Borrowers are Facing Foreclosure Issues.
Millions of people who probably couldn’t afford a house before were offered an opportunity to take out a home loan when loose credit and subprime loans became the vogue, but now it is time to pay the piper.
Easy credit was the perfect solution at this time, especially when there was no down payment necessary and the initial rates were pretty attractive tickler rates.
But the real estate bubble burst, and home values are coming down and interest rates are going up.
Rates on these loans could be as high as 10%at the time when prime mortgages were available at less than 6%, frequently resulting in home loan payments of over $2,000 on even small homes. Now, adjustments to the rates are pushing up the mortgage payments by a further $300 to $400. Even if they would like to refinance, they may not have the option since the value in their home has decreased and credit conditions have become much more stringent. (In all too many cases, the value of the property is less than the outstanding balance on the mortgage.)
Is there anything that a homeowner in this situation can do? Congress is looking into ways to help consumers out of this crisis, but on an individual basis, each homeowner faced with the possibility of not making his loan payment should be very pro-active in addressing the issue.
Ignoring the issue is one of the worst things to do. If it looks like this month’s payment is not going to be made, be sure to call the lending institution and explain what’s going on. In many cases, they will work out a payment plan, especially if there has been some problem such as a loss of a job or illness.
Contact a counselor. The Department of Housing can give you an approved list of professional advisors who may be able to advise you about steps to take.
Lower your expenses, most especially high interest rate ones. Certain expenses may be fairly fixed, like energy or food costs, but any extraneous costs, such as expensive cell phones or TV plans, should be eliminated, at least until the crisis is over. Whatever you can to save you should use to pay down your high interest credit card debt.
See if you qualify for a government aid program. There is a new development for low income families that will allowthem to switch to a 30 year fixed rate home loan (as long as they were current on their original home loan before the ARM rate increased.)
There are some more drastic solutions, but, depending upon the situation, some homeowners may consider them.
Sell the house. In today’s market, that may mean a loss altogether, but banks have been known to consider using the proceeds of the sale as settlement of the loan. This is cheaper for them over time than foreclosure.
Go into bankruptcy. This is the last step you should think about, since your financial life will be ruined for many years in the future. Your credit, already poor, will be worsened further, but if it is the only answer, you may be able to consolidate debt and even have a part of it forgiven in some cases.
Answers do exist, but not if the homeowner waits for them to come to him; aggressively addressing the problem may be the only way to avoid losing your home in foreclosure.
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