If you are facing foreclosure, you are one of thousands of people who are losing their homes. Unfortunately, thousands more will be in the same situation before the economy improves.
The Foreclosure Epidemic
The increase in foreclosures began with the subprime mortgages that ultimately led to the mortgage melt-down. Many are placing the blame on the mortgage industry; however, no one could have predicted this. The adjustable rate mortgages, known as ARMs were one example of creative financing methods that were great for some people. The benefits of this plan included 100% financing at a low interest rate that was only fixed for 3 years. The plan was to refinance before the ARM reset and rates were increased.
Unfortunately, the economy took a devastating downturn. With unemployment on the rise, many people lost their jobs and defaulted on their mortgage; therefore, they were unable to qualify to refinance their home. Now, they are stuck with a mortgage payment that they cannot afford. In addition, real estate market values declined sharply, making homes unable to appraise for anything near the amount owed on the mortgage; therefore, another roadblock to refinancing.
The Foreclosure Crisis
The foreclosure crisis continues with many people just walking away from their homes. Lenders are hit with financial loss and mortgage guidelines are tougher. Even people with very good credit are unable to refinance their homes to get a new mortgage with a fixed interest rate.
If you think that this can only happen to dead-beats, think again. Responsible, hardworking people are facing foreclosure every day. They are devastated; they feel helpless and they just dont know where to turn for help. They are overwhelmed with credit collection letters and phone calls from their lenders demanding that they make their payments.
To make matters even worse, distressed homeowners are flooded with mail from companies who promise to help with guarantees to save their home or stop the foreclosure process. There are reputable foreclosure consultants who offer solutions, but most of the companies who approach people that are in default on their mortgages are offering a scam. They charge outrageous fees and perform little or no service. These predators can get your name from the legal news or a foreclosure list that they have subscribed to.
Foreclosure Options
Now that we know how we got into this situation its time to find a solution to the problem. You might just walk away. This is what a lot of people are doing; however, it should be the last resort. Foreclosure is very damaging to your credit and it takes a long time to be removed from your credit report. In some cases, walking away is the only option, but there are other options to consider.
Some lenders are open to discussing a loan modification plan to make the mortgage more affordable. They may reduce your interest rate or amortize your payments over a longer term. Ive even heard of cases where the lender stopped the foreclosure process and reduced the balance owed, allowing the homeowner to start fresh with a brand new mortgage. This practice was not common years ago; however, things have changed drastically and lending practices have followed suit.
You might try selling your home, even though it is likely that you owe more than it is worth in todays market. There is a good chance that your lender will accept what is called a short sale, where they agree to take less than what is owed to them. Many lenders realize that they can cut their losss by taking a short payoff now, rather than waiting out the foreclosure process, evicting the homeowners and listing the house for sale. They stand to lose more money as the market values continue to decline.
Homeowners can discuss these solutions with their mortgage company, but many are too upset and they just dont know what to say. Just getting through the system to reach the person you need to speak to is an ordeal and the negotiation process is difficult as well. There are honest consultants who specialize in this type of service for a reasonable fee.
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