Considering solutions for long-term problems

For problems that will take longer than three to six months to remedy, you can ask for mortgage loan forbearance or loan modifications. A forbearance temporarily modifies or eliminates payments that are made up at the end of the forbearance period. A forbearance is useful if you have a sale pending or you expect a windfall, but you can't afford the payments at present. It also prevents your credit from being damaged by a string of late payments.

A loan modification changes the terms of the original mortgage permanently in a way that addresses your specific needs. The modification may change one or more terms of the original mortgage agreement, such as adding delinquent payments and other costs to the loan balance, changing interest rates, or recalculating the loan. If this process seems intimidating, use a HUD agency to deal with the servicer and offer solutions on your behalf. Clear communication is key here.

These modifications need to be in writing, and both the servicer and the bor- rower must approve them because they're long-term and large in scope. You can expect goodwill to go only so far, so don't be surprised if the servicer asks for a fee of around 1 percent to cover the costs of processing a loan modification. After all, servicers always have an appetite for some immediate income for their banks or companies.

If you were delinquent on your loan before the modification, expect your credit history to show the prior delinquency. Mortgagees are very reluctant to change your credit history, but a modification and efforts to bring the mortgage current should show up on your credit report.

If you are also carrying credit-card debt, being late on your mortgage or having a loan modification on your credit report may set you up for a hike in your interest rates under universal default rules. Review the default provisions of the credit cards that you use to carry a balance and consider closing those accounts that have universal default provisions before they raise your rates.

After the accounts are closed, your rates should stay the same during your repayment period. The small damage to your credit score from closing accounts will be a bargain compared to what can happen if you can't handle interest rates that may go to 30 percent or more. If you've had the cards for more than ten years, consider keeping them open if you can transfer the balances to cards without the universal default provision; these long-history cards count for more on your score than ones you've had for a shorter period of time.