How to Reduce Mortgage Debt Buyout

If you're struggling to pay your mortgage loan, you may be able to reduce your mortgage debt thanks to a federal buyout program.

If you're struggling to pay your monthly mortgage bills, you're far from alone. RealtyTrac.com, an online provider of foreclosure information, says that U.S. property owners received an all-time record of 2.8 million foreclosure filings in 2009. If you're struggling to keep up with your mortgage payments, though, there is hope. The federal government in 2009 launched its massive mortgage debt buyout program, the Home Affordable Modification Program. Under the program, the government is offering financial incentives to encourage mortgage lenders and banks to modify the loans of struggling homeowners to reduce their monthly payments. One of the options lenders have is to reduce the amount of mortgage debt homeowners face.

Difficulty:

Challenging

Instructions

Things You'll Need

• Copy of current mortgage loan statement
• Copies of savings and checking account statements
• Copies of last 2 paychecks
• Copies of credit card bills
• Copies of other loan--student, car, personal--statements

1. Write a financial hardship letter. This letter will state, in clear and concise language, why you are struggling to pay your current mortgage bill each month. You might have lost your job and had to have taken one with a lower salary. You might have had your working hours cut. You might have a serious medical condition. Include in this letter, your request to have your lender reduce the amount of mortgage debt you face. Your lender can do this by reducing your principal balance.

2. Gather and make copies of the financial papers that you'll use to convince your lender or bank that you are facing a financial hardship. These papers include your most recent two paychecks, bank savings and checking account statements, credit card bills and other loan statements.

3. Call your lender at the customer service number included on your loan statement, and ask to speak to a loan officer. Explain that you have suffered a financial setback that has made your monthly mortgage payment a financial burden. Request that your lender reduce the amount of mortgage debt you owe through a principal reduction.

4. Ask your lender if it is participating in the federal government's Home Affordable Modification Program. Lenders don't have to participate in the program to modify your loan and reduce your principal balance. But those who are participating might be more inclined to act faster to modify your loan thanks to the financial incentives they are receiving from the federal government. Remember, though, that all modifications through the Home Affordable Modification Program are conducted by lenders, not by the federal government itself.

5. Send to your lender your hardship letter and the copies you made in Step 3. Your lender will review this information to determine if you truly do need a lower monthly payment. Your lender can give you this lower payment by reducing your principal balance, lowering your interest rate or restructuring the terms of your loan.

6. Agree to a loan modification if your lender approves your request. Make sure that whatever your modification is, including a mortgage debt reduction, that you can afford your new monthly payment.

References

• Home Affordable Modification Program: Eligibility
• HUD: Loan Modification Frequently Asked Questions