What Is a Delinquent Mortgage?

A delinquent mortgage is a home loan for which the borrower has failed to make payments as required in the loan documents. A mortgage is considered delinquent or late when a scheduled payment is not made on or before the due date. If the borrower can't bring the payments on a delinquent mortgage current within a certain time period, the lender may begin foreclosure proceedings. A lender may also offer a borrower a number of options to help prevent foreclosure when a mortgage becomes delinquent.

During the coronavirus pandemic, both Fannie Mae and Freddie Mac—which, between them guarantee more than two-thirds of all mortgages—have put assistance options into place for delinquent borrowers affected by COVID-19. 

Key Takeaways

  • A delinquent mortgage is a home loan where the borrower is late in one or more required payments.
  • Borrowers who miss payments will often be subject to penalties and fees and may see a negative impact on their credit score.
  • Mortgages that are overly delinquent risk going into default and the home into foreclosure.
  • Sometimes lenders will work with borrowers to avoid default when they become delinquent.

Understanding Delinquent Mortgages

Late fees are usually applied to missed payments. The amount of the late fee depends upon the lender, as well as the terms of the borrower's mortgage. If a late fee isn't applied initially, that doesn't mean that the mortgage is not delinquent; some lenders may choose to wait until a payment is more than 30 days late before beginning collection procedures. 

A delinquent mortgage can lead to foreclosure, but foreclosure is the last resort for lenders because it is an expensive procedure and lenders typically lose money in foreclosure proceedings. A forbearance agreement is a potential alternative to foreclosure if the borrower's financial difficulties are temporary. Under a forbearance agreement, the lender temporarily allows the borrower to stop making payments or to pay less than the usual monthly payment.

If a borrower suspects that they won't be able to pay on time, it is imperative that they reach out to their lender promptly. In some cases, the lender may have ways to help the borrower avoid a delinquent mortgage altogether.

A homeowner with a delinquent mortgage, who doesn’t think his financial difficulties are temporary but who wants to avoid foreclosure, might convince the bank to agree to a short sale. This occurs when the borrower cannot sell the home because he owes more than the home is worth, so the bank agrees to allow the borrower to sell the house for less than the mortgage balance. In some states, the bank will forgive the difference; in others, the homeowner must repay the difference.

A delinquent mortgage can affect the borrower's credit score and impact their ability to secure loans in the future, which is why borrowers should make every effort to pay their mortgage on time.

A borrower who has been delinquent for several months or even years, but who has not been foreclosed on, may agree to a repayment plan with the lender to eventually become current on the mortgage and not lose the home. The lender might also agree to modify the loan by changing the principal owed, the loan term, or the interest rate so that the borrower can afford the monthly payments. If a borrower has an adjustable-rate mortgage, refinancing to a fixed-rate one could be an option.

If you need help figuring out what to do, a foreclosure prevention counseling service might be able to help. These services are free and provided by nonprofit agencies.

Delinquency vs. Default

Notice of default is a public notice filed with a court stating that a mortgage borrower is delinquent on a on a loan for an extended period of time. This is one of the first steps toward foreclosure. If a borrower has several delinquent payments, they are at risk of default on a mortgage loan which also poses the risk of lost collateral.

A mortgage contract will detail the number of delinquent payments allowed before default action is taken. Generally, most contracts will allow up to 180 days of missed payments and delinquencies before taking notice of default action.

Special Considerations

COVID-19

The coronavirus pandemic has quickly led to a loss of employment and income for many borrowers. Both Fannie Mae and Freddie Mac have responded by offering mortgage relief options, such as providing mortgage forbearance for up to 12 months, waiving penalties and fees, and suspending credit bureau reporting of delinquency for those in forbearance.