Forbearance...Repayment...Loan Modificaiton...Short Sale...Deed-in-Lieu

I have read many of these "How to Stop Foreclosure" help guides on the internet talking about loan modifications, short sales, and repayment plans. I find most of them seem to be very generic and lack much, if any, specific insight to actually assist people getting approved for assistance. I have designed a series of helpful guides to give inside information into how Lenders make decision in their loss mitigation departments. First a little background, I worked for the #1 loan servicing company in the country for many years. Starting off as a low-level collection agent, I worked my way through the ranks to manage a department that ultimately had over 150 staff handling thousands of requests for assistance per month. With the bursting of the mortgage bubble, the loss mitigation department grew to close to 1,000 staff across 4 sites in 3 states. A previous volume of approved and completed files of about 2,500 per year would soon grow to 2,500 requests a day. I was involved in creating and setting many of the guidelines and thresholds used in approving the various programs.

In this article I will discuss the two easiest forms of workout assistance a lender is willing to offer: Repayment Agreements and Forbearances. There are a number of factors that go into a decision to offer assistance. But the biggest ones that you have some “control” over are reason for default (RFD) and resolution of your RFD. Explaining to the counselor that you fell behind because you just had to take that cruise to the Bahamas will likely not get you very far. Likewise, losing a job with no unemployment income and no job prospects will be equally as difficult.

The next major item is your financial ability to continue making payments. Almost any call to your lender while your account is in default will begin in the collections department with them taking your financial information. This is usually where most people get themselves in trouble. Most borrowers think it best to paint the most desperate picture they can, showing themselves as destitute and on the verge of being completely broke. THIS IS NOT ADVISABLE. A lender will not offer assistance if your financial situation leads them to believe they are only stalling the inevitable. The opposite also rings true. Your financial information cannot show that you should easily be able to support your current note payments. The best chances of getting approval for a repayment plan is to show a slight surplus in income. Be careful though, too much and they will add a large amount to your normal payment as they set up a plan based on your “free” or unencumbered income. Too low and they will not offer you the program because you show you can't afford it (if this is the case, other options may apply).

Being that Repayment and Forbearance programs pose the least amount of risk to the lender, they are the easiest option to obtain. Repayment arrangements simply take your past due amount and divide it by X number of months and add that on top of your normal payment. The number of months is determined by your unencumbered income.

Forbearance programs are also available options with most lenders. Forbearance programs are usually given in cases where a short-term hardship has occurred and resolution is in sight. Short-term medical conditions, disabilities, furloughs and work stoppages are great examples of RFD’s that would likely qualify for these programs. The biggest misconception I encountered was the notion that forbearance meant their delinquent debt would be placed on the end of their loan and the account brought current. This, however, is not the case. Forbearance programs are simply a suspension of payments for a set amount of time (usually not granted in more than 3-month intervals).

At the end of the forbearance period, all the delinquent money owed must be paid in full and the account brought current or the lender will be in prime position to begin the foreclosure process. With that said, one of the biggest factors for approval is having a means to end, such as showing proof that you’d soon be receiving a large settlement or commission/bonus. At the very least, your lender would want to be confident that at the end of the forbearance period you would be in a position to resume making at least your regular normal monthly payment. You also should understand that there is no guarantee that future assistance will be offered from your lender through other workout programs.

The process for both of these is rather similar. It usually involves some sort of agreement faxed or mailed to you for your signature. The contract is legally binding, and in cases where the foreclosure process has begun, protects the lender's rights to place the loan back into default should you break the terms of the agreement. Many lenders will require payments be made via certified funds through a money transfer service or by mailing certified checks. You will also likely lose your grace period, not be allowed to make partial payments, and will not be granted any extensions.