My Mortgage Is in Default. What Now?

Many homeowners are finding themselves in financial troubles these days. With layoffs, rising mortgage rates and economic trouble all around, making ends meet can sometimes be a problem. As a result, millions of Americans are defaulting on their mortgage loans. You may even be one of them. If you have missed more than one payment on your mortgage loan, here are some things you can do to help rectify the situation.

Contact Your Mortgage Lender
Your lender is much more likely to work with you and your financial situation if you contact them as soon as you know there will be a problem. If you get a letter from your lender about your defaulted mortgage loan, it may be too late to do much about it. But if you call and talk to them as soon as you know you will be late on a payment or miss a payment, they will know that you are not just forgetting about your obligation and they can set up a payment plan to help bring your current over the next few months.

Ask Your Lender about HAMP
HAMP is the government program which is designed to help troubled homeowners refinance their mortgages when they default. HAMP stands for Home Affordable Modification Program. Some of the qualifications require the homeowner to prove their financial hardship, have a mortgage payment that is more than a third of their gross income, have a mortgage loan that began before January 1 of 2009 and have a balance of less than $729,750. If you qualify, you will likely be approved for a three-month trial modification of your loan.

Consider a Short Sale
Thousands of troubled homeowners are doing short sales with the home loans they have defaulted on. A short sale means that the bank that loaned the money for the mortgage agrees to take less than what you actually owe and then forgives the difference. However, depending on how this is reported on your credit report, your credit score could be damaged if the bank marks the item as “Paid Satisfactory” rather than “Paid in Full.” Find out how they will list it before deciding on this option.

Declare Bankruptcy
Although it is much more difficult to claim bankruptcy and rid yourself of your debts than it used to be, this may be a way to stop any foreclosure proceedings and help you start making payments again. If you have other creditors that you have been paying, you may be able to wipe those debts out so you can once again make your mortgage payments. Consider the ramifications of bankruptcy, though, before going through with this option.

There are many things you can do to help your situation if you are going to default on your home loan or if you have already defaulted. The worst thing you can do, however, is ignore it and hope it goes away. That never happens and you will just dig yourself deeper and deeper into debt by using that route.