Facing the Problem of Foreclosure.
One and one half million families in 2007 and a projected two and one half million families in 2008 are facing the problem of foreclosure because they are caught in a subprime mortgage that they were granted in spite of the fact that they had poor credit.
This kind of easy credit seemed the ideal path to the dream of a home of one’s own, with little to no down payment and low (even if only temporarily) interest rates.
Now that home prices are falling, and the reset rate on these adjustable rate loans are rising, many of these homeowners are facing real problems.
Interest rates close to 10% could mean mortgage payments of over $2,000 on homes that cost only $200,000. Every small adjustment in the ARM (Adjustable Rate Mortgage) could mean a $300 to $400 increase in the mortgage payment. A further catch is that the homeowner can’t even attempt to refinance at a better rate because his credit is still poor and his home value has gone down. (In all too many cases, the value of the property is less than the outstanding balance on the home loan.)
How can these borrowers cope? There are some federal programs being considered that may help, but homeowners have to look into what they can do.
The first thing to do is not to ignore the problem. If you know you will be late or unable to pay your monthly mortgage, get in touch with your bank and explain the problem. In many cases, they can work out a payment plan, especially if there has been some problem such as a loss of a job or sickness.
Speak to a counselor. There are counselors who have been appointed by the Department of Housing and Urban Development to work with consumers to advise them in these circumstances.
Pare your budget down to the essentials to reduce overall costs. You may not be able to cut down on energy and food expenses, but now is not the time for the cell phone plan with a phone for each member of the family, or the best high density television package from your cable provider. What is saved can be used to reduce high interest rate debt, such as credit cards.
Find out if you may be eligible for government assistance. The federal government has a new program for low income families that will let them roll over into a 30 year fixed rate home loan, as long as they were current on their mortgage before their ARM rate reset.
Some other steps are more drastic, but may be preferred to foreclosure.
Get rid of the house. This is probably far from the most opportune time to sell your house, but many lenders may take the proceeds of the sale in full settlement. It is better for them rather than endure the long foreclosure process.
File for bankruptcy. This last solution is not at all attractive, since it will have a negative effect on your life for many years. Your credit rating will, of course, be even further damaged, but your loans will be consolidated and some even eliminated, allowing you to catch up on your debt.
The bottom line is that the wise borrower will attempt to take steps before late reminders pile up and foreclosure is the only answer.
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