Life happens. Natural disasters, illness, job loss, and other setbacks could prevent you from meeting your monthly obligations on your mortgage. If foreclosure is inevitable amidst a gloomy financial picture, know that there could be a way to save your home and avoid it.
USDA loans, for instance, have established guidelines on how mortgage servicers deal with delinquent accounts and those with repayment problems. More importantly, USDA rural housing loans have loss mitigation options to avoid foreclosure.Need to talk with a reputable lender regarding your mortgage? Click here.
USDA Offers Options for Borrowers to Keep Homes, Avoid Foreclosure
The USDA Rural Development authorizes its approved mortgage servicers to use “effective actions and strategies to assist borrowers to retain their homes…”
This means providing loss mitigation options where feasible to borrowers. Indeed, the USDA recognized that servicers through their constant communication with borrowers are in the best position to determine which loss mitigation option is most appropriate in a given circumstance.
A loss mitigation option is designed to offer relief if you are facing default or imminent default on your loan. Per USDA standards, a loan is in default if it has failed to perform under any of its mortgage covenant or deed of trust for 30 days or more.
Curable vs Incurable Default
Supposing you are at risk of defaulting on your loan. Your mortgage servicer may agree to a special forbearance agreement or a loan modification if your failure to meet your monthly payments was involuntary and likely to continue.
If your delinquency is curable and you are committed to remain in the home, the servicer may provide the following options in this order:
- Special forbearance. A plan that calls for a (i) gradual increase of monthly payments so it can repay the mortgage arrears or (ii) temporary suspension of monthly payments for a short period. It may also involve payments covering several months followed by a loan modification.
- Loan modification. This means permanently changing one or more terms, e.g. interest rates, of your mortgage to bring your payment to something you can afford and your loan to current status.
- Special loan servicing. Under special loan servicing, servicers are authorized to lower the interest rate or extend the term on loans facing imminent default. The special loan servicing will result in a mortgage payment-to-income ratio as close to 31% but not more than 36%.
If the source of your delinquency can’t be cured — the problem will persist and you have no feasible way to deal with your expenses or replace lost income to meet your mortgage obligations, then your servicer may have to consider a disposition option in this order:
- Pre-foreclosure sale
- Deed-in-lieu of foreclosure
It’s possible to be afforded of two or more loss mitigation options but servicers must follow these rules governing combined options.
For instance, a special forbearance and loan modification can be combined but should be done in sequence and not simultaneously. In the same way that a pre-foreclosure sale may be done with a deed-in-lieu of foreclosure only if the home did not sell within the required period.
Eligibility for Loss Mitigation Options
Generally speaking, you must occupy the home securing the mortgage as your primary residence. If you have vacated your home because of work, natural disaster, medical, or other involuntary reason, you may be exempt from this occupancy rule.
If you have filed a Chapter 13 bankruptcy petition, you can still be considered for a loss mitigation option but your servicer is required to document your pending plan and seek approval of the Chapter 13 trustee before executing the loss mitigation option.
Otherwise, eligibility standards on each loss mitigation option will apply.
Foreclosure should be your last resort. Aside from the impact of losing your home, your credit score will bear the brunt of foreclosure.
It will stay on your credit report for seven years and could dampen your prospects of getting a mortgage while it remains. Never hesitate to ask for help from your servicer. Speak with one immediately.Click to See the Latest Mortgage Rates»