It's no secret that 2 million adjustable-rate mortgages will be reset over the next two years, according to an estimate from the Department of Housing and Urban Development, and of them, about 500,000 are expected to go into default. So the question is what can be done?
In September President Bush announced FHASecure, a plan that is aimed at helping approximately 240,000 homeowners refinance their adjustable rate loan into a fixed rate FHA loan. To be eligible, they must have a sustained history of employment, sufficient income to make the refinanced mortgage payments and a history of on-time mortgage payments before the rates reset. The reset must occur between June 2005 and December 2008, the borrowers must have at least 3 percent equity in their houses, and they must pay for mortgage insurance.
In addition to this came the announcement of HOPE NOW, an initiative designed to bring together the resources of the public, non-profit and private sectors in addressing the challenges facing homeowners who are experiencing financial distress and allows for the sharing of resources to reach out to customers who are at risk and pursue options to avoid foreclosure.
With all this in place there is still one fundamental piece missing...the homeowner! "A HUD study found that half of all homeowners facing foreclosure are afraid to contact their lender for help," said Adam Glantz, a HUD spokesman in Manhattan. The banks want to help but they can't because the homeowner is avoiding them by not responding to mail or phone communication.
In an attempt to eliminate your fears surrounding talking with your lender, I want to share with you what your options are if you're facing foreclosure and don't know what to expect.
There are many workout options available but here are the most popular:
The most important of all workout strategies begins when you talk to your lender. If you don't respond to them they have to assume you don't want to work with them and their only option in that situation is to foreclose.
Forbearance- You may be allowed to delay payments for a short period, with the understanding that another option will be used afterwards to bring the account current.
Reinstatement- When you are behind in your payments but can promise a lump sum to bring payments current by a specific date.
Repayment Plan- If your account is past due, but you can now make payments, the lender may agree to let you catch up by adding a portion of the past due amount to each current monthly payment until your account is current.
Loan Modification- The lender can modify your mortgage to extend the length of your loan (or take other steps to reduce your payments). One solution is to add the past due amount into your existing loan, financing it over a long term. This may help you catch up by reducing the monthly payments to a more affordable level.
Partial Claim- Your lender may be able to work with you to obtain a one-time payment from the FHA-Insurance fund to bring your mortgage current. When your lender files a Partial Claim, HUD will pay your lender the amount necessary to bring your mortgage current.
Preforeclosure Sale- If catching up on payments is not possible, the lender might agree to put foreclosure on hold to give you some time to attempt to sell your home. This will allow you to avoid foreclosure by selling your property for an amount less than the amount necessary to pay off your mortgage loan if necessary.
Deed-in-lieu of Foreclosure- As a last resort, you may be able to voluntarily "give back" your property to the lender in exchange for them forgiving the debt. However, givebacks have a negative impact on your credit record, although not as much as a foreclosure. The lender might require that you attempt to sell the house for a specific time period before agreeing to this option, and it might not be possible if there are other liens against the home.
There are many non-profit agencies who offer assistance for free! They are available to help you navigate through these workout options to help you avoid foreclosure. For a comprehensive list of these agencies please visit www.fha.gov/foreclosure or go to www.hud.gov/foreclosure/index.cfm
There are also reputable for-profit agencies out there that will help you for a fee. Before hiring any of them, it is recommended you thoroughly investigate them for their integrity and competence.
"KS" Kotambu Shabazz
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