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; www.fanniemae.com) and 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 already have.
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 to you.
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 local.
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 of state.)
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.