Avoiding Mortgage Foreclosure

When times are hard, making the next mortgage payment can be difficult.  Know that help is available to avoid losing your home to foreclosure and affecting your credit and your ability to rent or purchase another home. If you want to keep your home, you have options.  You can solicit free assistance from a housing counselor or talk to your mortgage lender about available options. Most lenders offer plans designed to help you work out your payments and to keep your home, since it is in the mortgage company’s interest that you fulfill your mortgage obligations.

Consult a Housing Counselor

First, you may want to consult a U.S. Department of Housing and Urban Development-approved housing counselor.  The counselor can:

  • Discuss your situation and whether you qualify for any programs or additional help;
  • Learn the loss mitigation options your mortgage company offers and which work best for you;
  • Guide you through any other programs you may qualify for; and,
  • Help you with budgeting, credit card debt, or other financial issues affecting your mortgage.

Austin has three certified agencies to provide housing counseling, listed below.  You may also choose the U.S. Consumer Financial Protection Bureau's "Find a Counselor" tool or call the HOPE™ Hotline, open 24-hours a day, seven days a week, at (888) 995-HOPE (4673).

Austin Habitat for Humanity
500 W Ben White Blvd, Austin, 78704-7030
512-472-8788  x122

  • Financial Management/Budget Counseling
  • Mortgage Delinquency and Default Resolution Counseling
  • Non-Delinquency Post Purchase Workshops
  • Pre-purchase Counseling
  • Pre-purchase Homebuyer Education Workshops

Business and Community Lenders of Texas
1011 San Jacinto Blvd, Suite 500, Austin 78701-1952

  • Financial Management/Budget Counseling
  • Financial, Budgeting, and Credit Workshops
  • Mortgage Delinquency and Default Resolution Counseling
  • Pre-purchase Counseling
  • Pre-purchase Homebuyer Education Workshops

Frameworks Community Development Corporation
701 Tillery Street, Suite A-7B, Austin, 78702-3738
E-mail: susan@frameworkscdc.org

  • Mortgage Delinquency and Default Resolution Counseling
  • Non-Delinquency Post Purchase Workshops
  • Pre-purchase Counseling
  • Pre-purchase Homebuyer Education Workshops
  • Predatory Lending Education Workshops

Federal Programs

The U.S. Department of Housing and Urban Development (HUD) offers several federal foreclosure prevention programs, including:

  • The Home Affordable Modification Program (HAMP) lowers a household’s monthly mortgage payment to 31 percent of a household’s verified monthly gross (pre-tax) income to make payments more affordable. The typical HAMP modification results in a 40 percent drop in a monthly mortgage payment. Eighteen percent of HAMP homeowners reduce their payments by $1,000 or more.
  • The Principal Reduction Alternative (PRA) helps homeowners whose homes are worth significantly less than they owe by encouraging servicers and investors to reduce the amount they owe on their home.
  • The Second Lien Modification Program (2MP) allows homeowners with a first mortgage under the Home Affordable Modification Program (HAMP) to have a second mortgage on the same property, or a modification or principal reduction on their second mortgage under 2MP. It assists homeowners who have a home equity loan or Home Equity Line of Credit (HELOC), or some other second lien that is making it difficult for the homeowner to pay mortgage payments.
  • The Home Affordable Refinance Program (HARP) enables homeowners who are current on their mortgages and have been unable to obtain a traditional refinance because the value of the home has declined, to be eligible to refinance through HARP. HARP is designed to help homeowners refinance into a new affordable, more stable mortgage.

There are also federal assistance programs for unemployed homeowners, including:

  • The Home Affordable Unemployment Program (UP) provides homeowners having difficulty making mortgage payments due to unemployment to obtain a temporary reduction or suspension of mortgage payments for at least twelve months while the homeowner seeks re-employment.
  • The Emergency Homeowners’ Loan Program (EHLP) provides mortgage payment relief to eligible homeowners experiencing a drop in income of at least 15 percent directly resulting from involuntary unemployment or under employment due to adverse economic conditions and/or a medical emergency.
  • The FHA Special Forbearance Program assists homeowners who are having difficulty making mortgage payments because they are unemployed and have no other sources of income. FHA now requires servicers to extend the forbearance period by offering a reduced or suspended mortgage payment for up to twelve months for FHA borrowers who qualify for the program.

The Austin area also has numerous agencies certified by HUD that provide no-cost housing counseling services. These agencies include Austin Habitat for Humanity, Business and Community Lenders of Texas, Frameworks Community Development Corporation, and Transformance Austin.

Work With Your Mortgage Company

Timely payment of your property taxes may be a requirement of your mortgage. If you are delinquent in paying property taxes, the mortgage company can pay your delinquent taxes and add them to your monthly escrow payment.  Specific options are listed below.  Contact your mortgage company or refer to your loan contract for additional information. 

Special Forbearance. Some lenders may allow for a temporary reduction or suspension of your mortgage payments so you can resolve whatever issues you have with increased taxes or reduced income. Sometimes mortgage lenders may offer a payment plan to help catch up on the missed payments a little at a time. Check with your mortgage lender to see what opportunities may be available for you.

Mortgage Modification. You may be able to make a permanent change to your mortgage so that overdue payments may be added to your loan balance, the interest rate may be revised, or the number of years to pay off the loan may be extended. 

Partial Payment of Advance Claim. In some instances, a borrower receives a second loan in an amount necessary to bring the delinquent loan current, called a partial claim. The loan is interest free and does not need to be repaid until you pay off your first mortgage or sell your house.  This option is generally only available to borrowers with FHA-insured loans, but in some cases a conventional mortgage lenders offer something similar, called an “advance claim.”

FHA-Home Affordable Modification Program (FHA-HAMP). This is a combination of the Partial Claim and Loan Modification opportunities listed above.  Under an FHA-HAMP, the partial claim loan will not only include any amounts necessary to bring your mortgage current, but may also reduce your existing loan balance by up to 30 percent. The reduced loan balance will then be modified to lower your monthly mortgage payment to an affordable level.  The partial claim loan is interest free, but must be repaid when you pay off your first mortgage or sell your house.

Making Home Affordable (MHA) Program.  The MHA Program is a broad strategy to help homeowners avoid foreclosure by lowering their monthly mortgage payments and transitioning into more stable loans at lower rates.  For homeowners for whom homeownership is no longer affordable or desirable, the program can provide a way out which avoids foreclosure. Additionally, in an effort to be responsive to the needs of today's homeowners, there are also options for unemployed homeowners and homeowners who owe more than their homes are worth.

What NOT to Do

Sometimes a homeowner may feel his or her situation is hopeless and decide to just walk away from the house and the mortgage obligation. Seldom is this a good idea, because, in most circumstances, the homeowner just get into deeper financial and credit worries and is ineligible for prime mortgage financing again for seven years after a foreclosure.

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