Friday, November 03, 2006
Foreclosure, How to avoid
I recently read in USA Today that almost 280,000 Americans lost their homes to foreclosure in the past year. That number is high, but what was even more shocking was that half of these homeowners never even contacted their lender. They fell behind and allowed things to get so out of control that they lost their home to the bank. The shame is that there are options out there, and they probably didn't know what those were.
There is definitely a misconception that "big bad banks" want to take peoples homes and put people out on the street. That couldn't be further from the truth. First and foremost, the entire mortgage business is based on lending money and earning interest on those loans. A borrower who does not have the capacity to pay is their worst enemy. If the loans they offer don't perform, that has a very negative impact in many ways.
They are usually forced to buy the loan back, and their reputation with the buyer of those loans is tarnished. Once they buy the loan back, they now have a house that they will have to try and sell in an auction. Typically that will sell for 65-70% of the appraised value. If the lien on the property is higher than that percentage, it translates into a total loss for the lender. Freddie Mac estimates that foreclosing and then reselling costs a lender $59,000 on average. That obviously isn't a great business model. Trust me, mortgage banks want to be in the money lending business, not in real estate ownership.
Now what do you do if you are falling behind? Contact your lender right away and find out what your options are. If the original mortgage company you closed with did their job right, you should have their contact info on hand. Make sure you call them first, not the bank that is currently servicing your loan. You should have a personal connection with your originating loan officer. Keep an open line of communication with him/her each month, or at least every few months.
When you speak to them (the earlier the better) ask them to lay out all of the options for you. Make sure you clearly understand, and make a plan to avoid losing your home. These include:
> Refinance to a new loan (maybe take an ARM for a short term fix)
> A loan modification with your current lender to a new manageable program
> Forbearance-Postpone the interest or payments for a fixed period of time
> Quick Sale- Allows you to sell the property for less than the loan and consider the loan paid in full
There are organizations that teach people about the potential pitfalls of homeownership. One that I feel does a stellar job in helping empower communities, and even more importantly helps people keep their homes is Neighborworks America. I strongly recommend visiting their website for useful information: www.nw.org/network/home.asp
There is nothing worse than losing your personal shelter, and there are usually ways to avoid it...It all starts with a phone call...
There is definitely a misconception that "big bad banks" want to take peoples homes and put people out on the street. That couldn't be further from the truth. First and foremost, the entire mortgage business is based on lending money and earning interest on those loans. A borrower who does not have the capacity to pay is their worst enemy. If the loans they offer don't perform, that has a very negative impact in many ways.
They are usually forced to buy the loan back, and their reputation with the buyer of those loans is tarnished. Once they buy the loan back, they now have a house that they will have to try and sell in an auction. Typically that will sell for 65-70% of the appraised value. If the lien on the property is higher than that percentage, it translates into a total loss for the lender. Freddie Mac estimates that foreclosing and then reselling costs a lender $59,000 on average. That obviously isn't a great business model. Trust me, mortgage banks want to be in the money lending business, not in real estate ownership.
Now what do you do if you are falling behind? Contact your lender right away and find out what your options are. If the original mortgage company you closed with did their job right, you should have their contact info on hand. Make sure you call them first, not the bank that is currently servicing your loan. You should have a personal connection with your originating loan officer. Keep an open line of communication with him/her each month, or at least every few months.
When you speak to them (the earlier the better) ask them to lay out all of the options for you. Make sure you clearly understand, and make a plan to avoid losing your home. These include:
> Refinance to a new loan (maybe take an ARM for a short term fix)
> A loan modification with your current lender to a new manageable program
> Forbearance-Postpone the interest or payments for a fixed period of time
> Quick Sale- Allows you to sell the property for less than the loan and consider the loan paid in full
There are organizations that teach people about the potential pitfalls of homeownership. One that I feel does a stellar job in helping empower communities, and even more importantly helps people keep their homes is Neighborworks America. I strongly recommend visiting their website for useful information: www.nw.org/network/home.asp
There is nothing worse than losing your personal shelter, and there are usually ways to avoid it...It all starts with a phone call...
