With the government pouring billions of dollars into banks in order to buy equity and backing new bank debt, the stock market consistently tanking, unemployment rates soaring, long-standing lending institutions crumbling, it is a scary state of financial affairs for Americans.
One of the many financial crises affecting our economy is the crashing housing market. Before the real estate bubble popped, the economy was healthy and Americans were flocking to buy homes, often in areas where home prices were inflated. Real estate appraisers were over-appraising homes. Real estate agents and mortgage brokers praised creative financing options such as adjustable-rate mortgages (ARM). Banks were approving loans for buyers whose credit was questionable and buyers were offered subprime loans. “No money down” and “100% financing” were chanted from advertisements. However, as many ARMs were coming out of the introductory period and the balloon payments began, home buyers were shocked and not ready for these higher payments, which now included the principal balance.
ARMs, subprime loans, and the downturn in the economy all led to the foreclosure crisis. If your payments on your mortgage have become increasingly less frequent, you’re not alone. According to the Mortgage Bankers Association (MBAA), 6 in 10 homeowners are already delinquent on their mortgages. 250,000 new families will go into foreclosure every three months. 1 out of every 200 homes will experience a foreclosure.
The thought of going into foreclosure is terrifying, but it can be avoided. Foreclosures affect your credit negatively and will definitely make it almost impossible to purchase another home soon. Here are steps you can take so you don’t have to watch your house go into foreclosure.
When you’re running behind on your mortgage payments, don’t let pride stand in your way for getting some relief. Stop letting those phone calls go to your voicemail. Stop throwing letters into the garbage. Call your mortgage lender immediately and tell them you are having problems paying your mortgage payment and ask them for a solution. Banks don’t like the idea of foreclosures any more than you do. They lose a lot of money that cannot be made back. By negotiating with your lender, you give yourself more options in paying back your mortgage and take one step further away from foreclosure.
Lenders may provide you with several options to help keep you in your home. A loan modification reduces your monthly mortgage payment to an amount you can afford. However, the amount you’re not paying now will get tacked on to the end of your loan. This can extend the length of your loan significantly. You may be able to file a forbearance which can allow you to reduce your payment or temporarily suspend payment for a given amount of time. Your lender may allow a reinstatement where you agree to pay off the past due amount by a specified date.
Start looking at your budget and finding ways to put less money into clothing or coffee and more money into your mortgage payment. Instead of driving your car everyday and paying a ridiculous amount of money for gas, look for ways to carpool with your co-workers. Start enjoying public transportation. I took the bus for more than a year when I was living in Los Angeles. I didn’t have to think about being too tired to drive or sitting in a traffic with nothing to do. I read plenty of books and met a lot of interesting people. Do you really need all the bells and whistles of your cell phone? Maybe it’s time to switch to a pay-as-you-go phone. Monthly bills like the cell phone and gym memberships can wreak havoc on your budget. These changes don’t have to be permanent, but they need to happen or you can easily run the risk of ruining your credit and losing your home. This is not a time to be flaunting your pride and doing things out of convenience. Foreclosure is a serious situation and you need to make any adjustment to your lifestyle in order to make those monthly mortgage payments.
When you examine your budget, your mortgage payments should be at the top of your priority list. If you need to be late on a few credit cards, then do so. The added credit card fines and delinquencies will impact you far less than losing your home.
You may be forced into selling your home or giving it back to the bank. If you owe more on your home than it is actually worth, a short sale may be an option for you. Based on what your mortgage lender agrees to, your home will sell at a discounted price. Your lender may conclude that your debt is settled. A deed in lieu of foreclosure is another option that your lender may agree to, but only after you have tried to put your home on the market. A deed in lieu basically allows you to sign your home over to the lender so they can sell your home and your loan is considered canceled. There are ramifications for either of these options, so make sure you educate yourself and seek out counseling before proceeding.
Unfortunately, there is a growing trend of scam artists who are willing to take you for everything in this current foreclosure crisis. Some companies will offer to talk to your lender for a fee which can often be five times the amount of your monthly mortgage payment or more. Of course, the problem never gets resolved, because these scam artists never call your lender. They’ve only taken away your hard-earned money and left you with nothing but an even bigger headache. Some scammers say that for a fee they can renegotiate your mortgage payments for you but require you to sign documents, and before you know it you’ve signed away your home to a stranger.
Foreclosures bring a higher rate of depression, desperation, and a feeling that nothing will ever get better. Don’t fall for scams and become confused by their sunny rhetoric. If you’re not dealing with your lender directly, be prepared for the fallout that may occur. Never sign anything with regards to your home and the deed until you have a lawyer examine the documents. It’s easy to accept anyone’s help, but make sure you’re getting the right kind of help. Accepting that you have a financial problem and willing to work with your lender can be the difference between a warm place to sleep at night or racing out of town with nowhere to go.