By Chris Sloan, president of the Utah Association of REALTORS®
31 January 2009 - If you're having trouble paying your
mortgage, you're not alone. Risky loans, home price corrections and a struggling
economy have made it harder for families all across the country to keep
up on their mortgage payments. In 2008, more than 3 million U.S. homeowners
received some sort of foreclosure filing on their home, according to RealtyTrac
data.
As a result of the increased foreclosures, the National Association of
Realtors has created a consumer education brochure, "Are You Having
Problems Paying Your Mortgage? Learn How to Avoid Foreclosure and Keep Your
Home," that provides homeowners with information about how they can
possibly save their homes from foreclosure. In this column, I will highlight
the information contained in that brochure.
One set of loans that has a particularly high foreclosure risk is subprime
mortgages. Because subprime loans were often purchased by those with weak
or blemished credit, they had higher interest rates and higher costs. One
product that was particularly popular is called a hybrid adjustable-rate
mortgage. This type of loan starts out with a low, teaser rate that lasts
for a couple years. This lower rate is then followed by significant payment
increases over the life of the loan.
This interest rate increase is often referred to as "payment shock"
because the borrower is surprised by the size of the larger payments. When
homeowners are unable to refinance these types of loans, foreclosure often
results because the borrower cannot afford to continuously make the higher
payments.
If you find yourself in a similar situation where you cannot afford to
make your mortgage payments, don't avoid the problem. The sooner you act,
the more likely you'll be able to save your home from foreclosure. And help
is not limited to those with subprime loans; people who have lost their
jobs or face other financial difficulties should also seek out help. The
NAR brochure suggests the following options:
First, the best and least expensive way to save your loan will be to work
directly with your lender or the loan servicer who collects the payments.
Your lender may allow you to make a partial payment or skip payments if
you have a reasonable plan to catch up. Or you may be able to arrange a
repayment plan where you pay an additional amount each month until you are
caught up. Your lender may also agree to amend your loan terms to help you
avoid foreclosure (e.g. switching from an adjustable-rate mortgage to a
fixed-rate mortgage or giving you more years to pay off the loan).
Second, if your current lender is unable or unwilling to help, you may
be able to refinance your loan with another lender. If you are able to refinance,
remember that you should shop carefully for a loan. Getting a loan with
a low interest rate and low fees can save you thousands of dollars in the
long run.
Third, try contacting a counseling agency. The Homeownership Preservation
Foundation provides a nationwide assistance number, (888) 995-HOPE, that
allows you to speak with a foreclosure counselor day or night. More information
about the hot line is available at www.995hope.org. Reputable counseling
agencies can also be found on the U.S. Department of Housing and Urban Development's
Web site, www.hud.gov/counseling.
Fourth, consider selling the home. It is better to sell than to have a
foreclosure on your credit report that could prevent you from buying another
home in the future. If you are having trouble selling your home because
you owe more on your mortgage than the property is worth, a short sale may
be the solution. In this situation, a bank may allow you to sell the home
for less than the mortgage amount by forgiving a portion of your debt. These
transactions can be very complex, so make sure to work with a Realtor who
has experience working with short sales.
Finally, be wary of any advertisements like "We Buy Houses for Cash"
or any other claim that sounds too good to be true. Foreclosure rescue companies
will pocket fees from homeowners and the foreclosure often takes place anyway.
Remember, you are more likely to get help if you seek out assistance early.
For more foreclosure prevention tips as well as a copy of The National Association
of Realtors brochure, visit www.Realtor.org/subprime.