Common Sense! Proceed Honestly! Lay Your Cards on the Table!
We, as well as our homeowner clients, have been told time and time again to be upfront with your lender if you anticipate running into difficulty keeping up with your house payments. We've often heard, "Contact your lender BEFORE you get into financial trouble, while your loan is still current, and they offer forbearance while your payments are still current!"
In reality, however, with so many homeowners now delinquent in their mortgage loans, most lenders have little time to deal with you unless you are already in mortgage arrears!
What a Catch 22! Want to stay out of financial trouble? You have to get into financial trouble first, then, perhaps, we can help you get out of it!
PERHAPS is the keyword here! Those already delinquent in three or more mortgage payments may have little option but to sell short, or risk losing their home in foreclosure.
This is the exact problem our Team ran into with one of our clients with a condo on the Chicago Neighborhood of Rogers Park, on the Far North Side of Chicago.
The wife lost her job in a corporate cutback. The husband, a server in a casual restaurant, didn't make enough to keep things afloat long-term without his wife's help and income. The couple had a younger child.
When they called their lender, Wells Fargo Home Loans, the most they would offer is forbearance - splitting an upcoming mortgage payment over the ensuing twelve-month period, after a careful review of their current financial situation, income, spending habits and assets. The process could take anywhere between 10 and 30 days for approval. Attempts to further discuss their potential financial hardship with a supervisor were thwarted - or met with little or no response.
Their application for forbearance was closely scrutinized - initially rejected for less-than-complete information, and approved nearly two months later. It only deferred one payment, and divided the delinquent amount among the future twelve payments due.
After hanging on and making ends meet with this higher monthly payment for several months, they began to fall behind - one month, two, then three. They received a notice that foreclosure proceedings would begin after nearly four month's delinquency - Cook County Records indicated foreclosure was filed the following week.
Now, as they contact the lender, they are met with resistance when they attempt to renegotiate loan terms. The only option, says the lender - is short sale - where the bank considers settling for less than the full mortgage balance due after the property is sold and closed.
But their high-leverage position, and declining market value for condos in the Chicago Rogers Park Neighborhood, coupled with high inventory in the area, makes it less likely for a short sale to succeed. (In our experience, even properties that receive a contract for a potential short sale take between two and three months for the bank to approve - and potential buyers often lose patience and walk away!)
This makes foreclosure the most likely eventual outcome!
According to U.S. Credit Bureau TransUnion, from data covering the First Quarter of this year, the percentage of homeowners at least 60 days late on their mortgage payments is now 3.23% of all mortgage loans. That percentage has grown for five consecutive quarters!
Mortgage loans originating last year, in 2007, are falling delinquent at at a heretofore unseen rate. Until these delinquencies are resolved, foreclosure numbers, already at record high levels, are likely to escalate even further. Read our post via BlogChicagoHomes.com on August 7th for more on the escalating mortgage delinquency numbers.
Companies that service mortgages, and actually collect payments from home borrowers, completed a record 181,000 mortgage workouts in June, up from 167,000 the month before.
One heavily-reported culprit in today's mortgage mess is the Adjustable Rate Mortgage (ARM). Loans with three or five year rate reset periods begin with affordable house payments. But this quickly changes after a scheduled rate adjustment.
In one example in the Chicago Suburb of Palatine IL, a family with a Countrywide Mortgage saw their interest rate rise to nearly 11 percent, with the resulting house payment increasing nearly $275!
The borrower was asked to complete a Letter of Hardship, a Financial Statement, a Detailed Budget, and Proof of Bank Deposits- including loans, off the books, from family members, to help them pay their house payment each month.
After several months of spotty response from the lender, the homeowners request to modify the loan terms, to a more affordable, fixed-rate loan were rebuffed - because they not yet technically delinquent on their loan payments!
Eventually, they got their modified loan approved - at an interest rate of a more affordable 7.25% for five years - but only after contacting IL Attorney General Lisa Madigan, and writing calls for rescue letters to The Chicago Tribune.
Contrary to what common sense may dictate,lenders often prioritize forward-looking borrowers, seeking to avoid late payments, far behind those already in trouble, and several months late on their payments. It appears, due to the incredible level of delinquencies, banks offer little time, and little help, to those starting early.
See our post via BlogChicagoHomes.com last Sunday, August 10th, for more info, as well as a link to Susan Chandler's article in last Sunday's Chicago Tribune.
DEAN & DEAN'S TEAM CHICAGO
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