Facing the Problem of Foreclosure.
One and one half million homeowners in 2007 and a projected two and one half million families in 2008 are going to face the problem of foreclosure because they are caught in a subprime mortgage that they were granted despite the fact that they had poor credit.
This seemed like a wonderful way to own a house, especially when they were offered with no down payments, and seemingly attractive rates, even if they were going to be adjusted periodically.
Now, loans inflated by the issue that there was no equity put into them and that home prices are now falling precipitously, are becoming the American Nightmare.
Rates on these loans could be as high as 10%at the time when prime mortgages were available at less than 6%, frequently resulting in home loan payments of over $2,000 on modest homes. Even a small adjustment in the ARM (Adjustable Rate Mortgage) could result in a $300 to $400 increase in the mortgage payment. A further catch is that the homeowner can't even attempt to refinance at a better rate because his credit is still poor and his home value has decreased. (In all too many cases, the value of the property is less than the outstanding balance on the home loan.)
Can these homeowners find a solution? There are some federal programs under consideration that may help, but homeowners have to look into what they can do.
The most important advice you can have is not to ignore the issue. As soon as a homeowner realizes he will have a problem with this month's payment, he should contact his bank. Illness or a loss of work will almost force the bank to devise a payment plan for you, but if you have just been foolish with your budget, don't expect too much sympathy.
Speak to a counselor. HUD (the Department of Housing and Urban Development) has a list of counselors they work with who can assist homeowners to find a way out of this problem.
Reduce overall expenses, especially any credit card debt. Certain expenses may be fairly fixed, like energy or food expenses, but any extraneous costs, such as expensive cell phones or TV plans, should be dropped, at least until the crisis is over. Whatever you are able to save you should use against your high interest credit card debt.
See if you qualify for a government assistance program. There is a new program for low income families that will allowthem to switch to a 30 year fixed rate home loan (as long as they were current on their original mortgage before the ARM rate increased.)
Some other solutions are more drastic, but may be better than foreclosure.
Get rid of the house. This is probably far from the best time to sell your house, but many lenders may take the proceeds of the sale in full settlement. It is better for them than the long foreclosure process.
What about bankruptcy? This is a last ditch resolution since you will be hampered in terms of your long term financial plans. Your credit rating will, of course, be even more damaged, but your loans will be consolidated and some even eliminated, allowing you to catch up on things.
The main lesson to learn is that you have to take as many of these steps as possible to avoid foreclosure by working with lenders and officials.
This seemed like a wonderful way to own a house, especially when they were offered with no down payments, and seemingly attractive rates, even if they were going to be adjusted periodically.
Now, loans inflated by the issue that there was no equity put into them and that home prices are now falling precipitously, are becoming the American Nightmare.
Rates on these loans could be as high as 10%at the time when prime mortgages were available at less than 6%, frequently resulting in home loan payments of over $2,000 on modest homes. Even a small adjustment in the ARM (Adjustable Rate Mortgage) could result in a $300 to $400 increase in the mortgage payment. A further catch is that the homeowner can't even attempt to refinance at a better rate because his credit is still poor and his home value has decreased. (In all too many cases, the value of the property is less than the outstanding balance on the home loan.)
Can these homeowners find a solution? There are some federal programs under consideration that may help, but homeowners have to look into what they can do.
The most important advice you can have is not to ignore the issue. As soon as a homeowner realizes he will have a problem with this month's payment, he should contact his bank. Illness or a loss of work will almost force the bank to devise a payment plan for you, but if you have just been foolish with your budget, don't expect too much sympathy.
Speak to a counselor. HUD (the Department of Housing and Urban Development) has a list of counselors they work with who can assist homeowners to find a way out of this problem.
Reduce overall expenses, especially any credit card debt. Certain expenses may be fairly fixed, like energy or food expenses, but any extraneous costs, such as expensive cell phones or TV plans, should be dropped, at least until the crisis is over. Whatever you are able to save you should use against your high interest credit card debt.
See if you qualify for a government assistance program. There is a new program for low income families that will allowthem to switch to a 30 year fixed rate home loan (as long as they were current on their original mortgage before the ARM rate increased.)
Some other solutions are more drastic, but may be better than foreclosure.
Get rid of the house. This is probably far from the best time to sell your house, but many lenders may take the proceeds of the sale in full settlement. It is better for them than the long foreclosure process.
What about bankruptcy? This is a last ditch resolution since you will be hampered in terms of your long term financial plans. Your credit rating will, of course, be even more damaged, but your loans will be consolidated and some even eliminated, allowing you to catch up on things.
The main lesson to learn is that you have to take as many of these steps as possible to avoid foreclosure by working with lenders and officials.
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