How to deal with overdue mortgage payments


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Dear Debt Adviser,
My husband and I bought a house more than 20 years ago with a Federal Housing Administration loan that required mortgage insurance as part of the payments. Now we are separated and facing foreclosure on the home. Is it possible to pay our overdue mortgage payments with the mortgage insurance? If not, then what is the purpose of that insurance?
— Pat

Dear Pat,
You have more stress going on in your life than you need right now. Although I can’t help you with the decision you have to make regarding your separation, I can help you come to grips with your mortgage problem. Let me start by telling you that your mortgage insurance isn’t going to help you make any overdue mortgage payments.

The mortgage insurance that you have been paying each month on your FHA loan is intended to protect your lender, not you. The insurance premium is paid by you, but it’s actually a safety net for the lender in case of default on the loan. The bottom line is that the sooner you make some decisions, the better. The longer you wait the fewer options you’ll have. So let’s get started.

Both private and public loans often include mortgage insurance. You can typically stop paying the monthly insurance premium once you have reached the prescribed terms included in your loan. For FHA loans, you must reach 78 percent of your loan-to-value based on the original purchase price of your home. For private mortgage loans, you can generally avoid having to pay mortgage insurance entirely if you make a down payment of 20 percent or more. The rationale is that with a higher amount of equity available, the lender has enough protection in the event of a default that insurance protection is no longer required.

Once you are 90 days late on your mortgage payment (not counting any grace period) foreclosure can begin. Depending on your state rules the foreclosure can be swift or long and drawn out. The good news, if there is any, is that due to the massive number of foreclosures, you have a large number of options to guide you. For example, you could restructure your mortgage so that it’s more affordable. You could also refinance at lower interest rates, or you could simply walk away from the mortgage.

I suggest that you contact your mortgage servicer and a housing counselor from Hope Now at (888) 995-HOPE (4673) to help you through the maze of options. Mistakes or delays in this very complex process can cost you your home, so please don’t try to do this entirely on your own. Fortunately, you won’t have to provide any money. Hope Now, an alliance between counselors, mortgage companies, investors and other industry players, is confidential and completely free. A certified counselor with the Department of Housing and Urban Development will help you decide if it is possible to avoid foreclosure. The counselor also will have information for programs that can help you resolve your current issue.

Lastly, because the loan is in both your and your husband’s names, you will both need to agree to any solution. I know this won’t be easy, but if you can work together on this issue, you’ll have one less source of stress.

Good luck!

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