Importance of Creditor Communication

Homeowners have a responsibility to make every effort to pay on time. When this is not possible, the homeowner should contact the lender and explain why he/she cannot make the payment and inform the lender when the payments can be brought current.

If you have a mortgage loan in default, you will need to complete certain steps if you are to save the home from foreclosure. Contacting your lender is the first and foremost step in the remedy process.

If communication has broken down, you will need to make every effort to restore a cooperative dialogue. In short, being patient and persistent in finding the right person to contact will greatly assist your efforts. If you have not recently spoken with a lender representataive, call to reestablish communication and explain that you are doing a thorough analysis of your situation in order to present the lender with a proposal package suggesting a workable solution to the default.

Steps to Consider

In order to gain an acceptable workout solution, it is advantageous for you to have accurately assessed the cause of the delinquency and to be prepared to take corrective action before contacting your lender. You will then be able to prepare a proposal package to submit to your lender requesting an appropriate workout solution.

There are certain steps that should be followed to help you prepare your proposal package:

• Get Organized
• Do a Self Analysis
• Prepare a Budget Analysis
• Compose a Hardship Letter
• Assemble your Documentation
• Gather Income Statements
• Do a Market Analysis

Organization

• Open all your mail and start a file for your house situation only. Put all documents and letters in chronological order, with the most recent on top.

• Keep a notepad and pen by the phone. When a creditor calls, record date, time, person's name, and brief synopsis of the call. It will be to your advantage to be calm and polite, even though the collector may not be.

Self Analysis

Budget Analysis

Your next step will be to carefully review and compare total after-tax income with monthly minimum essential living expenses. To do this, all income sources must be identified, such as wages, dividends, bonuses, commissions, tax refunds, court settlements, unemployment or disability. If you are self-employed, prepare a profit and loss statement (statement of earnings less expenses to determine net gain). This net gain is the amount considered personal income.

It is likely that you will need to increase income and/or decrease expenses. Consider and list all possible additional income resources to help cure the arrears:

• A second job
• Overtime
• Renting out a room in the home
• A 401K plan or other retirement funds that may be accessible in emergency cases
• Life insurance policies with cash value, personal investments, or other valuables that can be sold

Once all income sources are identified, you should determine the minimum living expenses possible. You must decide if the mortgage delinquency is a crisis situation and, if so, be prepared to reduce your monthly expenses as much as possible.

Hardship Letter

In addition to the above steps, you will need to compose a hardship letter explaining the situation in writing to your lender/servicer. This explanation will be part of the proposal package you will submit to your lender. This letter should include the specific incidents that caused the delinquency as well as dates and time frames. The letter should include concise but specific information.

The homeowners are two months delinquent, and the lender is sending demand letters for payment. The homeowner has talked to the lender by phone, but the letters keep coming, and every time the lender calls, it is someone new, so the homeowner finds himself explaining the situation again. A letter for the client's file will help solve this.

Suppose the homeowner, a married male who is the primary wage earner, was laid off work. He is actively seeking new employment, and receiving unemployment of $662 per month. The spouse brings home an additional $750. The loss of income is about $900 per month. The hardship letter would explain the situation and include specific, relevant details.

Documentation

Documents substantiating your hardship are a crucial part of the proposal package. This step may be an extension of the hardship letter. If presented separately, then a summary letter explaining the document(s) will be required.

For example

• In the case of a layoff from work, the homeowner would indicate the date of the layoff and include a copy of the layoff notice.
• In the case of extended illness, the homeowner should provide summary records of the diagnosis, prescription/treatment costs, and any lost wages or pending state disability claims.
• In the case of divorce, a letter from an attorney or copy of a court ordered settlement would be acceptable. If family support or child support were ordered, then this along with a wage garnishment order, if applicable, will show how the divorce caused one party to have an increase in expenses.

Every problem that could possibly take place in the homeowner's life will have some type of documentation that can prove the hardship. It is up to you to present your case to the lender. Therefore you must create, find, or save the proof of hardship. Because of this, good record keeping and organization are a top priority.

Income Statements

As you gather documentation to prove the hardship was the actual cause of the initial delinquent payment, dates will be very important to the lender. In a case where several hardships have taken place over a period of time, it can be difficult to connect a specific event to the delinquency. One way to show the lender that the hardship has had a financial impact is through copies of wage statements, tax returns, unemployment or disability claims, and bank statements which show dates that correspond to the date of default or first missed payment.

The lender will want copies of the most recent pay stub showing year-to-date income, most current two-year tax returns, and copies of the three most current month's bank statements. If a borrower is self-employed, a year-to-date profit and loss statement will also be required.

Market Analysis

An opinion by a professional realtor giving a realistic estimate of the home's value is important to give to the lender. The home's value could have an impact on the decision the lender will make regarding which workout solution to consider. Most borrowers do not know how much equity they have in their home or even if there is equity given current market conditions.

Homeowners Request

After you have analyzed the hardship, established minimum living expenses, composed a hardship letter with supporting documentation, compiled income statements and other supporting information, the next step is to select a potential remedy from the examples found on the Workout Solutions page that is realistic for you to request from your lender/servicer. This solution must be one you can reasonably afford; it must make good business sense to the lender; and it must fall within the lender/servicer's guidelines.

Mortgage companies have certain responsibilities to provide homeowners reasonable options to reinstate loans in default. These options are cited in their servicing guidelines. These guidelines are written policies set by investors, mortgage insurance companies, and lenders. The guidelines vary for different types of loans, such as VA, FHA, and CONVENTIONAL, and determine what is an acceptable workout request from a homeowner. The responsibility of the lender/servicer is to use these guidelines, when appropriate, to prevent loss to the lender, investor, and mortgage insurance company. If a lender/servicer is not willing to agree to a certain request, it may be due to some servicing guidelines beyond his control.

Once you choose a workout request, you will want to assemble your proposal package to mail to your lender for consideration. The package will include copies of your hardship letter with request for a workout solution, a copy of your budget, and all other necessary documentation.

IMPORTANT: Send your proposal package to the attention of the Loss Mitigation (or foreclosure) Department. It may also be called Asset Management. Always keep an extra copy for your records and send the original via registered, first class mail.