How to deal with mortgage delinquency

After my interview on FOXbusiness.com yesterday with Jenna Lee, Connell McShane and Dagen McDowell, it became clear from the emails that there are many people who are facing catastrophic problems paying their mortgages and, worryingly, many are hoping that the government intervention to solve the problem. Although we hope to have useful answers and solutions tomorrow on what the government plans to do, there will still be a period of time to enact those policies. In my experience, that takes some time, something many people don’t have. Therefore, I feel that those who are struggling should continue to take steps in the interim to prepare to alleviate their situation. For those who find themselves in those situations, here are some simple steps to get you started. More tips coming soon:

1. Try to keep up: A foreclosure is devastating to a person’s credit and future access to credit, so we want to avoid it at all costs. Try to keep the mortgage current.

2. Set a budget: Figure out all the income and all the expenses to understand where the money is going;

3. Reduce and Eliminate Expenses: Reduce expenses where necessary where possible (reduced insurance premiums, reduced utility costs and usage, reassessed property taxes, food, clothing and transportation budgets) and eliminate those that are unnecessary;

4. Add income or sell personal belongings: If necessary, find part-time work or additional income or sell items you don’t need (through things like Craig’s List, etc.)

5. Negotiate unsecured debt payment plans: If payments are still too high to pay the mortgage payments, negotiate with unsecured creditors for modified payments and immediately stop using credit cards and debt. Once again, the desire is to pay off the debt, only on modified terms.

6. Determine the Maximum Affordable Mortgage Payment: Once you have completed all of the above steps, determine the maximum you can afford. If you can afford to mortgage future payments, stay within your budget and weather the storm. If you are able to pay your mortgage payments but are unable to make up the missed payments OR are still unable to pay the full mortgage payments, then;

7. Contact the lender to discuss the modification: Now contact your lender to discuss modification options. This can include a forbearance where you agree to make up past due payments over time, or a deferral of past due payments until the end of the loan (thus bringing it up to date), or an actual modification of the terms of the loan, including payment and/or or rate reduction and/or term increase. Have all income verification and budget information ready. Prepare a plan of what you have done to reduce and eliminate expenses or increase income. Show the lender that you have done your homework. Try to meet face to face if possible. If you are not satisfied, contact an attorney to help you with the negotiations.