FTC FACTS for Consumers

FOR THE CONSUMER 1-877-FTC-HELP

ftc.gov FEDERAL TRADE COMMISSION

Mortgage Payments

Sending You Reeling? 

Here’s What to Do

T he possibility of losing your home because you can’t make the mortgage payments can be terrifying. Perhaps you’re having trouble making ends meet because you or a family 

member lost a job, or you’re having other financial problems. Or maybe you’re one of the many 

consumers who took out a mortgage that had a fixed rate for the first two or three years and then 

had an adjustable rate – and you want to know what your payments will be and whether you’ll be 

able to make them.

Regardless of the reason for your mortgage anxiety, the Federal Trade Commission (FTC), the 

nation’s consumer protection agency, wants you to know how to help save your home, and how to 

recognize and avoid foreclosure scams. 

Know Your Mortgage

Do you know what kind of mortgage you have? Do you know whether your payments are going 

to increase? If you can’t tell by reading the mortgage documents you received at settlement, 

contact your loan servicer and ask. A loan servicer is responsible for collecting your monthly loan 

payments and crediting your account. 
Facts for Consumers 

Here are some examples of types of mortgages: 

•	 Hybrid Adjustable Rate Mortgages 

(ARMs): Mortgages that have fixed 

payments for a few years, and then turn into 

adjustable loans. Some are called 2/28 or 

3/27 hybrid ARMs: the first number refers 

to the years the loan has a fixed rate and the 

second number refers to the years the loan 

has an adjustable rate. Others are 5/1 or 3/1 

hybrid ARMs: the first number refers to 

the years the loan has a fixed rate, and the 

second number refers to how often the rate 

changes. In a 3/1 hybrid ARM, for example, 

the interest rate is fixed for three years, then 

adjusts every year thereafter. 

•	 ARMs: Mortgages that have adjustable rates 

from the start, which means your payments 

change over time. 

•	 Fixed Rate Mortgages: Mortgages where 

the rate is fixed for the life of the loan; the 

only change in your payment would result 

from changes in your taxes and insurance if 

you have an escrow account with your loan 

servicer. 

If you have a hybrid ARM or an ARM and the 

payments will increase – and you have trouble 

making the increased payments – find out if you 

can refinance to a fixed-rate loan. Review your 

contract first, checking for prepayment penalties. 

Many ARMs carry prepayment penalties that 

force borrowers to come up with thousands of 

dollars if they decide to refinance within the first 

few years of the loan. If you’re planning to sell 

soon after your adjustment, refinancing may not 

be worth the cost. But if you’re planning to stay 

in your home for a while, a fixed-rate mortgage 

might be the way to go. Online calculators can 

help you determine your costs and payments. 

If You’re Behind On Your Payments

If you are having trouble making your payments, 

contact your loan servicer to discuss your options 

as early as you can. The longer you wait to call, 

the fewer options you will have. 

Many loan servicers are expanding the options 

available to borrowers — it’s worth calling your 

servicer even if your request has been turned 

down before. Servicers are getting lots of calls: 

Be patient, and be persistent if you don’t reach 

your servicer on the first try.

You may qualify for a loan modification under the 

Making Home Affordable Modification Program 

(HAMP) if: 

•	 your home is your primary residence;

•	 you owe less than $729,750 on your first

mortgage; 

•	 you got your mortgage before January 1,

2009;

•	 your payment on your first mortgage

(including principal, interest, taxes, 

insurance and homeowner’s association dues, 

if applicable) is more than 31 percent of your 

current gross income; and

•	 you can’t afford your mortgage payment

because of a financial hardship, like a job 

loss or medical bills.

If you meet these qualifications, contact your 

servicer. You will need to provide documentation 

that may include: 

•	 information about the monthly gross (before

tax) income of your household, including 

recent pay stubs. 

•	 your most recent income tax return.

•	 information about your savings and other

assets.

•	 your monthly mortgage statement.

•	 information about any second mortgage or

home equity line of credit on your home. 

•	 account balances and minimum monthly

payments due on your credit cards. 

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Facts for Consumers

•	 account balances and monthly payments on

your other debts, like student loans or car 

loans. 

•	 a completed Hardship Affidavit describing 

the circumstances responsible for the 

decrease in your income or the increase in 

your expenses. 

For more information, see 

www.makinghomeaffordable.gov/modification_

eligibility.html

If you’re interested in refinancing to take 

advantage of lower mortgage rates, but are afraid 

you won’t qualify because your home value has 

decreased, you may want to ask if you qualify 

for the Home Affordable Refinance Program 

(HARP) or the HOPE for Homeowners (H4H) 

program. For more information, see www.hud.

gov/foreclosure/.

Avoiding Default and Foreclosure

If you have fallen behind on your payments, 

consider discussing the following foreclosure 

prevention options with your loan servicer: 

Reinstatement: You pay the loan servicer the 

entire past-due amount, plus any late fees or 

penalties, by a date you both agree to. This option 

may be appropriate if your problem paying your 

mortgage is temporary.

Repayment plan: Your servicer gives you a 

fixed amount of time to repay the amount you 

are behind by adding a portion of what is past 

due to your regular payment. This option may be 

appropriate if you’ve missed a small number of 

payments.

Forbearance: Your mortgage payments are 

reduced or suspended for a period you and your 

servicer agree to. At the end of that time, you 

resume making your regular payments as well 

as a lump sum payment or additional partial 

payments for a number of months to bring the 

loan current. Forbearance may be an option if 

your income is reduced temporarily (for example, 

you are on disability leave from a job, and you 

expect to go back to your full time position 

shortly). Forbearance isn’t going to help you if 

you’re in a home you can’t afford. 

Loan modification: You and your loan 

servicer agree to permanently change one or 

more of the terms of the mortgage contract 

to make your payments more manageable for 

you. Modifications may include reducing the 

interest rate, extending the term of the loan, or 

adding missed payments to the loan balance. 

A modification also may involve reducing the 

amount of money you owe on your primary 

residence by forgiving, or cancelling, a portion 

of the mortgage debt. Under the Mortgage 

Forgiveness Debt Relief Act of 2007, the

forgiven debt may be excluded from income 

when calculating the federal taxes you owe, but it 

still must be reported on your federal tax return. 

For more information, see www.irs.gov. A loan 

modification may be necessary if you are facing a 

long-term reduction in your income or increased 

payments on an ARM.

Before you ask for forbearance or a loan 

modification, be prepared to show that you are 

making a good-faith effort to pay your mortgage. 

For example, if you can show that you’ve reduced 

other expenses, your loan servicer may be more 

likely to negotiate with you.

Selling your home: Depending on the real 

estate market in your area, selling your home 

may provide the funds you need to pay off your 

current mortgage debt in full. 

Bankruptcy: Personal bankruptcy generally is 

considered the debt management option of last 

resort because the results are long-lasting and 

far-reaching. A bankruptcy stays on your credit 

report for 10 years, and can make it difficult to

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Facts for Consumers 

get credit, buy another home, get life insurance, 

or sometimes, get a job. Still, it is a legal 

procedure that can offer a fresh start for people 

who can’t satisfy their debts. 

If you and your loan servicer cannot agree on a 

repayment plan or other remedy, you may want 

to investigate filing Chapter 13 bankruptcy. If you 

have a regular income, Chapter 13 may allow you 

to keep property, like a mortgaged house or car, 

that you might otherwise lose. In Chapter 13, the 

court approves a repayment plan that allows you 

to use your future income toward payment of your 

debts during a three-to-five-year period, rather 

than surrender the property. After you have made 

all the payments under the plan, you receive a 

discharge of certain debts.

To learn more about Chapter 13, visit 

www.usdoj.gov/ust; it’s the website of the U.S. 

Trustee Program, the organization within the U.S. 

Department of Justice that oversees bankruptcy

cases and trustees. 

If you have a mortgage through the Federal 

Housing Administration (FHA) or Veterans 

Administration (VA), you may have other 

foreclosure alternatives. Contact the FHA 

(www.fha.gov) or VA (www.homeloans.va.gov) 

to talk about them. 

Contacting Your Loan Servicer

Before you have any conversation with your 

loan servicer, prepare. Record your income and 

expenses, and calculate the equity in your home. 

To calculate the equity, estimate the market value 

less the balance of your first and any second 

mortgage or home equity loan. Then, write down 

the answers to the following questions:

•	 What happened to make you miss your

mortgage payment(s)? Do you have any 

documents to back up your explanation 

for falling behind? How have you tried to 

resolve the problem? 

•	 Is your problem temporary, long-term, or

permanent? What changes in your situation

do you see in the short term, and in the long 

term? What other financial issues may be

stopping you from getting back on track with 

your mortgage? 

•	 What would you like to see happen? Do

you want to keep the home? What type of

payment arrangement would be feasible for 

you? 

Throughout the foreclosure prevention process: 

•	 Keep notes of all your communications with

the servicer, including date and time of 

contact, the nature of the contact (face-toface, by phone, email, fax or postal mail), 

the name of the representative, and the 

outcome. 

•	 Follow up any oral requests you make with

a letter to the servicer. Send your letter by 

certified mail, “return receipt requested,” 

so you can document what the servicer 

received. Keep copies of your letter and any

enclosures. 

•	 Meet all deadlines the servicer gives you.

•	 Stay in your home during the process, since

you may not qualify for certain types of 

assistance if you move out. Renting your 

home will change it from a primary residence 

to an investment property. Most likely, 

it will disqualify you for any additional 

“workout” assistance from the servicer. If 

you choose this route, be sure the rental 

income is enough to help you get and keep 

your loan current. 

Housing and Credit Counseling

You don’t have to go through the foreclosure 

prevention process alone. A counselor with 

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Facts for Consumers

from the sale can pay off the entire loan balance 

plus the expenses connected to selling the home 

(for example, real estate agent fees). Such a sale 

would allow you to avoid late and legal fees and 

damage to your credit rating, and protect your 

equity in the property.

Short Sale: Your servicers may allow you to 

sell the home yourself before it forecloses on 

the property, agreeing to forgive any shortfall 

between the sale price and the mortgage balance. 

This approach avoids a damaging foreclosure 

entry on your credit report. Under the Mortgage 

Forgiveness Debt Relief Act of 2007, the forgiven

debt on your primary residence may be excluded 

from income when calculating the federal taxes 

you owe, but it still must be reported on your 

federal tax return. For more information, see 

www.irs.gov, and consider consulting a financial 

advisor, accountant, or attorney.

Deed in Lieu of Foreclosure: You voluntarily 

transfer your property title to the servicers 

(with the servicer’s agreement) in exchange 

for cancellation of the remainder of your debt. 

Though you lose the home, a deed in lieu of 

foreclosure can be less damaging to your credit 

than a foreclosure. You will lose any equity 

in the property, although under the Mortgage 

Forgiveness Debt Relief Act of 2007, the forgiven

debt on your primary residence may be excluded 

from income when calculating the federal taxes 

you owe. However, it still must be reported on 

your federal tax return. For more information, 

see www.irs.gov. A deed in lieu of foreclosure 

may not be an option for you if other loans or 

obligations are secured by your home.

Be Alert to Scams

Scam artists follow the headlines, and know there 

are homeowners falling behind in their mortgage 

payments or at risk for foreclosure. Their 

a housing counseling agency can assess your 

situation, answer your questions, go over your 

options, prioritize your debts, and help you 

prepare for discussions with your loan servicer. 

Housing counseling services usually are free or 

low cost.

While some agencies limit their counseling

services to homeowners with FHA mortgages, 

many others offer free help to any homeowner 

who is having trouble making mortgage 

payments. Call the local office of the 

U.S. Department of Housing and Urban 

Development (www.hud.gov) or the housing 

authority in your state, city, or county for 

help in finding a legitimate housing counseling 

agency nearby. Or consider contacting the 

Homeownership Preservation Foundation (HPF) 

at 888-995-HOPE or www.hopenow.com. HPF 

is a nonprofit organization that partners with 

mortgage companies, local governments, and 

other organizations to help consumers get loan 

modifications and prevent foreclosures.

When choosing a counselor, beware of anyone

charging large up-front fees or guaranteeing 

you a loan modification or other solution to stop 

foreclosure. They shouldn’t be charging you 

high fees or making any guarantees. Take your 

business elsewhere. 

Consider Giving Up Your Home 

Without Foreclosure

Not every situation can be resolved through your 

loan servicer’s foreclosure prevention programs. 

If you’re not able to keep your home, or if you 

don’t want to keep it, consider:

Selling Your House: Your servicers might 

postpone foreclosure proceedings if you have a 

pending sales contract or if you put your home 

on the market. This approach works if proceeds 

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Facts for Consumers

1-877-FTC-HELP FOR THE CONSUMER

FEDERAL TRADE COMMISSION ftc.gov

August 2009

Federal Trade Commission

Bureau of Consumer Protection

Division of Consumer and Business Education

pitches may sound like a way for you to get out 

from under, but their intentions are as far from 

honorable as they can be. They mean to take your 

money. Among the predatory scams that have 

been reported are:

•	 The foreclosure prevention specialist: 

The “specialist” really is a phony counselor 

who charges high fees in exchange for 

making a few phone calls or completing 

some paperwork that a homeowner could 

easily do for himself. None of the actions 

results in saving the home. This scam gives 

homeowners a false sense of hope, delays 

them from seeking qualified help, and 

exposes their personal financial information 

to a fraudster. 

Some of these companies even use names 

with the word HOPE or HOPE NOW in

them to confuse borrowers who are looking 

for assistance from the free 888-995-HOPE

hotline. 

•	 The lease/buy back: Homeowners are 

deceived into signing over the deed to their 

home to a scam artist who tells them they 

will be able to remain in the house as a 

renter and eventually buy it back. Usually, 

the terms of this scheme are so demanding 

that the buy-back becomes impossible, the 

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homeowner gets evicted, and the “rescuer” 

walks off with most or all of the equity. 

•	 The bait-and-switch: Homeowners think 

they are signing documents to bring the 

mortgage current. Instead, they are signing 

over the deed to their home. Homeowners 

usually don’t know they’ve been scammed 

until they get an eviction notice. 

For More Information

To learn more about mortgages and other creditrelated issues, visit www.ftc.gov/credit and 

MyMoney.gov, the U.S. government’s portal to 

financial education.

The FTC works for the consumer to prevent 

fraudulent, deceptive, and unfair business 

practices in the marketplace and to provide 

information to help consumers spot, stop, 

and avoid them. To file a complaint or to get 

free information on consumer issues, visit 

ftc.gov or call toll-free, 1-877-FTC-HELP 

(1-877-382-4357); TTY: 1-866-653-4261. 

The FTC enters consumer complaints into the 

Consumer Sentinel Network, a secure online 

database and investigative tool used by hundreds 

of civil and criminal law enforcement agencies in 

the U.S. and abroad.