When you are at risk of defaulting on your mortgage, or have already fallen behind on your payments, you may have a number of options for keeping your house: 


Refinance your mortgage under the federal Home Affordable Refinance program. Usually, refinancing is available only if you have equity in your home—something that is increasingly rare in many parts of the country. However, under the new government-sponsored refinance program, you may be able to refinance your current mortgage into a 15- or 30-year fixed-rate mortgage. This may not reduce your payment much in the short term, but it will avoid nasty interest rate resets that might be in your future under your current mortgage. This new refinance program is discussed later in this chapter.


Lower your monthly mortgage payment under the Home Affordable Modification program. This government-sponsored program provides a way to lower the monthly payment on your first mortgage to 31% of your gross income. This new program is also discussed later in this chapter. 


Reduce the amount of your mortgage principal under the Hope for Homeowners Act. This law provides incentives for your mortgage servicer and lender to agree to reduce your mortgage principal to an amount somewhat below your home’s current value. Unlike the other two government programs that are part of the Making Home Affordable plan (the refinancing and modification programs), this program is voluntary on the part of your servicer and lender. Primarily for this reason, it has failed in the past. However, under new legislation enacted in May 2009, new incentives may make this program much more attractive to the servicer-lender community than has previously been the case. See “Refinancing Under the Hope for Homeowners Act,” below, for more on this program.


Negotiate for a modification of your mortgage or payment terms outside of the government programs. It’s clear that the new government foreclosure-prevention programs are the main attraction. However, for various reasons, you may not qualify for them. Even then, it still may be possible to negotiate a separate peace with your mortgage lender if, like many, it would rather have you stay in the house than foreclose on it. Especially if you are on your own, you would do well to use a HUD-approved housing counselor to help you head off the foreclosure. They can explain your options, negotiate with your lender, and do a lot for your peace of mind. See “Using a HUD-Approved Housing Counselor,” below. 


File for bankruptcy. If you can’t work out an agreement that will let you stay in the house under certain conditions—and you don’t have the wherewithal to reinstate your mortgage under your state’s law (see Ch. 2)—your next step is to explore filing for Chapter 13 or Chapter 7 bankruptcy. Chapter 13 can give you time to make up your missed payments and might lower your other secured debt payments (your car note or a short-term home equity loan, for example). Chapter 7 bankruptcy can quickly do away with credit card and other unsecured debt and free up income to use toward your mortgage payments, thereby allowing you to keep your home. 


Challenge the foreclosure in court. Finally, you may be able to successfully challenge the foreclosure in court because of irregularities in the paperwork or the procedures followed by the foreclosing party. You will likely take this route only if your negotiations with the lender have failed.


This chapter concentrates on the various ways you can change the terms of your mortgage or the amount of your monthly payment as a strategy to keep your home. Later chapters cover filing for bankruptcy and fighting foreclosure in court.