The servicer also receives an additional $1,000 per year for every year the homeowner stays current on the modified loan.
"The primary focus, particularly now with the president's new loan modification plan, is on (staying current) and I think you're going to see, hopefully, a groundswell of support," says Koches. "A lot of the players in the industry had resisted undertaking an aggressive modification program, citing legal reasons or lack of standards. But I do think now that we have a really well thought out, well-balanced plan."
Tip: To find out more about how loan modifications and other workout options work, read, "Mortgage modification help."
Document income and expenses. Keep all correspondence (even the envelopes)
Before negotiating a deal, gather all the information you need, starting with any correspondence from the servicer. "That includes anything unopened, as well," Lewis says. Don't throw away envelopes from the servicer -- postmarks sometimes can make the difference between being eligible or ineligible for relief, Lewis says.Collect everything that relates to income and expenses. Find your last four pay stubs. "We want to see at least one month of income," Lewis says. "If (income) is very sporadic, give us stuff that tells how you're getting paid so we can calculate an average over time." Gather at least three years' worth of W2s and tax returns, plus three to six months of bank statements. Find all the mortgage paperwork and add that to the file.
Pull together all bills, paid or not, from the times you were falling behind on the house payments until now. Include utilities, auto payments, credit cards, student loans, child support, medical bills. Find the winter and summer heating and cooling bills.
"They also need to include everything that documents why they fell behind," Lewis says -- an employer's notification of reduced hours or a layoff, an invoice for an auto repair or a furnace replacement, or a shutoff notice from a utility.
Behind every mortgage delinquency, there's a story. Learn to tell it succinctly. "They should sit down and write out the circumstances that led to the default," Lewis says. "They need to determine what was the reason they fell behind."