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Avoiding Foreclosure
Unfortunately, too many people don't know this. In fact, according
to a survey conducted by lender Freddie Mac and market research
firm Roper Public Affairs and Media, nearly two-thirds of delinquent
borrowers are unaware that their lender even offers repayment options.
Pressure on Lenders, Help for Borrowers
Banks really don't want your house, and there's enormous financial
pressure on lenders that foreclose. According to a recent New York Times
article, it actually costs a bank an average of $40,000 to foreclose on
a loan.
Equally important to lenders is the political pressure currently being
placed on them to "work out this problem." The Federal Reserve,
Congress, the Senate, and presidential candidates are all paying
attention to the issue of record foreclosures, many of which are a
result of adjustable rate mortgages (ARMs) and subprime lending.
In addition, agencies like Fannie Mae, Freddie Mac, and the Federal
Housing Administration have begun putting pressure on lenders to offer
more options to borrowers in trouble. As a result, there will be more
help than ever for borrowers to work out a way to stay in their homes.
The Six Steps
With that in mind, here are six things you need to know if you or
someone you know is having a problem making their mortgage payment:
1. Call your lender immediately.
The single biggest mistake borrowers make when they fall behind on their
mortgage is not contacting their lender. As soon as you realize you have
a problem, you've got to make that call.
"The sooner the lender is approached, the better," says Tim McGarry,
spokesman for Washington Mutual. "Even after one receives a default
notice, one should contact the lender and open up discussions." The
foreclosure process for most lenders has a set schedule (see point 6
below), so the longer you wait the fewer options you'll have.
2. Ask to speak to the "loss mitigation" department.
See if your monthly statement contains the phone number to the lender's
loss mitigation department. If not, call the customer service number and
ask for that department.
At most lenders, the loss mitigation department helps borrowers
determine which workout option they qualify for. Keep in mind, though,
that some lenders have their collections departments advise borrowers on
workout options, so don't be alarmed if you're sent straight to
collections.
3. Be prepared to review your situation in detail with your lender.
Your lender will ask a series of questions to assess your financial
situation. Some lenders, like Wells Fargo Home Mortgage, have
specialists with both the training and technology to pre-qualify a
caller for a workout option right over the phone.
If you have the right financial documents in front of you when you make
the call, you might be able to get a resolution within minutes. So
organize your bills, statements, and anything else that will help give
an accurate picture of your current financial status.
Patrick Carey, senior vice president of Default and Retention Operations
at Wells Fargo Home Mortgage, advises borrowers to be completely honest
and upfront about their personal financial situation. "You've got to be
candid," Carey says. "If you make your situation out to be better than
it actually is, you'll get a workout agreement that isn't going to help
you, leaving you worse off than where you started from."
On the other hand, he goes on, "If you make your situation out to be
more dire than it is, your lender might determine that there's no way
for you to afford your payments and may only offer liquidation options."
4. Know the ways your lender can help you avoid foreclosure.
Depending on how serious your situation is, your lender can either offer
you retention options (ways to keep your house) or liquidation options
(ways to give up your house without going into foreclosure). Specifics
for each vary from lender to lender, but here's a general list of what
to expect:
Retention options: A 2004 Freddie Mac study showed that retention
options could lower the probability of foreclosure by 80 percent among
all borrowers and by 68 percent among subprime borrowers. Retention
options include:
• Forbearance: Generally lets you pay less than the full amount of your
mortgage payment for a temporary period.
• Repayment plan: A form of forbearance where you pay the outstanding
amount in installments divided over a period of time.
• Reinstatement: You pay your lender the total outstanding amount in one
lump sum by a specific date.
• Loan modification: Your interest rate and/or term of loan is altered
-- that is, the mortgage note itself is changed.
Liquidation options: If you simply can't afford to stay in your home and
haven't been able to sell it, you may qualify for one of the following
liquidation options:
• Short sale: When you get an offer that's less than the amount you owe,
your lender could consider it as a settlement.
• Deed in lieu of foreclosure: This allows you to transfer your property
voluntarily to your lender.
• Assumption: Permits a qualified buyer to take over your mortgage debt
and pay the mortgage payments.
If you have an FHA loan, you may have additional options available to
you. For example, HUD provides interest-free loans to repay past-due
interest and escrow amounts. It's important to check with your lender
for details.
5. Know where to turn if you aren't getting the help you need from your
lender.
There are other places to go for help if you find that your lender isn't
being helpful. It's important not to give up, and to take further
action. The Homeownership Preservation Foundation is a HUD-certified,
nonprofit organization that offers advice and resources to help
homeowners with financial challenges. Reach out to them by calling
1-888-995-HOPE.
6. Be aware of the foreclosure process -- and consequences.
If you're not making monthly payments and haven't discussed workout
options with your lender, eventually the foreclosure countdown gets
under way.
In general, there are four stages:
1. Redemption: The lender's attorney contacts you and gives a deadline
-- known as a cure date -- by which all missed loan payments must be
paid back in full in order to avoid foreclosure.
2. Default: If the cure date comes and goes without you doing anything
about it, the lender posts a notice of default.
3. Foreclosure: If you don't cure the delinquent payments after the
default notice has been posted, the lender exercises his rights under
the trust deed he holds and forecloses on the mortgage, taking
possession of your house. If you're still living there, the lender will
get a court order to have you evicted.
4. Sale: The lender sells the foreclosed home at public auction. This
can take place within 30 to 120 days depending on state law.
You should avoid foreclosure at all costs. Not only will it ruin your
credit rating, but losing your home to foreclosure is one of the
scariest experiences a family can go through.
Take Control of Your Future
If you have a subprime or ARM, pull out your loan documents today.
Figure out whether you're going to have a problem meeting the monthly
payments in the future. If so, call your lender right away to find out
about refinancing options.
The bank will usually contact you 45 days before your mortgage resets,
but by then it's too late to take any real action. Instead, take
control. Contact your lender 120 to 180 days in advance to get working
on your options.
Remember, your home is probably your best investment and largest asset.
Do all you can to protect it -- and yourself.
Please, don't hesitate to call Stan @ 404-425-3258
if you have additional questions.
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Stan McLaughlin
"A professional your family can trust and depend on"
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