Benefits with Commonwealth of Virginia Members

Tips to Avoid Foreclosure (Part 1)

Help! I can't make my mortgage payment.

Every day, thousands of people like you have trouble making the next mortgage payment. Though things may seem hopeless, help is available. However, you need to take the first step! If you ignore the problem, you may lose your home to foreclosure, possibly affecting your ability to qualify for credit or to rent another home.

What should I do?

Nothing is worse than doing nothing!

1. Contact your lender right away. You can find a contact number on your mortgage statement. When you call, be prepared to explain
   • Why you are unable to make your payment
   • Whether the problem is temporary or permanent
   • Details about your income, expenses, and other assets like cash in the bank
2. If you are uncomfortable talking to your lender, a housing counseling agency approved by the U.S. Department of Housing and Urban Development (HUD) can help you understand your options. These services are free of charge.
3. Open all of the mail you receive from your lender. It contains valuable information about repayment options. Later mail may have important legal notices. Failing to read the mail will not prevent a foreclosure action.
4. Look for ways to increase the amount you have available to make your mortgage payments. Can you cancel cable TV, pack lunches, or get a part-time job? While these actions may not replace all of your lost income, they send a strong message to your lender that you are serious about keeping your home.

What options will help me keep my home?

The Federal Housing Administration (FHA) provides, as part of its insurance contract with lenders, loss mitigation actions the lender must evaluate and take, when appropriate, to reduce financial losses on loans in default. Your lender needs information from you to fully evaluate these options. If you want to keep your home, talk to your lender about available workout options for home retention. While the options listed here are for borrowers with FHA-insured loans, most lenders offer similar workout plans designed to help you keep your home.

Special Forbearance

Your lender may provide for a temporary reduction or suspension of your payments to allow you time to overcome the problem that reduced your income. Then you may be offered a payment plan so you can pay back the missed payments a little at a time until you are caught up. An extended forbearance period may be provided to unemployed borrowers who are actively seeking employment.

Mortgage Modification

A modification is a permanent change to your loan through which the overdue payments may be added to your loan balance, the interest rate may be changed, or the number of years you have to pay off the loan may be extended.

Partial Claim

In a partial claim, a borrower receives a second loan in an amount necessary to bring the delinquent loan current. The loan is interest free and does not need to be repaid until you pay off your first mortgage or sell your house. This option is available only to borrowers with FHA-insured loans. However, if you have a conventional loan, ask your lender if it offers an advance claim.

FHA-Home Affordable Modification Program (FHA-HAMP)

This option combines an enhanced partial claim with a loan modification. Under the FHA-HAMP, the partial claim loan will not only include any amounts necessary to bring your mortgage current but may also include an amount to reduce your existing loan balance by up to 30 percent. The reduced loan balance will then be modified to lower your monthly mortgage payment to an affordable level. As described above, the partial claim loan is interest free but must be repaid when you pay off your first mortgage or sell your house.

To qualify for any of these options, you will need to provide your lender with current information about your income and expenses. Also, your lender may require that you agree to a payment plan for three or more months to demonstrate your commitment before you are approved for a modification or partial claim.