There has been a lot of talk in Washington about mortgage assistance, and how ineffective it is because it fails to address a top cause of foreclosure--unemployment. The Home Affordable Modification Plan (HAMP) is there for those who have experienced an income reduction but few lenders are modifying mortgages for borrowers who have lost their jobs. The Treasury Department, the lenders of the HOPE coalition, and Congress began talking over solutions back in July 2009. It's nearly February 2010 and still, nothing.
You May Get a Mortgage Modification when Unemployed
If your mortgage is owned or serviced by Fannie Mae, Freddie Mac, or FHA, there are provisions for helping unemployed borrowers. Make sure that your lender is aware that you know this. Here are Fannie's guidelines:
"If the borrower receives public assistance or collects unemployment:
Acceptable documentation includes letters, exhibits or a benefits statement from the provider that states the amount, frequency, and duration of the benefit. The servicer must determine that the income will continue for at least nine months."
The difficulty? Modifications take so long that your unemployment may get within nine months of the end before the loan servicer gets around to modifying your mortgage. You can speed up the process by have every bit of requested paperwork to the lender as soon as possible. Get an accountant or bookkeeper to help you fill out the forms if you need help. And act the very day you lose your job for your best shot at a modification.
What if You Income Is Too Low to Qualify for a Modification?
There may be help for you there, too. Get a roommate. Have a family member with income or a friend move in. Here's why, per Fannie Mae:
"Servicers should include non-borrower household income in monthly gross income if it is voluntarily provided by the borrower and if there is documentary evidence that the income has been, and can reasonably continue to be, relied upon to support the mortgage payment. All non-borrower household income included in monthly gross income must be documented and verified by the servicer using the same standards for verifying a borrower's income. (An example of non-borrower income is boarder income.)"
What if You Have Too Much Debt?
Call your creditors. Let them know that you have just lost your job and are trying to avoid bankruptcy (that's the magic word when you need to um, motivate a creditor to help you). Try to get lower interest rates and payments for at least six months--longer if possible. If that fails, consider bankruptcy. Some lenders will work in a loan modification as part of a bankruptcy reorganization, others will pull the plug on your modification. In general, I recommend not filing bankruptcy before your modification has been approved or denied, unless foreclosure proceedings have been started.
Other Mortgage Assistance
If you have a loan with Citi mortgage, you may be in luck. Their Homeowner Unemployment Assist program lowers monthly mortgage payments to $500 for three months if you're unemployed. If you live in Connecticut, try a program called EMAP, the Emergency Mortgage Assistance Program, created to help the unemployed keep their homes out of foreclosure. And finally, hit up your mortgage insurer. The company may grant you granting you a no-cost loan to bring your mortgage current and keep you out of foreclosure. FHA mortgage insurance works in a similar way; the advance is called a partial claim.
