If you are facing foreclosure you are not alone. Thousands of people have lost their homes to foreclosure in the last year and thousands more will face financial hardship leading to foreclosure before things balance out.
The Foreclosure Epidemic
The foreclosure epidemic began with subprime mortgage lending which created what we call the mortgage melt-down. No one anticipated this; the mortgage industry is not entirely to blame. The adjustable rate mortgages (ARMs) and other creative financing methods were great deals for many people who could benefit from these programs. Many borrowers were able to get 100% financing at a very low rate, fixed for 3 years. Of course, they were aware that the rate could increase significantly when the time came for the ARM to reset, but they werent worried; they planned to refinance and get out of the ARM before that happened.
What we didnt count on was the devastating turn the economy took with high unemployment rates and declining real estate values. Responsible, hardworking people lost their making it impossible for them to make their mortgage payments. The value of homes has declined so low that many owe more than their house is worth in todays market. These are two common examples of roadblocks to refinancing a mortgage.
To Make Matters Worse
The foreclosure crisis continues as people are forced to walk away from their homes. Lenders and investors are losing money and mortgage guidelines are tightened. People with perfect credit are having difficulty getting a new mortgage with an affordable fixed rate.
Unfortunate things happen to responsible people. Foreclosure is painful, no matter what the cause. People who face losing their homes to foreclosure feel helpless as they wonder who to turn to for help. Many are tired of the phone calls and letters from their mortgage companies demanding payment.
To make matters even worse, they are getting letters from consultants and services promising to help them, using phrases like we will save your home or we can stop foreclosure. Though some of these companies are honest, many are scandalous, preying on the helpless, demanding big fees and providing little service. A reputable company does not approach you; they may advertise, but they do not send letters that guarantee favorable results. They are predators who found your name on a foreclosure list or in the legal news.
Foreclosure Help
Now that I have explained how we got into the foreclosure crisis, I will cover some of the options available to you. One is to just walk away. Though many people are doing this, it should be your last resort. A foreclosure is very damaging to your credit report and it is one of the items that take the longest time to be removed from your credit history. There are cases where this is your only option, but there are others to consider as well.
Some people are able to negotiate a mortgage modification plan with their lender to make their mortgage more affordable. The lender/servicer may agree to reduce the interest rate or extend the mortgage term. In some cases, lenders have been known to stop the foreclosure process and write off late fees, accrued interest, escrow shortages and even some of the principal. They might allow the borrower to start over with a whole new mortgage. Years ago, this was not common; however, things have changed drastically and so have lending practices.
Another solution is to list your home and see what kind of offers you get. Chances are you will not be able to sell the home for what you owe on the mortgage because market values have declined sharply. In this case, you need to negotiate with your lender to convince him/her to accept a short sale. A short sale is a transaction where the lender is willing to accept less than what is owed now rather than foreclose on the home, incur legal expenses, wait out the redemption period, evict the homeowner, secure the home, list the home, etcAll of this takes time and effort; meanwhile, values continue to decline and the mortgage holder takes a greater loss.
Homeowners can discuss these solutions with their mortgage company, but many are too upset and they just dont know what to say. Just getting through the system to reach the person you need to speak to is an ordeal and the negotiation process is difficult as well. There are honest consultants who specialize in this type of service for a reasonable fee.
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