Get Help Avoiding Foreclosure: Using a HUD-Approved Housing Counselor

If you're facing a foreclosure, the sooner you talk to a HUD-approved housing counselor, the better. These counselors work for free—they’re paid through government grants and, in some cases, grants from major mortgage lenders who really do want to avoid foreclosures if at all possible—and are well trained in the various ways you might be able to prevent a foreclosure, like with a loan modification or through a refinance program. (To learn what to do, and what not to do, in the modification process, see Do's and Don'ts for Getting a Loan Modification.)

Read on to find out what a HUD-approved housing counselor can do for you, whether using one is likely to help you avoid a foreclosure, and how you can go about finding a HUD-approved housing counselor.

What HUD-Approved Housing Counselors Do

Housing counselors act as your advocate if you are trying to avoid a foreclosure. A HUD-approved housing counselor can help you assess your loan situation and work with your mortgage servicer to try to find an option that will keep you in your house, if possible, like a repayment plan, forbearance agreement, or modification. If you decide you want to give up the home, the counselor might be able to help you arrange a short sale or deed in lieu of foreclosure, as well as give you information about any of these options. (To learn what to do—and what not do—if you’re facing a foreclosure, see Foreclosure Do's and Don'ts.)

How Counseling Works

When you call a HUD-approved counseling agency, you will be scheduled for an interview by phone or in person with a counselor.

What happens at the counseling session. During the counseling session, the housing counselor will likely:

• discuss your current financial situation
• evaluate your current spending
• help you to figure out a budget that will set the maximum amount you’re able to pay towards your mortgage each month
• explore the reasons why you fell behind in payments (these reasons are usually the basis for a hardship letter or affidavit, which you’ll need to submit if you apply to the servicer for a foreclosure avoidance option)
• help you figure out what options are best for you, and
• give a recommendation on proposed next steps.

Items to gather before your appointment. At the meeting, the counselor will want to get a handle on your overall financial situation, including your income, your debts, your assets, your mortgage, and the value of your home. So, before the appointment, it’s a good idea to gather up basic information about your finances, such as:

• recent billing statements for your first mortgage
• recent pay stubs
• any benefit statements from Social Security, disability, unemployment, retirement, or public assistance
• documentation showing that you receive additional income from other sources, like tips, commissions, or bonuses, if applicable
• documentation showing any other income you receive, like alimony or child support
• recent bank statements
• a utility bill that shows your name and property address
• recent tax returns
• if you’re self-employed, an up-to-date profit and loss statement
• monthly household expenses
• information about any second mortgage or home equity line of credit on the home
• account balances and monthly payments due on all of your credit cards, student loans, car loans, and so on, and
• information about your savings and other assets.

Applying for a Workout Option

Once you—or the HUD-approved housing counselor—call your servicer asking for a way to avoid foreclosure, the servicer will send you a “workout package” or “loss mitigation package” of forms. After you fill out and return the forms with the help of your counselor, the servicer will review your income, debt, and hardship in order to determine whether you’re eligible for a foreclosure avoidance option. (Learn ten steps you can take to prevent a foreclosure.)

Can a HUD-Approved Housing Counselor Always Help You?

Housing counselors can do a lot, but they are limited by the servicer and investor (loan owner) policies regarding what are termed loss mitigation guidelines. This means you might not qualify for a mortgage workout no matter what you or the counselor does.

Still, even if you think you won’t qualify for a modification or other loan workout option, it certainly doesn’t hurt to talk to a counselor and submit a loss mitigation application to your servicer—either before the foreclosure officially starts or even after a foreclosure has already started. Under federal mortgage servicing rules and some state laws, a servicer can’t start or continue with a foreclosure while your completed application is pending. And, you might end up getting a more affordable mortgage payment for the future or qualify for a workout option that you hadn’t previously considered.

How to Find a HUD-Approved Housing Counselor

The federal Department of Housing and Urban Development (HUD) has a list of approved counselors. To find a counselor near you, go to HUD’s website to search online or call 800-569-4287. You may also use the Consumer Financial Protection Bureau's Find a Housing Counselor tool to get a list of HUD-approved counseling agencies in your area.

If, even after reading about the benefits of using a HUD-approved housing counselor, you decide not to use one, be sure that you have a good understanding of the different types of loss mitigation options available before you talk to your servicer about ways to avoid a foreclosure. If, after dealing with the servicer on your own, you find you need assistance with the loss mitigation process, reconsider using a HUD-approved housing counselor or consider talking to a foreclosure attorney.