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Free Advice for Homeowners Facing Foreclosure
By Gail Buckner, CFP FOXNews
Dear Friends,
As I wrote last week, foreclosures involving residential
real estate jumped sharply in August. RealtyTrac, an
Internet firm that tracks these numbers, reported a 24
percent increase over July. This includes owners who
have been notified that they are behind in their mortgage
payments, properties in the process of undergoing a forced
sale, as well as homes that have been repossessed by
a lender. Five states — California, Florida, Illinois,
Ohio and Texas — accounted for half the increase.
While it’s easy to blame millions of adjustable
rate mortgages (ARMs) that have reached the point where
they re-set at higher interest rates, the reality is
more complex. Certainly, California led the nation in
terms of the number of “non-traditional” mortgages
issued during the real estate feeding frenzy seen in
the past few years. Especially popular were “interest-only” or “option” loans,
which often included an ARM component. But when you look
at the percentage of homeowners in trouble, California
isn’t even among the top ten states.
That dubious distinction goes to Colorado, where one
out of every 301 households is in some stage of foreclosure.
(Compared to one out of every 977 households in California.)
Likewise, Midwestern states such as Ohio, Indiana and
Michigan have much higher foreclosure rates than average — and
they never experienced anything like the double digit
run-up in home prices seen on the West Coast, in states
such as Nevada, and in other select areas of the country.
So, in a nutshell, wasup?
Sharon Beton, former mayor of Minneapolis and now board
member of the non-profit Homeowners Preservation Foundation
(www.995HOPE.org), says, ”Arms are just one reason.” Foreclosure
can be triggered by a number of factors. One of the most
common is job loss. Others include an economic downturn,
a death in the family, a health crisis and divorce.
It’s important to recognize that a significant
portion of foreclosure proceedings never actually end
in the loss of the property. Everyone I spoke with emphasized
that the last thing a lender wants to be is a homeowner.
Mike Fratantoni, senior economist with the Mortgage Banker’s
Association, said: “the bank’s interest is
aligned with that of the borrower.” As Beton points
out, lenders would prefer to avoid the costs associated
with re-possessing or authorizing the forced sale of
a home.
In other words, it’s in both parties’ best
interest to avoid this, if at all possible.
The sole purpose of the Homeowners Preservation Foundation
is to help financially struggling mortgage holders work
things out with their lenders. The foundation — which
was established several years ago thanks to a $20 million
grant from General Motors’ residential funding
division — offers a hotline you can call 24/7 because,
as Beton explains, “sometimes you wake up in the
middle of the night worried about how you’re going
to make this month’s mortgage payment.” Its
counselors have all passed a special training course
certified by HUD, the federal Department of Housing and
Urban Development. They stand ready to help you understand
your options so you can approach your lender and work
out a solution.
Here’s the only problem: you have to ask for it.
Unfortunately, “in 50 percent of the cases” a
homeowner who receives a default notice from his/her
mortgage company takes the head-in-the-sand approach.
When/if they finally call the Homeowners Preservation
Foundation, it’s in the eleventh hour and there
are few, if any, options left.
If you are among the thousands of individuals worried
about making mortgage payments, you need to understand
that you have a much better chance of keeping your home
if you contact your bank or mortgage company sooner rather
than later. “Ignoring the notices or going into
a state of denial,” says Beton, “is the worst
thing they can do.”
In some cases, you know well in advance of receiving
the first default letter that you’re going to be
in trouble in a month or two. “If you get a lay-off
notice, call your mortgage company at that time,” advises
Beton. “You know the loss of your income is going
to affect your ability to pay your bills.”
There’s no one-size-fits-all solution, or “work-out” in
mortgage-speak. It depends upon your particular situation.
If your problem is temporary (for example, you expect
to land a new job in a month or so), the bank may agree
to what’s called “forbearance” — it
will allow you to postpone making any mortgage payments
for a specific period of time. Or it might propose a
re-payment plan that permits you to make up your missed
payments by paying a little extra each month until you
are caught up.
In other cases, you can re-finance. This involves negotiating
a completely new loan with a different interest rate
and re-payment period.
If your situation is truly hopeless, sometimes the mortgage
company will permit a “quick sale.” In this
case the homeowner sells the home for less than the loan
amount and the lender considers the loan paid in full.
The saving grace of this option is that you avoid having
your credit rating slammed by having “foreclosure” stamped
on your record.
Calls to the Homeowners Preservation Foundation’s
hotline are “up sharply” in the past two
months. Counselors handled 2,464 in August and 2,573
in September. In fact, more calls were received in these
two months than in all of last year. Homeowners seeking
advice live in all 50 states and Puerto Rico, but most
of them came from Ohio, Michigan and Texas.
Thirty-seven percent of those phoning the foundation’s
hotline had adjustable rate mortgage problems. However,
an equal number had fixed rate loans. (The foundation
did not have information about the remaining 26 percent
of callers.)
If your home loan is an ARM that hasn’t seen its
interest rate jump yet, the Homeowners Preservation Foundation
says one of the most important things you can do is educate
yourself. It recommends the following:
- Dig out your mortgage agreement and force yourself
to understand those mind-numbing pages of clauses
and conditions. If you can’t understand them or
you have any questions, call the foundation’s
hotline and ask a counselor to walk you through
them.
- Avoid being surprised. Although your lender has
to notify you before your payments go up, “this
might not give you enough time to adjust your budget.”
- Get
real. Take a hard look at your budget and decide
whether you can comfortably handle the higher payment.
- Contact
your lender. If you think your new payment
will be more than you can handle or if you’ve
already missed a few, discuss your options.
- Get
counseling. If you’re unable or unwilling
to work out an agreement with your lender, seek
out objective, third party advice.
This piece of advice is from Gail: be careful when choosing
who to turn to. The Homeowners Preservation Foundation
is non-profit. You can contact them as many times as
you like. All of its services are completely free. In
some cases, they will even contact your lender on your
behalf. Their hotline is: 1-888-995-HOPE (1-888-995-4673).
Keep the faith,
Gail
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