What Is Home Retention and How Does It Work?

Home retention refers to pathways available to homeowners experiencing financial difficulties who wish to avoid foreclosure. These options provide relief and help individuals regain stability in their mortgage payments. Understanding these options can help homeowners navigate challenging economic circumstances.

Understanding Home Retention Options

Homeowners facing difficulty with mortgage payments have several options to retain their property. These options address different types of financial hardships, from temporary setbacks to long-term income changes. Each solution adjusts mortgage terms or payment schedules to make monthly obligations more manageable.

A loan modification permanently changes the original terms of your mortgage. This can involve reducing the interest rate, extending the loan term, or adding missed payments to the loan’s principal balance. Loan modifications are for homeowners with long-term financial hardships who can afford a new, lower monthly payment. Lenders often require a trial period where the homeowner makes payments at the proposed modified amount to prove affordability before the modification becomes permanent.

Forbearance provides a temporary pause or reduction in mortgage payments. This option is suited for homeowners experiencing short-term financial setbacks, such as a job loss, illness, or other unexpected events. During a forbearance period, which can range from a few months up to 12 months or more, payments are suspended or lowered. Missed payments during forbearance are not forgiven; they must be repaid later through a lump sum, a repayment plan, or by deferring them to the end of the loan term.

A repayment plan is an agreement where a homeowner catches up on missed mortgage payments over a specified period. This adds a portion of the past-due amount to the regular monthly payment until the loan becomes current. Repayment plans are offered for temporary hardships where the homeowner can afford a slightly increased monthly payment to cure the delinquency. The total monthly repayment plan payment must not exceed 150% of the full monthly contractual payment.

A payment deferral or partial claim is often a post-forbearance solution. This involves moving missed payments, including principal and interest, to the end of the loan term as a non-interest-bearing balance. The deferred amount becomes due upon the sale or transfer of the property, refinancing, or payoff of the interest-bearing balance. Eligibility for these options depends on the specific financial hardship, loan type, and the policies of the loan servicer.

Preparing Your Home Retention Application

Applying for home retention assistance requires preparing documents and information. Lenders need a clear picture of your financial situation and hardship to evaluate eligibility. Gathering these materials in advance can streamline the application process.

The hardship letter explains circumstances leading to financial difficulty. This letter should be concise, typically one page, and clearly describe the cause and expected duration of your hardship. Focus on factual details, such as a job loss, reduction in income, or significant medical expenses, and explain what has changed that will allow you to make payments under a new arrangement. Avoid emotional appeals and provide specific dates or timeframes when the hardship began.

Proof of income is required, including two most recent pay stubs or a verification of employment letter from your employer dated within the last 30 days. If you are self-employed, you will need to provide detailed profit and loss statements, recent tax returns, and any IRS Form 1099s. Lenders may also request two most recent federal tax returns with all schedules, requiring you to sign IRS Form 4506-T or 4506-C, which authorizes them to request copies directly from the IRS.

Provide bank statements for all accounts for the two most recent months, ensuring all pages are included. These statements help verify income deposits and assess current financial resources. Additionally, lenders will require details of your household expenses, which may be collected through specific sections of the application form or a separate document.

Other common documents include recent utility bills showing your name and property address, and if applicable, current bills or letters from homeowners or condominium associations reflecting dues. Most servicers require a completed Request for Mortgage Assistance (RMA) form, a standardized form for hardship, income, and expense information. This form can be obtained from your loan servicer’s website; accurately completing its fields using your gathered data is important.

Submitting Your Home Retention Application

Once all documents and forms are prepared, submit your home retention application to your loan servicer. Loan servicers offer several methods for submission, including secure online portals where you can upload documents directly.

If using an online portal, ensure all required fields are accurately populated and you receive a confirmation of submission. This involves clicking a final submit button and reviewing confirmation screens.

Alternatively, you can submit your application via mail or fax. When mailing documents, it is advisable to send them by certified mail with a return receipt requested to ensure proof of delivery. Include your loan number on every document submitted, regardless of the method, to help the servicer properly associate the documents with your account. Always keep original copies of all documents for your records.

After submission, the servicer will acknowledge receipt within a few business days, often within five days. They will then review your application for completeness. If information is missing or unclear, the servicer will likely request additional details, which you should provide promptly. Once the application is deemed complete, the servicer is required to provide you with a decision regarding your options within 30 calendar days. If a foreclosure sale is already scheduled, especially within 37 days, there is no guarantee the servicer can evaluate your application in time to halt the sale.

Where to Seek Assistance

Navigating home retention can be challenging, but various resources offer guidance and support. Seeking assistance from experienced professionals can improve a homeowner’s chances of retaining their home. These resources offer objective advice and practical help with understanding options and preparing documentation.

One of the primary resources for homeowners is a HUD-approved housing counseling agency. These agencies offer independent advice, at little or no cost, and help you understand home retention options. Counselors assist with preparing financial documents, communicating with your loan servicer, and developing a sustainable plan to address mortgage delinquency. You can locate a HUD-approved agency through the HUD website or the Consumer Financial Protection Bureau’s “Find a Counselor” tool by searching with your zip code.

Legal aid organizations and non-profit consumer protection groups also provide assistance. These groups may offer free legal services or counseling, particularly for low-income homeowners or those facing complex issues like predatory lending. They can represent homeowners in foreclosure actions, assist with loan modification negotiations, and provide guidance on fraud prevention. Their services can be beneficial if you encounter difficulties or disputes with your loan servicer.

These organizations offer personalized guidance tailored to your unique financial situation. Engaging with these resources early can provide clarity and support, helping you make informed decisions and take effective steps toward maintaining homeownership. They serve as advocates and educators, empowering homeowners to navigate this period.