To all the talented journalists and Dallas Morning News employees that were handed pink slips recently: I know how overwhelming this feels. When I was suddenly laid off from the same publication in 2009, I felt unmoored and somewhat lost. You will find a way to move on, though, so hang in there.
The advice offered by human resources that morning was very basic: I was instructed to file for unemployment as soon as possible and given information on COBRA benefits. While the information I received was far from comprehensive, one thing that was missing was information on how this sudden loss of income would affect my repayment of student loans, credit accounts, and most important of all, my mortgage.
What do you do if you’re a federal employee that has been furloughed due to the government shutdown, or you’re a worker who was just laid off, and you have a mortgage?
“If you see that you’re not going to be able to make your payments, call your lender and see what options are available to you,” said Lisa Peters of Caliber Home Loans. “The bottom line is this: don’t put it off.”
Not every lender is the same, nor is every mortgage or change in employment, so it’s crucial to contact your lender immediately if you think your employment situation might cause you to get behind on your mortgage. Sometimes a lender may be able to offer a loan modification or a forbearance to ensure that you pay as much as you can on your loan until you get back on your feet.
Important note: When your lender reaches out after a missed mortgage payment, you cannot stop the process of foreclosure by ignoring the mail notices.
There’s a big difference between a forbearance and a loan modification.
A forbearance is a temporary change to the terms of a loan, often used when borrowers are already behind on their payments. According to Investopedia:
Forbearance is a temporary postponement of mortgage payments. It is a form of repayment relief granted by the lender or creditor in lieu of forcing a property into foreclosure. Loan owners and loan insurers may be willing to negotiate forbearance options, because the losses generated by property foreclosure typically fall on them.
In forbearance, a lender may give the borrower a moratorium on payments for a period, allowing the borrower to catch up, with the borrower being required to pay on the loan’s interest, but not pay down principal. Another option is paying only part of the interest on the mortgage with the unpaid interest resulting in negative amortization. “Another forbearance option is for the lender to reduce the borrower’s interest rate on a temporary basis.”
For those who have yet to fall behind, a loan modification might be more advantageous. According to homeownership.org, a lender may choose to offer a loan modification, which is a permanent change to the terms of your mortgage to get your monthly payment down to a more affordable level to ensure that you don’t fall behind. According to the U.S. Department of Housing and Urban Development, “affordable” is considered to be at or below one third of the borrower’s monthly gross income. To whittle the payment down, lenders may choose to do one of the following:
- Lower your interest rate
- Extending the life of your loan
- Lowering the principle of your loan
However, as Peters emphasized, time is not on the side of a borrower when hardship hits. As soon as you see that your income won’t allow you to keep up with your mortgage, call your lender to explore your options.