Diane DiDonato-Blanarik
Diane DiDonato-Blanarik, president of United American Abstract, LLC, a title insurance agency based in Pittsburgh, www.allamericanabstractllc.com. She has more than 25 years of experience in the real estate industry.
More than two million Americans are behind on their mortgages and risk foreclosure on their homes. Millions more could face similar problems as their adjustable-rate mortgages (ARMs) reset to higher monthly payments.
Many retirees with ARMs are in a vulnerable position because it is difficult to keep up with rising mortgage payments on a fixed income. In decades past, many home owners paid off their mortgages before retirement, but today, many seniors still have years of payments, often because they recently refinanced.
Home owners typically respond slowly to mortgage troubles in hopes that the problem will somehow miraculously disappear. The sooner you take action, the greater the odds that you will be able to keep your home. Home owners who miss multiple mortgage payments or who run up balances on credit cards to make ends meet should know that their credit scores will be affected, which will put them in an even more damaging financial position.
It can be hard to know how to proceed when you fall behind on a mortgage. Bill collectors want their money… and companies that offer “mortgage solutions” often are scammers. A step-by-step look at where to turn…
1. Approach your lender to see if it can make arrangements to have you make interest-only payments until you can refinance or establish another payment plan.
It is rare that mortgage lenders will even consider a reduced payment plan unless it is a problem that affects a majority of borrowers. With the number of foreclosures throughout the US, this is the first time that the federal government has become involved in helping consumers with these types of mortgage products.
If the equity in your home is less than 95% of the value, lenders will be more apt to look at foreclosure as an option. Remember to be proactive and to call the lender at the first sign of financial distress.
Have your loan number and the name of your servicer (the lender who may be assigned the mortgage after the closing) handy.
Finally, write a letter to the lender and document it by sending a copy to a third party, such as your lawyer, accountant or credit counselor — as well as to your children if they are involved in your financial matters — in case the lender denies that your request for help ever reached its destination.
Loan modification, when available, is a more attractive option than refinancing because it does not involve additional closing costs and points. There might be a fee of $350 to $500.
2. Call or visit a Housing and Urban Development (HUD) — approved credit counseling agency (800-569-4287, www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm).
Key: You, as the borrower, must keep your credit in good standing if you are to be given consideration regarding your mortgage.
A credit counseling agency will be able to review your total debt ratio as well as make suggestions as to how to consolidate your credit cards.
Example: If you have high-rate credit card debt in addition to your mortgage, a credit counseling service might be able to arrange a debt consolidation loan with a lender, reducing your monthly bills. That might be enough for you to afford your mortgage.
The agency may also give suggestions on which credit card companies have rates that are much lower than those you already have.
3. Tell your family. Retirees often don’t share their financial problems with their grown children because they are embarrassed to find themselves in a bind. If you are facing foreclosure, it is time to let your family know.
A financially savvy adult child might be able to help you negotiate with your lender or even lend you the money to bring your mortgage current. It is not selfish to ask for your children’s assistance with the mortgage.
Example: I spoke with a couple in their 80s who were days away from losing their home to foreclosure, but still had not told their children what was going on. Once informed, their children rapidly gathered together the $5,000 that their parents needed.
4. Contact the FHA or VA. The Federal Housing Administration (FHA) can help some home owners stuck in ARMs refinance to more affordable fixed-rate 30-year mortgages. Home owners with solid credit histories and ARMs that have reset are most likely to qualify for these programs. Other restrictions apply, and there might be closing costs. Contact the FHA to find approved lenders in your region (800-225-5342, www.fha.gov).
If you are a veteran, you also might qualify for an attractive Veteran’s Administration (VA) refinanced mortgage (800-827-1000, www.benefits.va.gov/homeloans/).
Important: Be very cautious about refinancing to a non-FHA or non-VA mortgage. Some unscrupulous loan brokers charge desperate home owners hefty fees to refinance, then put them in new mortgages that are as bad as or worse than the ones they had.
5. Contact your state attorney general’s consumer protection department if you think that your lender misled you about the terms of your mortgage. If numerous state residents complain to their attorney general’s office that the same mortgage company misled them about their mortgage terms, it could lead to legal action on the consumers’ behalf.
Example: State attorneys general recently investigated the business practices of the mortgage lender Ameriquest. The company agreed to a $325 million settlement in 2006, most of which was distributed to its customers. It was alleged that Ameriquest engaged in a range of unlawful lending practices, including misleading borrowers about the terms of their loans.
Unfortunately, state attorneys general take action on only a small percentage of the complaints they receive.
Important: Home owners are usually legally responsible for paying their mortgages even if their mortgage lenders were less than honest about the terms of their loans. The courts generally believe that it is the borrowers’ responsibility to wade through complex mortgage contracts to determine whether they are getting the mortgages that they are promised. (It might be possible to escape a mortgage if the borrower has been declared legally incompetent, however.)
6. Sell your home. If your only options are selling your home or losing it to foreclosure, you’re better off selling, even in today’s real estate market. You’ll probably recover the equity you have built up in the home. And the sale may leave you with enough cash for a down payment on a smaller home with a more affordable mortgage. This is unlikely to be an option if you owe more on your home than it’s worth.
