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How To Keep Your Home If You Lost Your Job

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August 28^th, 2009

 

Being a homeowner and having been laid off from work could ultimately cause you to lose your home. If you’re in a household with 2 wage earners and suddenly one of you lose your job, this can severely affect your budget.

 

Alternatively, if you are the primary earner in the household, losing your job means no income and can be very stressful. Savings or an emergency fund will be helpful. It’s important to devise a plan early so as to manage through the tough times.

 

According to the Mortgage Bankers Association, subprime mortgages falling into foreclosure are reducing while the defaults for prime and fixed-rate mortgages are increasing in volume.

 

Before the recession, 3 to 6 months of income in the bank or savings were considered enough to ride out the storm until you find a new job. Now it seems that you will need 8 to 12 months or more depending on how long it will take you to find a job. According to Gail Cunningham, vice president of public relations for the National Foundation for Credit Counseling (a non-profit credit counseling network), if you don’t have enough funds to ride out the storm, you’re likely going to get into trouble.

 

Gail advises people to prioritize their payments by first paying their living expenses including their house payments, followed by any secured debt or car payment and finally the creditors. Doing this will ensure you have a place to stay, adequate food with utilities taken care of, provisions of medicine at home with the certainty of your children in day-care and etc. Of course, this is with the assumption that you have an alternative source of income or savings to rely on so as to pay your creditors.

 

There are several other options offered other than the current government modification plan provided if homeowners stand up for themselves and request for help. Industry experts say that alternatively, they have the choice of starting over again by selling the home or performing a short-sale if the mortgage is more than the current value of the home.

 

Whatever path you take, it is urgent for you to contact your lender or servicer as soon as you notice yourself experiencing trouble making your mortgage payments especially before getting behind in your payments.

 

According to Sanjiv Das, CEO of CitiMortgage (the mortgage division of Citigroup), a lot borrowers waited too long to request for help. Often, this makes it more difficult for the firm to explain everything in a short period of time and to resolve problems. Read more about CitiMortgage’s recent foreclosure prevention progress.

 

Christine Holevas, Chase bank’s spokesperson urged that early communication really helps. She also mentioned that it is important for struggling homeowners to be open and honest about their income. Some borrowers think that by fudging their income, they may stand a better chance. However, this will actually slow the process down as when the income is finally verified and proven to be false, they’ll have to start the whole entire process all over again. Chase bank which recently acquired Washington Mutual bank has now counselors at 27 homeownership centers all over the country in order to assist troubled borrowers. For more information, please visit: Chase.com

 

Requirements for Eligibility

 

The government’s Home Affordable Modification Program was set up to lower monthly mortgage payments for borrowers based on debt-to-income ratios. Ultimately, borrowers have to complete a 3-month trial period before the modification is finalized.

 

Currently, there is still a lot of confusion among troubled borrowers as to who qualifies. In order to qualify for the program,

 

1. The borrower needs to be experiencing some hardship.
2. The program does not require you to be delinquent.

 

In other words, if you are experiencing hardship and are on time on your payments, you will qualify for help.

 

Drew Kessler, director of sales for Rand Mortgage in New City, NY said that the government program does require some monthly income within the household. However, if there was 2 income earners within the household and that one of them had lost their job, the household may qualify for a modification. If there was originally only one earner in the household, the chances for a modification may be slim.

 

Kessler says that source of income is really the key. If you lost a job and eventually found another job that pays less, the lenders will still work with you.

 

Christine Holevas of Chase bank said that if the borrower is in potential danger of defaulting, they will work with you. They will help determine what liquid assets you have and whether you have less than 7 months worth of payments in your savings in order to qualify. If you have more than 7 months worth of payments in your savings, then you are not in imminent danger of defaulting thus not eligible for a modification.

 

If you do qualify, it is important for the borrower to submit complete and accurate information so that application can be processed smoothly without any turbulence of missing information and documents. If there were missing information or documents, the back and forth process will definitely slow things down.

 

For more information about a complete guide to loan modification and a checklist of things before submission, please visit our Loan Modification Guide.

 

Please note that if you do not qualify for the government loan modification program. Christine Holevas of Chase bank said that many other mortgage servicers have their own modification program independent from the governments’. The key is to not wait and get started early so as to explore your options. Contact your lender even if you are a few months away from not being able to make your mortgage payment.

 

Alternative Options

 

Depending on the type of mortgage you have and the company that services your loans, there are numerous other available options.

 

Here are some examples:

 

1. If your loan was purchased by Fannie Mae, there is a program called HomeSaver Forbearance for those who are in default or at potential stage of defaulting. Under this program, the borrowers will agree to make lower mortgage payments that are at least half the regular mortgage payment including taxes, insurance and escrow if any. The duration of this forbearance option under the HomeSaver program is 6 months. During this time, the servicer will work with the borrower to explore a more permanent solution

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2. For those of you whose loan is serviced under CitiMortgage, there is a program that allows the borrower pay a flat $500 per month for 3 months if you have lost your job.

 

3. Genworth, a private mortgage insurance company offers job loss protection for some of the loans it insures. For homeowners who lost their job, the insurance program provides up to $2000 to be paid directly to the servicer for up to 6 months. Private Mortgage Insurance (PMI) is normally required if the borrower’s down payment is not more than 20%. The protection provision is offered up to 3 years upon closing of the loan. PMI can be cancelled whenever the borrower has more than 20% of equity on his or her home.

 

Other Options

 

Some homeowners may be better off selling their home and starting fresh again. The first-time home buyer tax credit of $8000 launched by the government is set to expire by November 2009. Perhaps, it would be a good idea to take advantage of this situation and sell it to a first-time home buyer. There have been talks including lobbying efforts for the expansion or extension of the $8,000 tax credit for first-time home buyers’ program beyond November 2009 but so far, there is has been no official announcement.

 

Selling your home now and getting yourself in a smaller property that costs less will also help. If your home is ‘underwater’ or you owe more than the home is currently worth, you may also consider a short-sale. A short-sale is when you sell your home for less than the mortgage owed and the difference is forgiven by the lender. This of course will have to be approved by your lender and can take a longer time.

 

Finally be wary of unsolicited help from people claiming that they can help you save your home. Be suspicious of people asking or demanding for a profit in exchange for help or an upfront fee. Remember, they are many unscrupulous people out there preying on desperate and troubled homeowners. Mortgage fraud has been on tremendous rise since the housing crisis began.

 

 

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