More homeowners are falling behind on mortgage payments. According to the Mortgage Bankers Association, about 12 percent of the country’s 45 million home loans were delinquent or in some stage of foreclosure process during the first quarter of this year.
Experts are predicting that the number of foreclosures would probably keep on rising as more people loose their jobs. Almost 6 millions jobs have been lost since the recession began last year and many economist are predicting that unemployment rates will rise to around 10 percent by next year.
The previous wave of foreclosures were primarily sub prime loans involving investors who just dumped properties which had lost its value; or, involved homeowners who were never qualified, or, otherwise qualified under so-called “liar loans”. The wave of foreclosures caused by sub prime loans is now being replaced by foreclosures on prime fixed-rate mortgages. For the first time, foreclosures on these prime loans now make up the largest share of new foreclosures. In the first quarter of this year around 6 percent of all prime loans were delinquent.
Foreclosures on these prime loans affect homeowners who have had good credits and good jobs, but due to loss of employment, can now no longer afford to keep up with their monthly mortgage payments. With millions of jobs lost, millions of homes are now likewise facing foreclosure.
So if you are facing foreclosure, what can you do?
The first thing to do is to call your lender and let them know the problem and find out what you can or can’t do about it. Many people facing foreclosure never make that call and just hope for the problem to go away. It never does. You will lose your home.
Normally, lenders do not want your home. They want you to continue making house payments. Foreclosure proceedings cost lenders money and maintaining the house after foreclosure also costs money to the lenders. So it is often in everyone’s interest to agree on new terms that modify the current mortgage. However, nothing can start without that phone call. Oftentimes, it is very discouraging and time-consuming to call lenders. If you don’t know the person to call or the number to call, you can be put on hold or passed from one department to another for a very long time.
You would want to avoid talking with a collection agency or a company’s collection department, as they may not want to work out new terms if they get paid only to collect your money. Instead, you want to go directly to the lender’s “Loss Mitigation” department (some may call it the “foreclosure prevention department”) and discuss your financial situation. If you qualify, these options may be available:
- Forbearance Agreement – Some lenders may suspend payments for a short period of time and then you agree to pay based on your current financial status until you catch up.
- Mortgage Modification – The lender may work out new terms and interest rates that allow the homeowner to have a lower monthly mortgage by reducing interest rates, or making a longer loan term, i.e., making a 30-year loan into a 40-year loan.
- Refinancing – If you still qualify, working out a refinancing under Obama’s program may also be an option.
- Short Sale – The lender may also permit you to do a short sale where the property is sold for less than the mortgage balance
- Deed-In-Lieu – As a last resort, it may be best for you to give the house back to the lender. This may be better for your credit than an actual foreclosure.
You may also want to get independent counseling. The Department of Housing and Urban Development (HUD) has a list of certified counselors on its website that you can call. You may also want to talk to legal professionals who can give you advise on all your rights and the legal options you can take.
According to statistics, between 40 percent and 50 percent of the people actually foreclosed on have had no contact with their lender or a counseling agency. The point is, you cannot just do nothing and hope that the problem will go away. It will not go away. You will loose your home. You need to be pro-active. Call your lender and/or talk to a legal professional to find out what all your available options are.
(Disclaimer: materials presented above are intended for informational purposes only. It is not intended as professional advice and should not be construed as such. Rey Tancinco is a partner at Tancinco law offices, a professional corporation with offices in San Francisco, Vallejo and Manila. The law office website is tancinco.weareph.com/old. Rey Tancinco can be contacted at (800) 999-9096 or (415) 397-0808 or via email at attyrey@tancinco.com)
