How Lenders Handle Mortgage Delinquency

Mortgage delinquency simply means you are late on one or more of your payments. Typically, a lender will provide you with a short period of time to correct the action and make payments before classifying your loan as delinquent. Most lenders provide a 30-day period for you to correctly make the payment. If you do not make the payment within those 30 days, your lender will take actions to recover the payment.

Notice of Delinquency

You will receive a notice from your lender whenever you fail to make a payment on time. The notice may come by phone, mail or both. The first notice is generally fairly kind, reminding you to make your payment. Making your payment and paying any late fee will resolve the issue. However, if you have received a second notice, the lender may become more demanding with you. If this is not the first time you have made the error, you may not even receive a grace period to handle the problem. It is not uncommon for a lender to move a problem client's late payments more quickly through the collections process.

Credit Score Drops

Even if you are 30 days late on only one payment, the report will hit your credit score. Your mortgage lender will notify the credit bureaus, and both your score and your report will show the problem area. If you go 60 days or 90 days late on a payment, you can expect your credit score to drop significantly. This is a bigger problem for those borrowers with adjustable rate loans. When your credit goes down, your rate can adjust higher. Other loans you may have with adjustable rates, such as credit cards, will also adjust.

Debt Goes to Collections

Once your debt goes to collections, you need to take action fast to resolve the issue and prevent home loan default. You may be able to contact your lender to establish a loan payment plan. This can allow you to pay off the delinquent amount over time. However, you will still have to keep up your normal mortgage payments. You may also have to pay additional fees and interest in order to extend the debt. Even though this does not sound favorable, it is a much better alternative than allowing the loan to move to the default stage. Once your loan has gone into default, it is very difficult to prevent foreclosure on your property.

Resolving the Debt

If you default on your mortgage loan, you will have to resolve the debt. This will start with a foreclosure process. Your lender will typically give you notice of foreclosure and a short period of time to remove yourself from your home. The lender will attempt to sell the home. Foreclosed homes sell for much lower than the going market rate. Depending on the amount you have left to pay on your loan, you may still owe money even after your asset is sold. All of this debt must be resolved, plus any fees, before the credit line is officially closed.