Troubled mortgage holders have options

Stephanie Armour
USA Today
Jun. 4, 2008 12:00 AM

Rising payments from adjustable-rate mortgages, mounting job losses and an epidemic of unaffordable loans have thrown more homeowners into a dire situation: They're no longer able to pay.

So what should you do if you absolutely can't pay your mortgage?

Housing experts and counselors offer a host of suggestions from trying to reach a deal with your lender, to consulting credit counselors, to walking away without paying the mortgage, to trying to sell, to letting the bank take possession.

It can be hard for a confused homeowner to cut through a thicket of conflicting advice. Here's what experts recommend:


• Don't do nothing at all.

Lack of communication with a lender will only exacerbate problems. "The worst thing you can do is avoid the phone calls, letters and/or visits from your lender," says Deede Wockenfuss with Assist-2-Sell, a realty brokerage in the East Valley. "The sure way to go into foreclosure is to not talk with your lender."


• Ask your lender to help.

Typically, lenders don't want a home to go into foreclosure because it saddles them with both a house and a financial loss. Many lenders are willing to work out alternative-payment plans. These steps might include lowering the mortgage rate, extending the life of the loan or letting homeowners make up missed payments through a payment plan.

"I'd call your (mortgage) service provider and say, 'What can you do?' " says Mark Zandi, chief economist of Moody's Economy.com.

Try not to delay. Homeowners should contact their lenders as soon as they know they'll have trouble making their mortgage payments. And they should keep copies of all correspondence and a log of all the service providers they speak with.


• Approach lenders with a plan.

One mistake some mortgage holders make is simply to call their lenders and say they can't pay, says Joel Naroff of Naroff Economic Advisors. Instead, they should suggest a loan-modification or repayment plan.


• Seek outside assistance

The Federal Housing Administration can help subprime borrowers who can afford the starter rate on their subprime mortgages but not the higher payments once they adjust.

The Department of Housing and Urban Development can sometimes help those with FHA-secured loans (800-569-4287). The Homeownership Preservation Foundation, a member of the Hope Now Alliance, (888-995-HOPE) is another resource; it deploys counselors, servicers, investors and others to try to help at-risk homeowners remain in their homes.