One and one half million families in 2007 and a projected two and one half million families in 2008 are going to face the problem of foreclosure because they are caught in a sub-prime loan that they were granted in spite of the fact that they had bad credit.
Easy credit was the perfect solution at this time, especially when there was no down payment required and the initial rates were pretty attractive tickler 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% meant mortgage payments of over $2,000 on homes that cost only $200,000. Every small adjustment in the ARM (Adjustable Rate Mortgage) could result in a $300 to $400 increase in the mortgage payment. Re- financing is not an option since credit conditions have tightened and home values have fallen. “Upside Down” loans, cases in which the outstanding loan balance is higher than the value of the home are becoming common.
How can these borrowers cope? There are some federal programs under consideration that may help, but homeowners have to look into what they can do.
The most important advice you can receive is not to ignore the problem. If it looks like this month’s payment is not going to be made, be sure to call the lending institution and explain the situation. Illness or a loss of employment will almost force the bank to devise a payment plan for you, but if you have just been foolish with your budget, don’t expect a lot of sympathy.
Contact a counselor. The Department of Housing has an approved list of professional counselors who may be able to advise you about steps you may take.
Reduce overall expenses, especially any credit card debt. You may not be able to cut down on food or electricity, but luxury items such as premium TV or phone plans can be lowered. The savings can go to your high interest credit card balances or to catch up on mortgage payments.
Find out if you are eligible for government assistance. Some low income families who were not behind on their loans before their ARMs rate reset, may qualify for a 30 year fixed rate loan insured by the government.
There are some more drastic solutions, but if nothing else works, you may not have a choice.
Dump the property. 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 than a prolonged foreclosure process.
Choose 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 may be consolidated and some even eliminated, allowing you to catch up on things.
Answers do exist, but not if the homeowner waits for them to come to him; aggressively addressing the issue may be the only way to avoid losing your home in foreclosure.
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