Bad Credit Refinancing: Will the Market Players Respond to Consumers' Needs?

By Gabriel Traverso
Mortgage Credit Problems Columnist

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Across the country, many homeowners with adjustable rate mortgages (ARMs) and interest-only home loans are anxiously watching their rising mortgage payments, worrying about foreclosure, and wondering if they can refinance. Well, some of the major lending organizations are trying to help.

Alternative Loans, Like ARMs and Interest-Only Loans, Make Sense

There are situations where a hybrid ARM or an interest-only home loan is an excellent option for some homeowners, regardless of good or bad credit. If you plan to sell your home again before rates rise or if appreciation in your market is rising rapidly then these loans might be perfect for you. Many homeowners who got into these loans over the past couple of years, however, are now finding themselves facing falling home prices, rising mortgage payments, and the possibility the bank might foreclose.

The Mortgage Market Responds

Rather than wait for government regulators to force action, some of the major players in the mortgage business are adopting new principles for working with homeowners who face possible foreclosure. Some of these principles are:
  • Contacting distressed borrowers immediately to work out payment arrangements.
  • Making loans more affordable through reduced rates or changing terms.
  • Providing refinance options to eligible borrowers at the lowest possible cost.
Some of the organizations who agreed to endorse these principles are:
  • The Mortgage Bankers Association
  • Citigroup, Inc.
  • JP Morgan Chase & Co.
  • HSBC Holdings
  • Fannie Mae
  • Freddie Mac
Senator Dodd, who has been pushing hard for this, said, "These principles represent a critical step in preserving homeownership and economic opportunity."

Don't Let Bad Credit Stop You

If you're worried you might not be able to meet your mortgage payments in the future, you need to contact your lender right away. Don't hesitate simply because you have bad credit--the longer you wait, the more limited your options might become. You might still be able to refinance your home loan or work out other payment arrangements.


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