The reports paint a dark picture. According to the Mortgage Bankers Association more than 2.1 million Americans missed at least one payment on their home loan at the end of last year, taking the rate of new foreclosures to a record high.
It’s even worse for borrowers with scuffed credit and adjustable-rate mortgages. More than 14 percent of them were behind on their payments.
But the worst is yet to come according to the MBA. The association predicts that least $300 billion in subprime ARMs will reset this year to higher interest rates, and those borrowers face higher payments and a harder time refinancing.
The good news is lenders don’t really want to or like foreclosing on homes. After all, that would mean no money for them. Plus they would have to take up the burden of reselling the house, so it’s in their best interest to work with you. In most cases they can work out new terms, or help you to get caught up.
You make the call
However, you are going to have to take that first step and call them. A lot of people are usually hesitant to take this first step out of fear and embarrassment, but according to several experts it’s what trouble homeowners need to do.
“The single biggest mistake borrowers make when they fall behind on their mortgage is not contacting their lender,” David Bach, author The Automatic Millionaire wrote in a recent article. “As soon as you realize you have a problem, you’ve got to make that call.”
By making that call your lender can come up with several ways you can keep the house or ways to give up the house without foreclosing. It all depends on your financial situation.
Ways to keep the house includes:
- Paying less than the mortgage’s full payment for a temporary period.
- Paying the outstanding amount in installments over a period of time.
- Paying the lender the total outstanding amount in one lump sum by a specific date.
- Altering the terms of the loan. For example refinance from a 15-year term to a 30 year term for smaller payments.
- The ways to get out of the house if you are having problems selling include:
- Short sale, which is when you sell the house for less than the amount you owe, but the lender agrees to it and consider it a settlement.
- You voluntarily transfer the property to the lender. It would still affect your credit rating, but not as much as a foreclosure would.
- Allowing 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.
If you have a lot of equity built up think about re-financing with an interest-only mortgage. However, be aware that this is only a short term solution and you will have to shop around for the best rate. Websites like Credit and Debt allow you to view and compare offers from different lenders.
The experts also advice you look at refinancing if have a subprime or ARM and suspect you are going to have problems meeting monthly payments in the future.
The bank will usually contact you 45 days before your mortgage resets, but don’t wait for them to call you. You call them about 120 to 180 days in advance to get working on your options.
Yes, dealing with a problem mortgage and saving your home is going to take putting aside your pride and calling your lender. Most times they can help you keep the house.
If that fails, still don’t give up. Continue to take action by calling the Homeownership Preservation Foundation. It’s 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.