Struggling to pay the mortgage?

What you should know about: short sales, foreclosure & the new government program for struggling homeowners.

The two traditional options for homeowners who can no longer meet their mortgage obligations are short sales and foreclosures. We’ll tell you what both of them are and the upsides – and downsides – of both.

The new option from the federal government is program that offers two programs to homeowners who can pay a more affordable mortgage.

1. Short Sales & Foreclosures
2. Government Assistance

Short Sales and Foreclosures – A short sale involves selling your home for less than what is owed to the bank, so long as the bank agrees to accept less. If successful, you satisfy your debt on the home.

Foreclosure is an action taken by the lender against owners who stay in their homes without making mortgage payments until the bank forecloses on the property and takes the home.

Short sale: the better choice – The short provides the owner with a chance to control the situation by selling and being relieved of the debt. The bank has to agree to the selling price but has incentive to do so because, generally speaking, they really don’t want to own property and have to resell it.

Sellers who decide to attempt a short sale should keep two things in mind that will greatly enhance their chances of success:

1. Decide to sell short sooner rather than later. Waiting until you’re in default on you loan and the bank is breathing down your neck minimizes the chances of selling.


2. Don’t try to sell on your own. Short sales are difficult transactions best left to real estate agents and attorneys with experience dealing with the banks. Tough Love provides free referrals to agents and attorneys in Fairfield County who specialize in short sales.


3. Beware of advertisements trumpeting their ability to solve your mortgage payment problems. Working with experienced and reputable local professionals is your best bet.

Negative Consequences – The short sale and foreclosure processes both have a serious negative impact on credit rating and the ability to borrow in the near term. The degree of impact and length of time the negative rating remains on a credit report is more severe under foreclosure – another reason to think seriously about a short sale.

Government Assistance

The federal government’s Homeowner Affordability and Stability Plan is aimed at owners whose mortgages are backed by Fannie Mae and Freddie Mac. The program offers two options to homeowners in trouble:

1. Refinancing of their current loan to a lower interest rate, even if their current home value is up to 105% of what they currently owe on their mortgage.


2. Modification of a loan to a monthly payment that is better suited to the homeowners current ability to pay.

Detailed information and guidance about whether or not one qualifies for consideration to refinance or modify can be found on www.MakingHomeAffordable.gov

Another helpful website - www.MortgageReliefOnline.com - walks borrowers through a questionnaire about their income, mortgage debt and home value, and asks for contact information.

FICO takes that information and pairs it with data regularly received from the credit bureaus about the borrower’s credit and spending history, among other things.

The company’s technology helps determine whether the borrower qualifies for a loan modification. If so, an owner can get further assistance, free of charge, through a nonprofit credit-counseling organization.

The system recognizes 30 major lenders and loan servicers, but FICO’s technology will also try to determine whether other lenders who are not on that list offer loan modification programs.

At the end of the questionnaire, MortgageReliefOnline offers an early indication of whether a borrower is eligible to have the loan terms modified. (To qualify, monthly housing payments typically need to exceed 31 percent of gross monthly income, among other things.)

Those who qualify for the new federal program can see their mortgage rates drop to 2 percent, while others can obtain loans at the best market rates even if they have less than 20 percent equity in their homes.