The Difference Between Default and Imminent Default in a Mortgage Loan

Default in mortgage terms means having missed payments due on a monthly mortgage. A mortgage default is a pre-requisite to qualifying for a loan modification, which means any borrower should be experiencing some hardship that prevents him from meeting his financial obligation to a lender.

Very recently, the Federal Housing Administration announced that beginning January 22, 2010, they will begin to provide assistance to homeowners facing imminent default and help them save their homes from foreclosure. Previously, a homeowner can only be eligible for such assistance after they had missed a series of payments on their monthly mortgage dues. If they are facing difficulty but are still current, meaning they haven’t missed a single payment, they will not qualify for a loan modification.

So what comprises imminent default and what does a borrower have to do to get on the list? A borrower in imminent default is one who is current, has not missed a monthly mortgage payment on his home but is in the danger of doing so in the next thirty days. The danger exists because of some hardship on the part of the borrower. This can be unemployment or a job loss, pay cuts, drastic losses in business which are crisis related, or a significant event causing a dent in the family finances such as death or illness of a family member.

Previously, a lot of homeowners may have been in the same quandary but cannot get the attention of their lenders because they are not in default. Funny that lenders would not entertain preventive measures but opted instead to focus on curing the situation. So borrowers were left with no option but to get themselves into default intentionally to get the attention of the lenders. It was a “negative attention is better than no attention at all” thing. As the saying goes, “If you can’t beat them, join them!”

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But that’s no longer the case today. Borrowers can now communicate with their lenders even if they are not delinquent on their loans. A case of imminent default is all they will need to begin working on saving their homes.

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