3 Steps to Prevent Loan Default
As I reflect back on my work experience in the mortgage and construction industry, I would have to say the most uncomfortable position I have ever held was working in collections for a manufactured home lender. My company coined the position as ‘Financial Counselor.’ I think that term makes it sound nicer, but at the end of the day, I was a debt collector for loan default. At times, I did feel like a financial counselor, and I felt like I was making a difference. However, it was not the type of interaction I had in mind with clients.
I want you to let that sink in. If you are behind on your mortgage, please remember you are a client of your lien holder. It’s a mutually beneficial relationship. Yes, you borrowed money from an institution, but they wouldn’t be there without clients like you.
Guess what? The mortgage company doesn’t want to foreclose on your home because of loan default! That’s right. It costs a lot of money for them to foreclose. They have to pay for a collection agency, go through a lengthy legal process to take possession of the home, and then try to sell the home to recoup losses.
If you are in a situation where you are potentially going to fall behind on your mortgage or are already behind, here are a few suggestions – from a former debt collector.
Written by Jessica Winspear of New Again Houses® Nashville
Contact is Key.
I cannot stress this enough. It is not comfortable. In fact, it can be downright scary, but I hope at this point you have an understanding that this is a consumer relationship. Not every person you speak with will be understanding, and I have heard plenty of negative stories that I’m sure you have as well. However, a financial institution is going to be more likely to work with you if you contact them before they contact you. They want to help you get out of loan default.
If you are still apprehensive about contacting them, there are non-profits and other organizations that will act as third-party mediators. There is actually a federal law mandating lenders to advise people of loss mitigation. The catch is you will already be behind at this point. However you chose to contact them, do it! I highly recommend you to initiate the contact. No matter what the circumstance, they cannot work with you if you avoid them.
No, not a power of attorney, but a
Plan of Action.
You may be in a situation where you think ‘I have zero options,’ but you may be surprised. Start by evaluating what happened to put you in this situation.
In my experience, more times than not, clients were headed towards loan default due to poor financial planning. I suggest writing out your finances – income and bills. We called this a debt analysis. It was one of the first things we did with our customers with their consent. It sounds so simple, but it’s actually not. Unless you’re a Dave Ramsey guru, you probably don’t know where all of your money is going. I know I don’t. I guarantee there will be items you can cut out of your monthly spending. Tell me you can’t live without cable, and in the nicest way possible I will tell you to try having cable without a house. You must prioritize needs over wants, set goals, and stay disciplined. You can find debt analysis templates online to fill out or download apps that will follow your spending.
One of my favorite apps is Mint by Intuit. If you don’t want to use it through an app, you can also set up an account on your home computer. Mint will help you keep track of all of your finances by linking all of your accounts into one place – checking accounts, savings accounts, credit cards, loans, 401k, etc. It will let you set goals for yourself and give you easy to read pie charts of where your money is going every month.
Research Resources – National & Local.
This one goes hand in hand with a Plan of Action. Whether national or local, there are so many resources available to you! After evaluating a client’s situation, I would look into programs that would possibly be able to help them work out of loan default. I know this can be tough without any experience, but there are so many resources at your fingertips.
My first suggestion is the Hardest Hit Fund. It has over $7.6 billion of federal funding and is available in 18 states – including Tennessee and Virginia. They paid some of my client’s loans for up to 6 months! It’s a great resource and your mortgage company may even be willing to help you with the application process.
The current application deadline is December 31, 2020. There are multiple national resources, and this is just one example. You can get with your local chapter of the US Department of Housing and Urban Development(HUD) or the Consumer Financial Protection Bureau (CFPB) to learn about other resources available to you.
Don’t be nervous to look into local resources
I know it isn’t ideal to let organizations in your community know that you are struggling, but it can be very helpful both financially and emotionally. There are organizations that are there to help, and you just have to be willing to find them. Many organizations have funds set aside for local assistance. Some organizations may even be national chains with local chapters. Looking local can be one of the best options because people are more willing to help out their neighbors as opposed to an organization that isn’t giving back to the community.