About Reinstatement and Modification … What’s the difference? Which one is right for me?  How do I get one? It’s hard to know where to begin when your financial roof is about to fall in and you need help fast.

 

Mortgage difficulties are far too common in the present economy.  Maybe you bought a home and your payment is about to increase, or you lost your job or some other mishap is making it difficult to pay your mortgage each month. If you’ve fallen behind, the single most important step you can take is to contact your lender and ask for help. Don’t ignore the problem. The earlier you contact a lender, the more likely you will get the help you need. As you fall further behind, there will be fewer options available to you. 

 

Reinstatement and loan modification are two possible alternatives to foreclosure. Reinstatement may be the best choice if the problem that’s keeping you from making your mortgage payment is a temporary one. Modification may be the best solution if the problem is a longer term or permanent situation. 

 

Reinstatement is a good alternative for a borrower who falls behind during a period of financial difficulty, but is back on stable financial ground. With reinstatement, the borrower pays all past-due amounts, plus attorney and late fees, and brings their loan current. This solution works best for borrowers who have access to a substantial amount of cash and can bring their loan current, pay fees, and then keep the loan current going forward because falling behind a second time may lead straight to foreclosure. 

 

Modifications are an option for borrowers whose financial situation appears to be longer term or permanent. In a modification, the lender changes the loan to make it more affordable, usually by lowering the interest rate, or extending the term of the loan, or both.  The goal is to lower the monthly payment to be more in line with the borrower’s ability to pay. 

 

Unfortunately, not all loan modifications result in lower payments. In fact, according to the Office of Thrift Supervision, less than half of all mortgage loan modifications last year resulted in a reduced payment. Sometimes the lender adds the missed payments to the existing balance of the loan and then recalculates the monthly payment from the new larger balance. This has the effect of raising rather than lowering the payment. Or sometimes, if an introductory “teaser” rate is about to expire, the lender modifies an adjustable rate loan to a higher rate that, although still below the prevailing market rate for a fixed rate mortgage, is nonetheless higher than the borrower has been paying. Bottom line, when you modify a loan, the goal is to lower the payment – either from what it is today, or in the case of an adjustable rate mortgage, from what it’s going to be.  Your goal is to secure a payment that will be more in line with your ability to pay. 

 

Call your lender as soon as you become aware that you will not be able to make your mortgage payment, whether you have already missed a payment, or are still current but can see trouble ahead. Every lending institution has a department that does nothing but help people who are having difficulty paying their loan. Start by calling the customer service number on your payment coupon.  Be persistent. Your first call may get routed to a call center, and you may be transferred several times before you get to the people who have the authority to help you with your loan. Tell the representative each time that you’re having financial difficulties and would like to talk with someone about restructuring your mortgage loan. Be patient and polite. Many of the representatives trying to assist you are fielding hundreds of calls a day and managing a caseload of hundreds of files. You can help yourself by remaining courteous and by having the following information handy before you call:

 

When your phone call gets through to a representative, be completely honest. If they find you are playing fast and loose with the truth, your options will be severely limited or disappear altogether. Be prepared to answer questions like, why you missed your mortgage payments, how you expect to stay financially sound in the short and long term, and how you have tried on your own to resolve the problem. Let your lender know that you are serious about keeping your home; that you intend to reduce your spending, that you are willing to take on a second job or sell a second car, or take other steps that will help you reduce your expenses. The lender will be evaluating your seriousness as a borrower. Like most people, lenders will work harder for borrowers who demonstrate they can be trusted and will do everything within their power to keep their home.

 

EVEN IF YOU ARE ALREADY FACING FORECLOSURE – call your lender. If you are serious about keeping your home, many lenders will propose an alternative or reduced payment plan to carry you through a 3-6 month period while they delay foreclosure and try to work out a more lasting solution. 

IMPORTANT: whatever you agree to, get all the information

in writing and follow up to ensure the foreclosure sale has stopped and your payments are being received. 

 

WATCH OUT FOR SCAMS! There are a lot of good lenders and credit counseling agencies out there, but there are also a lot of unscrupulous individuals only too eager to take advantage of your misfortune and line their pockets at your expense. 

Beware of the following: