Tag Archive for 'prevent foreclosure'

All the buzz these days is about the homeowner rescue programs--Making Home Affordable and it's babies Home Affordable Refinance Plan (HARP) and Home Affordable Modification Plan (HAMP). But eligibility for these programs requires that the property be a primary residence. What about investors? Is there any help for them?

Investors seem largely left out of the bailout and handed a large share of the blame for the housing crisis. Yet it could be argued that investor foreclosures take a bigger toll on the economy and well-being of neighborhoods. You don't associate investor foreclosure with families being forced out of their homes, but there are--they just happen to be renters rather than the owners. And while governments are finally taking measures to prevent eleventh hour evictions of tenants who had no idea the property was in default, a litter of foreclosure sale signs in a neighborhood blights it and hurts everyone there--whether the properties are owned by investors or not. And then, there's the property owner--is there any help for you if you own rentals or land and the payments become unaffordable? Maybe, but not from the government.

Even Making Home Affordable help is voluntary. Lenders don't have to give anyone modifications just because the program is there. Its goal is to provide an incentive for lenders to modify loans instead of foreclosing, but if a lender can generate better cash flow for its shareholders by foreclosing than by modifying it will do so.

Lenders can voluntarily help investors, too. Call yours. If you can convince it that giving you some breathing room now will pay off in the future, you may be able to prevent foreclosure on your investment property. Investment property is difficult--first, investors are more likely to walk away than someone in a primary residence because it's just an investment. If it goes bad there isn't the emotional attachment and the need to keep it to live in. Banks are less likely to negotiate on an investment property loan because if the foreclosure sale proceeds don't cover the loan balance, they can go after you for the shortfall in most states--get a judgment, put a lien on your primary residence, attach your wages, and drain your bank accounts. In short, if you have other assets, the lender feels it can get them and not take a loss on your loan--powerful incentive to foreclose.

If you have investment property and there is a threat of foreclosure, you have to show your lender what is needed for you to continue to make your payments successfully. It helps if you have consulted a bankruptcy attorney before dealing with the lender--the threat of you filing for bankruptcy protection to avoid deficiency judgments gives your position a lot more strength. At this point the bank has different options--it can get something if it works with you, or it can foreclose--and incur the costs but be unable to recover the loan balance from you. Or you may discover after speaking to an attorney that you won't be able to pay your mortgages even with a modification. In that case it's better to file, suck up the bad credit, and see what a bankruptcy trustee can do to help you. Filing for bankruptcy will at least stall foreclosure proceedings for a while and give you a chance to evaluate your options.

Drop the word "foreclosure" into almost any conversation and you'll hear something like: "loose lending...irresponsible borrowers...dead real estate market...what do you expect?"

But what you probably won't hear is that one of the biggest causes of losing a home--even today--is medical.
Even now with economy seemingly on its way to hell in a handbasket, a study by Physicians for a National Health program (PNHP) found that big medical problems contribute to half of all home foreclosure filings. Nationwide, medical problems could cause up to 1.5 million Americans to end up in foreclosure each year.

Half of all study subjects (49%) claimed that their foreclosure was caused at least in part by a medical problem, including illness or injuries (32%), unmanageable medical bills (23%), lost work due to a medical problem (27%), or caring for sick family members (14%). In addition, 37% paid more than $2,000 of medical bills out of pocket in one year, 30% lost two or more weeks of work because of injury or illness, and 8% became disabled and unable to work. In addition, 13% used their home equity to pay medical bills. Altogether, about 70% of those studied had medical cause of foreclosure or loss of work due to medical disruptions prior to foreclosure.

The study's findings indicate that there is a lot more going on in most mortgage foreclosures than most people think. It's not just bad loans, bad properties, or bad borrowers. Many mortgage foreclosures are the result of unpredictable medical problems that kill incomes and crush families with expenses.

However, while a specific medical problem probably can't be predicted, it's pretty obvious that most people will experience a serious illness or injury at some point during their earning years. So if you don't have medical insurance now, get some. It's almost more important than a secure job. And if you can't afford it, investigate public programs. Or get catestrophic coverage just for the biggest emergencies. Also look into medical savings accounts (MSAs). Consider your medical coverage when building an emergency fund. While healthcare in this country leaves a lot to be desired, we do need to take care of ourselves as best we can. It's good for our health. And our finances.

You need some help. You've heard lenders everywhere are modifying mortgages for those in trouble. So you call yours. You wait on hold for 45 minutes. Someone finally answers, speaks to you for 15 seconds, and promises to send you a form. And there you are, days later, formless and your next payment due with no help forthcoming.

Treasury Secretary Henry Paulson has pretty much consigned troubled borrowers to the trash-heap, claiming, "“We’re never going to be able to process the number of workouts and modifications that are going to be necessary doing it just sort of one-off, I’ve talked to enough people now to know there’s no way that’s going to work.”

If you look online you'll find hundreds of firms promising to work with your lender and get you the help you need. For a not-so-small upfront fee, of course. Is it worth it?

Look out for phonies. Mortgage modification is a new field and there are no licensing requirements, oversight boards, etc. Anyone can hang a shingle and claim to be a modification specialist. Recently, two California firms were shut down for perpetrating fraud on their clients. However, some professionals do have a code of conduct and board they answer to. Attorneys, CPAs, Certified Financial Planners, and nationally-regulated credit counseling or debt settlement firms have standards of ethics that at least in theory preclude them from making promises they can't keep or ripping you off.

When You Have a Need for Speed
Attorneys who offer modification service claim that their calls get answered and their letters responded to more readily than those of consumers. If you are on the brink of foreclosure and need help fast, it may be worth it to engage a lawyer with a good reputation. Beyond making contact with your lender, negotiating changes to the loan, and in some cases financial counseling, a reputable firm cannot make any guarantees. For example promising a $100,000 principal reduction or a 3% lower rate is a red flag that should have you running.

Beware High Upfront Fees
Avoid any outfit that wants a large fee before doing any work; these are non-refundable to you even if there is no progress in your modification. And that's money you could be using to pay for necessities when you're pinched for funds.

Try DIY or Non-profits First
An online search turns up all kinds of examples of hardship letters and instruction for making your request to your lender. Before contracting with a for-profit company, at-risk borrowers should contact their lenders or the Homeowner's Help Hotline (1-888-995-HOPE) run by the Homeowner's Preservation Foundation. They might get a comprehensive, affordable mortgage modification that won't cost them a dime

HOPE NOW, the private sector coalition of ownership counselors, mortgage lenders and servicers, and investors has focused its efforts on preventing foreclosures and keeping homeowners in their residences. As of today, the organization reported that nearly 2.5 million homeowners have avoided foreclosure and been able to stay in their homes since July 2007. In addition, cooperative mortgage lenders helped 212,000 homeowners sidestep default or foreclosure in September.

In September, mortgage servicers helped homeowners avoid foreclosure by creating 212,000 loan workouts, which involve modification to the terms, lowering the balance, refinancing arrearages, a combination of all three. Barring an unforeseen life event such as a job loss, death, or illness, all workouts are designed to enable a homeowner to remain in his or her home as long as he or she wishes to do so.

Here's an example of how a loan modification might make it possible to avoid foreclosure. Miss Jones bought her home for $250,000 with a zero down ARM loan starting at 4%. Her payment was $1,195. Next year, her rate increased to 6% and the payment to $1,491. By year three, she was paying 7.75% and the payment had increased to an unaffordable $1,767. While she paid her balance down about $11,000 in three years, home values dropped too. So Miss Jones had't enough equity to refinance--yet she could't afford her payments either. She missed two payments, added about $3,000 to her principal--now she owed more than her home was worth!

Miss Jones was capable of making her mortgage payment when it was $1,491. By getting the lender to cut her balance to $200,000, she could get her payment to 1,475 at her current rate. But very few banks or investors are willing to take a $45,000 hit to avert foreclosure. What else can a lender do to help?

1. Finance arrearages. The loan can be officially brought to current status with a small second mortgage. At five years and 6% the payment is only $58. And the credit damage stops piling up.
2. Change the interest rate and term. By granting a new loan with a 40 year term and fixing the ARM at 6% for the next 5 years, Miss Jones gets a more manageable payment of $1,348, which added to the $58 second lien means that Miss Jones has a guaranteed manageable payment of $1,406 for the next 5 years. In that time it is likely she will have equity and enjoy more solid financial footing.

Suggesting that your lender write off huge loan balances doesn't go down well with investors, and it's harder to get that kind of concession. However, there are many things you can tweak to get a manageable payment and keep your home.