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What to do if you can’t pay your mortgage

Treasury Secretary Janet L. Yellen testifies during a Senate Banking, Housing and Urban Affairs Committee hearing on the Cares Act in September. Although its programs are mostly history, homeowners can still find sources of assistance. (Kevin Dietsch/Getty Images)

The pandemic created a harrowing medical and financial situation for millions of Americans.

For homeowners who became unemployed or had their income reduced, the Cares Act allowed for forbearance programs that were extended several times. These forbearance programs meant that homeowners could delay their mortgage payments for six months, then extend that period for another six months for up to a year of mortgage relief. The date forbearance ends depends on when the borrower started the program. For many, forbearance has ended or will end soon. Other homeowners may be just now struggling with their mortgage payments as jobs and incomes continue to fluctuate.

We asked two housing and personal finance experts about what to do if you’re worried about making your mortgage payments in the coming months or are already behind on your payments: Lee Anne Adams, senior vice president of national initiatives at NeighborWorks America, and Michael Sullivan, a personal financial consultant with Take Charge America. Both responded via email, and their responses were edited.

Now that many forbearance programs are ending, does that mean homeowners can’t get help if they’re struggling to make their mortgage payments?

Adams: Not at all. Homeowners can still qualify for additional loss mitigation and resources following the end of their forbearance. Homeowners should seek assistance through their loan servicer or a housing counselor who can assist with identifying options before and after forbearance.

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Sullivan: Although the programs of the Cares Act are mostly history, homeowners can still find sources of assistance. Freddie Mac and Fannie Mae still offer active forbearance assistance, and the Department of Housing and Urban Development, Federal Housing Administration, Agriculture Department and almost all mortgage servicers will consider requests for forbearance at any time if the homeowner has a compelling reason.

Also, the federal government has established the Homeowner Assistance Fund, which is up and running in more than 20 states. And many states have their own homeowner assistance programs. The best source of assistance for identifying and sorting through programs and options is the Housing Stability Counseling Program, which is a federally funded program designed to provide counseling for households facing instability, such as eviction, default, foreclosure, loss of income or homelessness.

Many HUD-certified housing counseling agencies (including Take Charge America) participate in the program, and they can help homeowners understand the federal and state programs that may offer assistance for their particular circumstances, including mortgage delinquency and default. You can search HUD’s site or NeighborWorks’ network for a counselor.

Do you need to wait until you missed a payment before taking steps if you know you’ll have trouble paying your mortgage?

Adams: NeighborWorks America recommends that consumers protect their homes and families by being proactive at all stages of the homeownership process. Homeowners should never wait until they have missed a payment to reach out to their loan servicer and discuss loss mitigation options. There are loss mitigation options that require homeowners to be at least 60 to 90 days late before they can access financial resources, but this should not deter consumers from connecting with their loan servicer and a housing counselor to discuss options that are available before and after late payments.

Sullivan: Homeowners should act the moment they realize they may not be able to make a future mortgage payment. Not only are there more options before a mortgage becomes delinquent or goes into default, but many of the options also require time to implement. A good example is the decision to sell an unaffordable home. The time from the decision to sell until closing can certainly be weeks, and rushing the process can be very expensive. Also, even one late mortgage payment can harm the consumer’s credit rating and eliminate or worsen the terms of some refinancing options.

Are there organizations besides your lender that can help homeowners? Can a housing counselor help?

Adams: Housing counselors are a vital resource in informing homeowners about the various options available, which can include financial resources. A housing counselor can help evaluate a homeowner’s situation and create the right plan. NeighborWorks America launched the Housing Stability Counseling Program to help nonprofits and agencies that provide direct counseling services to individuals and families facing housing instability.

Sullivan: A very temporary situation such as a one-time late payment may require nothing more than a call to the lender. With a more serious situation, it is often better to start with an HUD-approved housing counselor. Some assistance programs are beyond the expertise of the lender. And the lender will probably first consider the needs of the lender rather than those of the homeowner.

What are some options to resolve the issue? How do they work?

Adams: A homeowner should consult with their loan servicer or a housing counselor to identify the best option for their situation. Loss mitigation strategies are unique for every homeowner and are dependent on several variables. For example:

⋅Refinancing may allow you to reduce your monthly mortgage payment, modify the interest rate or access equity in the home. However, if payments have been missed, refinancing may not be an option.

⋅A forbearance is temporary and can allow homeowners to pause or reduce their monthly mortgage payment. In most cases, the balance of the reduction or paused payment amount will need to be paid back at a later time.

⋅Loss mitigation refers to the steps taken by the loan servicer to work with the homeowner to mitigate the loss of the home. A housing counselor can help homeowners determine which strategy best fits their situation.

⋅If the home has equity, selling it to pay off the existing loan and avoid foreclosure may be an option. However, if there have been missed payments, this could affect the homeowner’s credit score and their ability to secure housing following the sale.

What should homeowners do after a tornado?

Sullivan: The best option depends on the circumstances. If a budget analysis makes it obvious that the homeowner cannot afford the current mortgage payment, a counselor will probably focus on refinancing and sale options. If the problem is affordability but less severe, refinancing and loan mitigation will probably be coupled with budget counseling. If the problem involves a temporary illness or loss of work, forbearance is the most likely option, perhaps coupled with financial assistance from a source known to the counselor.

In 2020 and 2021, refinancing was an obvious solution for many homeowners who could get a lower interest rate and a longer term. In 2022, interest rates are up and refinancing is less attractive, but home prices are still quite high, so selling is a more obvious option. Likewise, the expiration of the Cares Act programs has made forbearance a less attractive option, because it is not required or supported. Mitigation is often difficult, because it requires the agreement of the lender at a time when a loan’s viability may be in doubt.

Is it necessary to hire a lawyer to get mortgage help? What if someone can’t afford a lawyer?

Adams: It is not necessary to hire a lawyer, but many communities across the country have legal aid agencies that can provide low- or no-cost services to assist homeowners with identifying their loss mitigation solutions. Housing counselors often refer clients to legal aid agencies.

Any other tips about what to do?

Adams: Far too many consumers are waiting for something to happen instead of taking appropriate steps to help themselves. Don’t wait to act. One of the lessons learned from the 2008 housing crisis is that people often were afraid to or just didn’t ask for help at all until it was too late. If the homeowner is at risk, they should immediately contact their loan servicer to identify loss mitigation strategies. Foreclosure laws require timely responses to any notification. The sooner homeowners reach out for assistance, the better their chances to find the right loss mitigation strategy for their unique needs.

Consumers facing housing instability because of the pandemic should know that a housing counselor can work with them to understand their options, connect them to resources — including emergency financial assistance — and possibly prevent eviction or foreclosure.

Sullivan: Very few consumers are prepared to deal with the complexities of changing the terms of a mortgage or getting financial assistance to meet the terms of a mortgage. It is almost always best to act quickly but to first consult with someone fully qualified and experienced, such as a housing counselor. It is critical to consider the long-term effect of any action. For example, rents have increased dramatically in recent months, so the cost of renting might not be anymore doable than the cost of a mortgage.

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