How to get mortgage relief

If you're having trouble making your mortgage payments and wonder whether you'd qualify for a loan workout, take this quiz to handicap your chances of getting a deal. Respond to each statement with "yes" or "no":

1. My monthly expenses exceed my income.
2. My mortgage payment exceeds 38% of my gross income.
3. I couldn't sell my house for more than the mortgage amount.
4. If my mortgage were modified in one of the following ways, it would reduce my mortgage payments to 38% or less of my gross income. (You can use MSN Money's mortgage calculator to estimate your monthly payments under each scenario. Simply put in the loan amount on the first line and zeros on the following lines until you get to the section where you compare loans.)
1. My interest rate were reduced to 5.1%, which would create a monthly payment of $_______.
2. My loan were stretched out over 40 years instead of 30, creating a monthly payment of $_______.
3. My loan rate were temporarily dropped to 5% or less, creating a monthly payment of $_______ (at 5%), $_______ (at 4%) or $_______ (at 3%).
5. If my mortgage payments were reduced by one of the scenarios above, my expenses would no longer exceed my income.
6. If I were to get a temporary rate reduction, I could reasonably expect that I could make my mortgage payments without further modifications once the temporary period was over.
7. I would be able to make these reduced mortgage payments without raiding my retirement funds or suspending contributions.
8. I would be able to make these reduced mortgage payments and stay current on the rest of my obligations.

If you responded "yes" to all of these statements, you're a great candidate. One "no" answer wouldn't necessarily knock you out of the box, but it could make the process more difficult and the solutions temporary. If you proceed, here's a road map:

Step No. 1: Gather information. There are two keys to getting a workout: being able to explain why you're in trouble and what you can afford.

The first question a workout specialist is likely to ask is: What happened to upset your ability to pay? Did you lose a job, get divorced, have a medical issue or simply overextend yourself?

Workout specialists are considerably more sympathetic to responsible borrowers who have suffered an upset. However, they may also work with borrowers who misunderstood the terms of their loan. They're not likely to discuss workouts with people who simply want but don't need a better deal, however.

Those who pass the first test will be asked a second series of questions about the current state of their financial lives, both income and expenses. To answer these questions accurately, you should pull out recent pay stubs, tax returns or W-2 statements. (If the problem is unemployment, you may want information about your unemployment income, too.) Workout specialists also will want to know what you're spending on your debts -- mortgages, cars, student loans, credit cards -- and on other basics, such as utilities, cable TV, food and clothing.

Once you've sketched out a list of your income and debts, you're ready to talk to a counselor.

Step No. 2: Call your lender. Most major lenders have workout departments that do nothing but talk to troubled borrowers. You can reach these departments by calling the lender number on your bill or by calling a hotline dedicated to workouts.

"Half of the people who end up in foreclosure have never contacted their lenders," said Kara Ross, a spokeswoman for the Hope Now Alliance, a conglomeration of lenders and loan counselors committed to working with consumers to avoid foreclosure. "Whether the consumer can get a workout is going to depend on their individual problem. But the most important thing is to call. It's doesn't hurt to ask."

If your lender happens to be a member of the Hope Now Alliance, you can get a direct number and e-mail address by checking out the group's directory.

Step No. 3: Fill out the paperwork. The workout specialist is going to run your data through a computerized model to see whether you qualify for a workout. If you do, you'll receive a preliminary offer in the mail. That offer will spell out what the bank will do and will require you to sign to accept the offer. You will also need to provide verification of your financial data.

Step No. 4: Consider a contingency plan. If you don't qualify for a standard workout, all is not necessarily lost. If you think you've been unfairly denied, ask to speak to a supervisor or write the president of the bank a letter clearly and politely spelling out your case.

Also realize that your situation -- and what banks have been willing to accept -- may be fluid. Being denied today doesn't mean you'll be denied a month from now. If you're convinced you should qualify, keep at it.

Step No. 5: Ask about other options. Sometimes, when you don't qualify for formal relief, you can still get some sort of accommodation, like a short respite from payments that allows you to find a job or sell your house.

Published Dec. 19, 2008

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