Should you skip a mortgage payment to get a bank's attention?

By Xin Lu on 24 April 2009 (Updated 29 April 2009) 30 comments

The Obama administration announced a foreclosure prevention and mortgage reduction  program about two months ago, and as of April less than 1000 loans have been refinanced under the program.  One of the reasons that this program is getting a slow start may be  that banks are hesistant to work with struggling homeowners who are still making their payments. A recent Los Angeles Times article profiled a family who tried to negotiate with their servicer to no avail, and once they missed a payment the servicer opened negotiations. So if you were a struggling home owner should you skip a mortgage payment just to get a bank attention?

Logically, it makes sense that a bank probably would not try to lower your financial burden if you are still making payments.  If you are still paying on time it means that you are able to afford the payments in the eyes of the bank or servicer.  At this point you can ask for a refinance, but if you have significantly negative equity in your home then a refinance may be difficult to achieve.

Usually banks have a loss mitigation department, and they do not  automatically spring into action until you are missing payments.  It is possible to contact the loss mitigation department directly before you miss a payment and explain your situation.  Generally you have to prove that you have a reasonable financial hardship and the loss mitigation department should present you with an array of options including  short sale or modification.  A foreclosure is very expensive for any lender so the loss mitigation department will try to help you keep your home and keep you as a paying customer.

If you are on the verge of missing a mortgage payment, you should definitely consider your long term plans for staying in the house you are in.  If there is no possible way for you to pay for the home even after a modification then the most financially beneficial thing to do may just be to walk away from the home after living in it as long as you can.  This is not a decision to be taken lightly since a foreclosure will stay on your credit history for seven years, but at least you can live in your home for free for a few months and save up as much money as you can.

If you assess that a mortgage modification to a lower payment could help you keep the home and the bank is simply not listening, then skipping a mortgage payment might be the best way to get its attention.  Missing one payment will also ding your credit a bit, but it is not nearly  as bad as a foreclosure. Once your bank starts talking to you you would need to keep continuous contact with  them to find out what the best payment modification option is for you.

Finally, if you are having trouble affording your mortgage, then you should contact your servicer as soon as possible.   Most servicers are quite busy these days  so you have to be persistent in reaching them.  There is  some free help on contacting your lender  at Hope Now.   The worst thing to do is to drain your savings and 401k accounts  to forcibly pay for your mortgage.  If you have to miss a payment it is probably best to do it sooner rather than later so you get the proper attention.

If you are struggling with your mortgage, is your bank being cooperative right now?  Do you feel like you have to miss a payment?

 

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Guest's picture
missjoyAZ

We had determined that we were going to have to let our house go last August. After three lay-offs in swift succession, my husband was out of a job again, and our savings was gone, credit cards maxed. We quit paying the mortgage and stayed in the house. We got a few late notices, and then in December we received an "auction date". We THEN were referred to a wonderful realtor (not part of any dodgy scams, just a regular, legitimate realtor) who put our house up for sale. The MOMENT we had a buyer interested in the house, the notices about our foreclosure stopped cold. The house finally closed last week (April 17th) and we are free of the house. Other than the 8 months of not paying the mortgage, we suffered no other harm to our credit.
WHY AREN'T MORE PEOPLE TALKING ABOUT THIS?

Guest's picture
Carolyn

Did it go to a short sale?

Guest's picture
Kelja

Reward the losers and make them into victims. It's the way now. In a 'fair' world, you'd lose your house and become a renter. Then someone could take advantage of lower prices, move in and make that house into their home.

That's the way it did work and should work. Now, the rules have been changed in the middle of the game.

This is going to end very badly.

Philip Brewer's picture

@ Kelja:

I've seen a lot of talk about rule changes, but so far I haven't seen much in the way of actual changes.

It used to be that banks had a department dedicated to loan workouts.  If you couldn't make your mortgage payments, someone from the bank would look at the best way to minimize the bank's loss:  Typically foreclosure, but possibly a loan renegotiation (especially if real estate values had dropped, such that selling the house would fall well short of making the bank whole).

The main change that I've seen is that there isn't any workout department for the bundled and securitized loans.  The Federal government has been trying to make it worth the while of the loan servicers to do some loan workout, but without notable success so far.

After the election (during the holidays and while everyone was waiting for the Obama administration's plan to reduce foreclosures) a number of big banks announced that they were suspending foreclosure proceedings until the plan came out--but those foreclosures are back in progress now.

Speaking as someone who didn't buy a house a few years ago--because they all cost more than I wanted to pay--I agree with you that letting house prices drop is the right policy.  (In broad terms, the average house has to be affordable for the average household that's buying a house--who else is going to buy it?)  It looks to me like that's exactly what's happening.

Guest's picture
Guest

so instead we should just let those good old fashioned banks get these houses back? that sounds like a brilliant idea. not only do they get all our bailout money, but they also get our houses! what a great deal! the banks get all the money, and we get to keep our good ol' fashioned american work ethic intact!

what is going to happen when regular americans get the same benefits that big corporations get? it won't be long before the whole system goes through a major reform. the sooner the better.

Guest's picture
Guest

so instead we should just let those good old fashioned banks get these houses back? that sounds like a brilliant idea. not only do they get all our bailout money, but they also get our houses! what a great deal! the banks get all the money, and we get to keep our good ol' fashioned american work ethic intact!

what is going to happen when regular americans get the same benefits that big corporations get? it won't be long before the whole system goes through a major reform. the sooner the better.

Guest's picture
Guest

That is a fair assessment if it was the natural ebb and flow of property values. However, when you consider that it's a fact that the slimeball banks caused these housing values to go to pot and caused the economy to take a dump-well...I'd have to say that is NOT the way "it did and should work." The chickens are coming home to roost and the banks and the government that allowed this to happen need to pay the piper. So, you are saying someone like me with perfect credit (820 plus), waited until the market tanked a bit, took out a 30 year fixed, had a great job and put down 20%. Essentially, 100% did it the right way, deserves to now be stuck in my house for 10 years because some greedy banks gave a bunch of knuckleheads loans with no docs or verification of income? That's a negative. Pull your head out of your pooper dude. You are living proof that a little bit of knowledge is dangerous. Darwin came up with "survival of the fittest." Should we let die that part of humanity that is not as smart and clever as you? C'mon. You are speaking of some people. But many of us are not dirtbags who were flipping homes and taking advantage of the system. Watch "Inside Job" and get a little insight and have some empathy for others.

Guest's picture
Emily

We tried to work with our mortgage company last summer, but being as we were current, they didn't want to deal with us. We stopped being able to pay in September, and are going through foreclosure now. I should feel bad, but I don't. Had Wells Fargo listened to our cry for help, neither of us would be in this situation. Their company posted healthy profits last quarter. My family? Hasn't collected a paycheck in a year. Best of luck to you, WF. Enjoy selling our house....

Guest's picture
madeleine

I had a mortgage with Wells Fargo several years ago. Because of circumstances out of my control I could not make my mortgage payment. They (WF) gave me one phone # after another to call to talk to someone with their company for assistance. All it was was a huge run around. I sold my house legitimately right before they foreclosed and they wouldn't even talk to me or my realtor. It was a nightmare and I will NEVER do any business with Wells Fargo again! They are crooked as they come, but who you gonna tell?

Philip Brewer's picture

It's worth separating quitting making payments as a negotiating tactic versus quitting making payments because you've given up on the idea that you'll stay in that house.

As you rightly indicate, if a loan modification could make the difference--and if you can't get the bank even to come to the negotiating table--then missing a payment might well get the bank's attention.

If you've decided that the house is simply unaffordable (due to lost income, interest rate adjustment, or whatever), then you should probably quit making payments immediately (unless you have substantial equity, despite the drop in home prices).  Bank that money (in a different bank than holds your mortgage!)--you're going to need it for things like a security deposit on the apartment you move into after you either manage to sell or else get evicted.

Guest's picture
strugglingsinglemom

I knew I will start struggling with the mortgage payments so I filed for a loan modification. But after reading different articles, I learned that since I'm current, I won't get approved for the loan modification! And that the fact I'm short selling my house. It's a bad timing, and I don't live in a such great neighborhood, so I think my house won't be sold. Can I stop paying the mortgage because I'm short selling and the modification won't happen? I really need the money for the security deposit and for apartment rent payments. I definitely will move out of the house in December. Just so I can start living in an apartment to handle all the debts, as soon as my student loans start on February 1st. How can I explain to apartment/condo landlord about my house and credit when they do the credit check?
One more thing, my mom and I are the buyers of the house. I know she's not going to stay here for long.
Please advise. Thanks so much.

Guest's picture
Amy

I would just like to point out that you could financially "do everything right" and still end up in a foreclosure situation. You could have an 8-month emergency fund saved up (which is a lot more than many people have), but what if you get laid off and can't find a full-time job in that amount of time?

There are certainly people who got houses they couldn't afford, but there are also those that planned ahead and made smart choices that still may be facing foreclosure. It's unfair to call them all "losers."

Intentionally skipping a payment seems like a reasonable strategy to get mortgage modification underway. That way, you wouldn't have to burn through your entire emergency fund (and possibly incur lots of CC debt)before the mortgage servicer got the picture.

Guest's picture
Jim

The government system has two options Refinance or Modification.

For more on the programs:
http://makinghomeaffordable.gov/index.html

Refinancing
Many homeowners pay their mortgages on time but are not able to refinance to take advantage of today’s lower mortgage rates perhaps due to a decrease in the value of their home.

Modification
Many homeowners are struggling to make their monthly mortgage payments perhaps because their interest rate has increased or they have less income.

For people really struggling and in jeopardy of foreclosure then the modification is probably the better option. With the refinance all they can do is refinance your house at normal 5% rate to 30 fixed. But with the Modification they can drop your percent down to 2% and do other things to help you hang on to the home.

Guest's picture
BD

Unless your mortgage holder is bank of america - they lie and misrepresent the whole program!! I just went through this with them

Guest's picture
terra

I had tried numerous times to call countrywide to let them know of my situation, only to sit on hold way to long. I work 8-5 and the loss department is only open until 5pm.

I got a call asking where my payment was. They gave me the number to the loss department and told me they were open until 8pm. Wrong info, but i tried calling the refinance department to see if they could help me track down where i call and the agent let me know that until May 1st, there is nothing any lender can do if you have PMI on your loan like I do.

My ex and I bought this house in 2006, and it then appraised for 220k. It is now worth 80k, and he decided that walking away from his is the best option. And because we are not married and legal strangers, this leaves me in a jam. I do not qualify for the home affordable because I am not divorced. I should have known the risk when I bought the house. I could not just let the bank foreclose because of the lose of equity, because, well, I felt we made our bed we need to lie in it. He did not, and walked.
My loss of his income will cause me to lose this house, because i cannot swing my fixed rate payment on my own. When we bought the house, we both had rather well paying jobs, in mortgages. I got laid off in january and went from making $22/hr to $14. We bought what we could afford when both had great paying jobs, our DTI at the time was 19%, so it was affordable - now.. i may have to leave my home if the bank will not help me out, and there is NO way i can put my house on the market and sell it for what i owe. There is a house listed down the street at 49,9k that is bigger and has a pool. I am sure the bank will not accept a $30k sale when i still owe 190K on it.

Guest's picture

I don't know-- missing a payment on purpose seems counter-intuitive . . .

But hey-- that's just me!

Guest's picture
Guest

in this downturn many homowners are so far underwater (house value is less than 1/2 the current mortgage) that modification with the lender is a practical impossibility.

The best financial option for many is to stop paying immediately and hoard cash against the inevitable eviction.

Guest's picture
Wayward

We just, and I do mean just, finished a refi on our townhome. We received the final, stamped, approved, notarized, filed papers on Thursday (4/23)--and we didn't have to miss a payment to do it. We're in the SF Bay Area.

We've been working with a mortgage agent to refi an adjustable loan to a fixed loan since September 2008. She was very persistent with the banks and had begun the refi process just as the banking sector of the economy went into meltdown. Our mortgage had been through a company held by Washington Mutual which then changed hands to Chase Manhattan. So the mortgage agent had to start over from scratch.

We managed to get to the completion stage two times, only to have the bank throw some other requirement at us. I was a bit surprised the bank didn't ask us to rub our tummies and pat our heads at the same time before approving the loan. (Okay, the additional requirements weren't that absurd, but still, they weren't disclosed requirements when we started the process.)

Third time was the charm, and now we're refinanced. It's not the same deal that the "in trouble" homeowners are getting, but it is a good enough deal to keep us from becoming "in trouble".

We've also managed to scrape together enough moeny to pay off our second loan on the mortgage (2 loans, 1 mortgage). Even though we'll have to struggle to rebuild our liquid assets, it's a good thing for the long run.

Interesting to note, the mortgage agent advised us to wait until the refi was a done deal before paying off the second loan. If we had paid it off before hand, the banks would have seen the additional equity in the home and decided we weren't really in need of refinancing the home.

Guest's picture
Guest

I went to the web site makehomeaffordable.gov . I read the requirements and found out we fall within the criteria. I contacted the HUD counselor as the site advised. After I gave the counselor all our information,he laughed and said that we didn't make enough to qualify and that the bank would most likely not negociate with us. I'm tring to continue to pay them I just need to send less money per month! I think they need to stop being so greedy and take what they can get(in our area houses are not selling at all they are setting empty in weed filled yards, being vandilized by punk kids!)That will help the banks resale plans to recover funds!! NOT!!! . The goverment is offering to back the new loans! Banks need to get on the wagon before we all go down!!

Guest's picture

That's the way it did work and should work.

Guest's picture
dzr

I would have never thought of skipping a payment until after these last 8 months trying to get help... I pay my mortgage first and starve/borrow/skimp through the month. I thought that being in good standing would show my commitment to doing the right thing and get me in good with the bank. One bank rep actually laughed at me when I told her that.

After many many calls to the bank I have found out a few key pieces of info:

- At least 5 phone calls are necessary to get 1 person who knows anything.

- I cannot be considered for a modification of any kind without taking my house off the market.

- I'm not eligible for deed in liu of foreclosure if I'm not behind on my payments.

This is Chase bank but I imagine it's the same with most all of them.

Guest's picture
Hoping

We have not paid our mortgage in 8 months due to a personal debt which a family member insisted we pay bakc earlier than expected. We contacted Countrywide four weeks ago and gave all of our monthly budget details and showed we could make the payments moving forward but would not be able to pay off what was outstanding in one lump sum. They said we would hear fromt hem within 30-90 days and that we should not make any payments unless they were full mortgage payments as they may get rejected. My credit eport shows I am 120 days late and while Countrywide said they issued a Foreclosure letter in Dec 2008, we did not receive it. The agent said that it is likely nothing ws done after that because of the new government laws and that because we could show we can make payments moving forward, that he was recommending that our outstanding payments be tacked onto the end of our mortgage.

We have an FHA mortgage and I am praying everyday that this works out and we keep our home. I did not experience the difficulties that others seem to have gone through with initial contacts with Countrywide and I am grateful for that. If I do not hear anything ny the end of June, I will attempt to contact them for a status update them

Guest's picture
Guest

I have been unemployed for 18 months and my house payments have been paid and on time. I was going to try a deed in lieu of forclosure but realized this is the only thing in the world that I own. I don't know what to do! The bank will not work with me because I am unemployed! They have been getting their payments so what??? I am told that skipping a few months payments is the only way for the bank to listen to what I have to say! There are government programs out there but what is there to help me? I don't know. I tried a modification with a realtor but havn't heard anything from them after I paid them 250 of the 1000 they wanted. I did make a down payment so what now? I am going to skip a couple of months to see what the bank has to say then. I was with countrywide but now is Bank of America. They seem nicer but they aren't giving me the info I need! I am paying 7.125% and have a 171 a month PMI. I am getting robbed! I was young and didn't know what I was signing! I have been here for 5 years now and I cannot afford to keep here unless they will work with me somehow. I sure know the way the market is that they don't want my condo! Any advice to my situation would be appreiciated! tedphillips1977@gmail.com Thank you!

Guest's picture
cant believe my luck

I have an almost identical situation to the above comment. I have been unemployed for the last 16 months with no job in sight. I had a good nest egg, but hate using it all up. Should I just stop making my mortgage payments..I am also with countrywide, now BofA, and have called them several times trying to work something out with them, but unless I am pennyless, they won't do anything for me. I am ready to just walk away, since my home is worth 300K, and I bought it 2 years ago for 440K, of which I now owe 365K. Any advice would be helpful..times are tough..thanks..troubled times..

Guest's picture
Guest

I've been in process with the making home affordable program with chase since March 09! I purchase my house November 06 and have been current on my mortgage payments with a struggle. I have made a decision that I will not be paying July mortgage payment, I will be using it to catch up on my pass due utilities! My utlities bills has double and I am also struggling to buy food for my family and struggling to gas up my car for work! I had to borrow $450 from my parents to get my electric/water back on. I also told all of the above to a chase supervisor and he told me that by not paying will put me in a better situation to show them I am a distress homeowner. I was shock to hear that! Since I am not going to pay for July I know the collections calls is going to start and I am looking forward to them! I can't wait to tell chase what I did with July's mortgage payment! I'll bet I get there attention now! The ball is in their court and I am already filling releaf of the decision I made! DUMP!!! Thanks for reading my blog! Jersy Girl!

Guest's picture
Old Painless

I am almost in the same situation as Jersey girl, but with SunTrust Mortgage. We have also made the decision to hold off on our July payment. We've had our application for modification in since March 09. SunTrust will claim that the government has not provided them the tools to do the Affordability Act Modifications. Then they will tell you that you qualify - but the remainder of the process is unknown. After struggling to make all my payments on time to this point, I feel like a chump! They WANT to see you DAMAGE your credit so you have less options later. All this does is strengthen the lender's position. But we can't be at a stalemate forever - so we took the position that until we can begin to negotiate, there will be no more payments. We are prepared to walk as this is a 100% loan upside down about $80K. I really think this is a give and take. They want to see you sacrifice any credit you have left before the negotiation begins. The government is mistaken if they think banks will work will work modification applicants who haven't missed a payment! Thanks for taking the time to read this!

Guest's picture
khappysweet

I have lost 50% of my income (I have been in advertising and marketing at 100% commission for almost 6 years). I have an education degree but can't get a job with the school system because they are on a hiring freeze. I have struggled the past year to pay and keep ALL of my bills current. I called BOA to let them know that for the first time I was facing paying my June mortgage payment past the 15th and was extremely worried about it affecting my credit. They informed me that I had till the last day of the month to pay it and it would not affect my credit. She referred to me to a guy that took all of my financial information. He told me that I qualified for Obama's loan modification program. I sent them all of the information that they requested and just this week (about 2 weeks after they received my info) called to follow up and the guy asked me if I was behind on any of my credit cards. BECAUSE I SAID NO HE SAID I DON'T QUALIFY NOW!!! It is funny to me that they want me to not pay my credit card bills but my credit card companies have all been very understanding with my financial situation and have put me in hardship programs so that I can keep current with all of them. Why would I stop paying them???? I told BOA to please note in their computer that I won't be making July's payment and maybe then they will offer me some help!!! This is pathetic!!!

Guest's picture
jan

Iniated a loan mod request March 2009 with Suntrust. Husband lost job.Have been paying and up to date. Had to resend financial info 3 times because they couldn't find it. Suntrust says our case is being reviewed. Aug 1 I am not paying the payment hoping to get their attention. Owe 200,00 condo valued at 135,000. Will probably have to walk away and ruin our A1 credit. Don't want to drain what savings we have left. Will we still be able to rent an apartment if we go into foreclosure?
Good Luck to everyone!

Guest's picture
BD

Seriously!! I just went through this with Bank of America. I submitted a modification packet the end of August, today I received a letter of denial stating I had not submitted the required documentation!! Really - how about the fedex in September and the 3 faxes in October. So, I called them and their comment was we needed UPDATED information which you never sent..again REALLY??? The letter I received never stated you needed UPDATED information...it said information was missing or incomplete. They are the biggest rip off and do not clarifiy exactly what they are looking for, I guess you are supposed to read between the lines. I can not sell this house because I owe more then it is worth and it needs major repairs, which I can not afford.

Guest's picture
Sam

BD-That is interesting because you and I are in the same boat. I sent my modification information to BOA in the end of August. They send me a fed ex package and say we need additional information, all the while, I am getting phone calls from a rep and a automated system indicating that my file is in processing. I send the add. info just in case, finally got a letter the other day saying, I am in processing. Well, I am fed up with their crap. I am planning on missing a few payments here and there to see if I can get there attention. I am so tired of them getting bail out money and not helping the people that need it the most.