A lot of people are getting nervous about their mortgages, and some have real
reason to worry as they approach the reset
dates on their adjustable rate, interest only, or option payment loans.
We have talked before about avoiding foreclosure but it is probably time to
do so again. Fortunately, there are a few new options out there for homeowners
who are in trouble or fear they soon may be.
KNOW WHAT YOU ARE GETTING IN TO
Not knowing what may happen is a sure reason to panic. Get as much information
as you can while you are still in control of the situation, i.e. before you
ever miss a mortgage payment. The more you know the calmer and more responsive
you can be; the sooner you know it, the more options you have.
Foreclosures are generally carried out under state law and there are probably
50 variations on the process. There is a lot of state-specific information available
on-line but much we found was highly legalistic (judicial vs. non-judicial foreclosures,
rights of redemption, etc.) and a lot of it was there because the site owners
had their own agenda.
Start with your state's website. A Google search for your state's name
should help you find their website. You probably won't find specific info
on foreclosures but the consumer protection or housing pages will give you a
phone number or email address that will get you started.
While state laws prevail over the actual foreclosure sale the rules the lender
or servicer may have rules to follow before initiating foreclosure laid down
by the actual owners or guarantors of the loans. For example, federally guaranteed
loans such as Veterans Administration or FHA loans have a book of rules to follow
- if only we knew what they were. Their websites were not particularly
helpful regarding this subject so you may have to rely on the bank which underwrote
your loan for information. Push hard enough and you will eventually find out
what hoops they and consequently you have to jump through.
Because of well deserved criticism from consumer groups, many agencies have
become much more responsive to the troubles of borrowers over the last few years.
For example, Freddie Mac and Fannie Mae now offer incentives to their agents
to work out loans (and for expediting the process when the home can't
be saved). It can be difficult to near impossible to find out if your loan was
sold under auspices of either of the two GSEs, but you can at least be informed
about their guidelines by visiting their websites (www.freddiemac.com;
looking at those sections dedicated to mortgage servicing companies.
Can you refinance? If your loan is less than two years old, probably not. Your
financial circumstances such as credit scores, income, and so forth have probably
not improved dramatically during that period of time nor has your house appreciated
enough to provide the equity to get you into a conventional loan or to lose
the private mortgage insurance. Underwriting standards are also being tightened
by lenders who are getting burned by subprime loans they wrote over the last
few years; the new standards might make you ineligible today for the loan you
Contact your mortgage servicer. You want to speak to someone in the loss
mitigation department to find out what the possibilities are. Often they
will not speak to the specifics of your loan until you are actually delinquent
but you can at least find out what the process is to begin a loan workout. For
example, you will usually have to provide a financial statement and copies of
tax returns and maybe a proposal for curing any default. Workouts can sometimes
result in a temporary or permanent reduction in the interest rate or payment
or, if you are delinquent, arrangements might be made which will allow you to
gradually catch up on payments.
Some of these operatives are trained to be abrasive and aggressive; however,
if you keep a kind tone of voice and your own cool you may come away with a
wealth of information about the mitigation process and the possibilities available
Think beyond your mortgage. You probably have other debt such as credit cards,
auto loans, or student loans. Contact those creditors to see about getting a
break on interest or monthly payments. Cutting back may give you enough extra
money to keep up current or escalating mortgage payments. Think about refinancing
an older auto loan that may have been paid down to where a used-car loan may
yield a lower payment. This seems to be a newly active form of lending but avoid
the offers in the mailbox - contact your own bank or at least someone
There is a lot more assistance out there than there was even a few years ago.
A credit counselor may be a good place to start. They will make those negotiation
calls to the credit card companies and maybe even to your mortgagee. They are
trained and know what to say and can remain emotionally detached during what
can be some ugly conversations. There are some bad apples in the counseling
business, however. Use one that is approved by the U.S. Department of Housing
and Urban Development (www.hud.gov/counseling
for a state by state list) or by the NeighborWorks® organization (www.nw.org.)
In some larger cities Freddie Mac (and maybe Fannie Mae) has teamed up with
local housing groups and/or legal assistance organizations to form foreclosure
avoidance projects. Where these are available community based housing organizations
will be aware of them.
There are now a few funds out there to help people in precarious situations
with their mortgages. NeighborWorks or local community housing organizations
may be able to plug you in.
If you think your problems are the result of predatory lending practices or
a fraudulent loan get in touch with the state
consumer protection agency (call your state attorney general or secretary
If you are dug in deep enough you may need an attorney. Many of those who specialize
in debtor assistance or bankruptcy will give a free one-hour consultation that
may steer you in the right direction.
RECOGNIZE THE WORST
In the current market this may be truer than ever before. There are many, many
homeowners out there who should never have qualified to buy the home they are
in. Face it, if you really couldn't afford the house in 2005 and you can't
afford it in 2007 there is little chance you will be able to afford it in 2008.
It is time to cut your losses and do everything you can to get out with as much
of your equity and credit intact as possible. The sooner you recognize and accept
the inevitable the better you can handle the aftermath. Stop
foreclosure before it starts.