The Definitive Guide to Mortgage Relief

Mortgages represent the largest form of consumer debt in the U.S., amounting to about $15.8 trillion as of Q3 2019.

If you owe more than your home is worth, you’re not alone. 4.5 million homeowners in the U.S. are in the same boat—713,000 of which owe at least twice the amount of their homes’ value.

Once your loan is in default, you run the risk of losing your home to foreclosure. Unfortunately, mortgages have one of the highest delinquency rates among sources of credit. Higher than personal loans or even credit cards.

If you’re struggling to keep up with your monthly payments, a mortgage relief program may be a good option. And you’ll want to take action before you default on your loan.

What is a mortgage relief program?

A mortgage relief program includes any plan or tool that helps borrowers resolve their mortgage debt problems. Some mortgage relief programs help reduce your interest. Other programs help you sell your home so you can pay off your mortgage. Yet others give you a temporary break on your payments so you can get your finances in order.

So what are the different mortgage relief programs and which one is right for you? Here’s everything you need to know.

Mortgage relief program types

Depending on your circumstances, you have several options to help mitigate your mortgage debt. Let’s take a look.


If you have equity in your home, look into refinancing your mortgage. With a mortgage refinance, you can lock in a lower rate or longer term, making your payments more affordable. But if your loan is already in default, this option most likely won’t be available to you.

Repayment plan

If you’re only slightly behind on payments, you may be able to make them up your over time while you continue making your regular payments as well.

You’ll have to prove to your lender that you can afford the repayment plan. This is a good option if you’ve only missed a few payments due to a temporary financial setback.


A forbearance gives you a temporary break, meaning your mortgage payments can either be reduced or suspended.

It’s a good option if you’re experiencing a short-term financial hardship, such as unemployment or illness. Terms and qualifications for a forbearance vary by lender.

Depending on your circumstances, you might have to catch up on the missed payments once the forbearance period is up. You can also revise the past due amount through a loan modification.

Loan modification

The purpose of a loan modification is to change your monthly mortgage payment to an affordable level. For instance, you can negotiate with your lender to get a lower rate, longer repayment term, partial debt forgiveness, etc.


A deed-in-lieu (DIL) lets you sign over your property to your lender to avoid foreclosure. The lender might give you a relocation incentive, allow you to remain in your home rent-free for up to three months, or lease the home at market rates for up to one year.

Short sale

With a short sale, you’ll sell your home for less than the amount you currently owe on your mortgage. While this isn’t an ideal option, it’s better than foreclosing.

Your credit won’t be hit as hard as it would be with a foreclosure. You also won’t have to pay the fees and commission that come with a traditional home sale, as they are paid by the bank.

A short sale isn’t guaranteed, though. It’s dependent on whether your lender will allow it.

Flex Modification program

Offered by Fannie Mae and Freddie Mac, the Flex Modification program offers payment relief to homeowners struggling to keep up with their payments.

The program can lower your mortgage payments by as much as 20% through a rate adjustment, modified repayment term, or forbearance.

It replaced the Home Affordable Modification Program (HAMP), which ended Dec. 31, 2016, and the Home Affordable Refinance Program (HARP), which ended in December 2018.

Hardest Hit Fund

If you’re not eligible for the Flex Modification program, you can try the government-run Hardest Hit Fund, or HHF.

The U.S. Treasury created HHF in 2010 to help homeowners in the areas that were hit hard by the subprime mortgage crisis.

HHF offers homeowners mortgage payment assistance, principal reduction, and even relocation assistance to more affordable areas.

Declare bankruptcy

Declaring bankruptcy is usually a last resort. However, it’s worth considering if you want to keep your home but are unable to make payments. But remember, there are long-term credit implications tied to bankruptcy. So make sure you weigh all your options before choosing this one.

Tax implications of a mortgage relief program

When you pursue any debt relief, make sure that you understand the tax implications attached. When you receive a debt discharge, the IRS often treats it as taxable income. This means you may have to declare as taxable income any money that is “forgiven” thanks to a mortgage relief program.

However, you don’t always have to pay taxes when your mortgage debt is canceled. The three main exceptions are bankruptcy, insolvency, farm debts, and non-recourse loans. In these cases, debts discharged through bankruptcy are not considered taxable income.

How does the IRS define insolvency?

You are insolvent when your total debts are more than the fair market value of your total assets. It can sometimes be difficult to determine whether you are insolvent so you may want to hire a tax professional or accountant to help.

What are non-recourse loans?

A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income. Most borrowers with non-recourse loans live in non-recourse states, which only allow this type of loan, These states include Alaska, Arizona, Washington, Utah, Idaho, Minnesota, California, North Carolina, Connecticut, North Dakota, Texas, and Oregon. However, it may result in other tax consequences. For instance, if you owed less than the sale price in a foreclosure, you may have to declare the “gain from foreclosure.”

The mortgage relief process

The mortgage relief process can be tedious and complicated. Come armed with patience, a pen and paper, and the following documentation:

  • Recent pay stubs showing your monthly gross income.
  • Copies of your recent tax returns.
  • Your monthly mortgage statement.
  • Information on additional mortgages or HELOCs.
  • Savings and asset information.
  • Account balances and minimum payments due on credit cards.
  • List of other debts including car loans, student loans, child support, etc.

Watch out for scammers

Where there are people in a financial crisis, there are also scammers looking to take advantage of their desperation.

Scammers might offer to perform a mortgage audit or claim that they can negotiate with a lender on your behalf to help you avoid delinquency or foreclosure.

They’ll often pose as a mortgage professional or attorney, or pretend to be affiliated with the government.

It’s easy to fall victim to unscrupulous people when you find yourself in a jam. If an offer seems too good to be true, dig deeper before accepting.

For example, public records make it easy for scammers to know when a house is in foreclosure. With a lease/buy-back scam, you’ll sign over your deed and, in exchange, keep living in the home as a renter.

They’ll promise that the deed transfer is temporary and that you’ll be able to repurchase your home once you can afford it. Unfortunately, that doesn’t end up being the case.

Also, if a “lender” asks for loan modification fees upfront, run in the opposite direction. Legitimate lenders will never request any money upfront. In fact, federal law prohibits companies from accepting payments for a mortgage modification before you’ve signed paperwork with the lender.

Get mortgage relief today

When you pursue any type of debt relief, make sure that you understand the tax implications attached. When you receive a debt discharge, the IRS often treats it as taxable income.

Your best mortgage relief option will depend on your income, the size of your debt, and whether you want to keep your home.

It’s scary to find yourself underwater on your home loan, but there are ways to stay afloat.

It’s important to ensure you work with a reputable company to understand all of your options before signing anything.