If you're among the millions of homeowners more focused on keeping your home than decorating for the holidays, you're not alone. Foreclosure filings are up one hundred percent from last year's holiday season. That's the bad news. The good news is that there are many people ready to help you.
The first step is to stop ignoring your lender’s warnings, housing experts say.
“I think that this is a very embarrassing, personal situation,” says Kate Colarulli of NeighborWorks America, a nonprofit network of housing advocacy groups. “They think of themselves as homeowners, and there’s a lot of shame facing the situation,” she says.
A nationwide Freddie Mac survey found that of some 2,000 homeowners behind in their mortgage payments, 31 percent had not contacted their lenders despite getting warnings in the mail.
A NeighborWorks' recoreds show in some parts of the country that number is 50%. “They think if they contact the lender, it will accelerate the foreclosure process, ” says Colarulli.
In fact, the banks people blame for their homeownership problems may help avoid a foreclosure by modifying the terms of the loan. Lenders may offer to add missed payments to the balance or they may propose a forbearance agreement, where payments are temporarily put on hold when a borrower is suffering hardship such as job loss or illness.
For homeowners who can’t get help from their lenders, there’s a hotline that some call the 9-1-1 for struggling borrowers. Operators at the 888-995-HOPE line field questions from desperate people 24 hours a day. That's the phone line President Bush has urged homeowners to call if they need help with mortgage trouble.
“Many times people call in a panic,” says Tracy Morgan, spokesperson for the Homeownership Preservation Foundation, which has been running the non-profit hotline since 2005.
The calls to the HOPE hotline have been increasing sharply. In the two-month period of July and August, over 36,000 homeowners phoned for help. That’s more than double the number of callers than in the first quarter of the year. Many of the homeowners had adjustable-rate mortgages, known as ARMs, which offer a lower initial interest rate than fixed-rate loans. The rate of ARMs fluctuates based on the market, so borrowers can sometimes see their monthly payments double when the rate adjusts.
“About 44 percent of the people who called in July in August had ARMS, said Morgan. “That’s both prime and subprime loans, with adjustable rates.”
Nationwide, the number of adjustable-rate mortgages expected to jump to higher rates this year is 2 million. HOPE Hotline callers receive counseling on how to establish a budget that will allow them to make mortgage payments. Often, counselors call the lender to try to workout a payment agreement for a borrower.
Some homeowners see hope in a Federal Housing Administration (FHA) program designed to help subprime borrowers whose low introductory rates are going up. FHA officials say they expect to assist 300,000 struggling families in saving their homes. The problem is homeowners who have already missed mortgage payments may not qualify for an FHA loan.
For senior homeowners having a tough time making their house payments, a reverse equity mortgage loan may be an option. The loan is based on the value of the home, so borrowers need to have substantial equity. Only those over 60 years of age and living in the house qualify. Consumer advocates say reverse equity loans should be considered a last resort for homeowners who plan to include their house as part of their children’s inheritance.
Sometimes the assistance financially cornered homeowners need is right in their own neighborhood. St. Ambrose Housing Aid Center in Baltimore, Maryland is a non-profit organization that has been helping area residents hold onto their homes for more than three decades. Center counselors look at customers’ budgets to find a way to pay for higher monthly payments that result from an ARM and they contact lenders to work out a payment agreement. In some cases, the center’s attorneys have successfully reversed foreclosure procedures.
Not all homeowners see a happy resolution. “In the past, they fell behind in their mortgages because they lost their job or their marriage broke up or they got sick,” says St. Ambrose counselor Frank Fischer, who has been helping homeowners for 35 years. “Now the problem is the loan itself, not that something has happened to the family. It’s a lousy loan.”
Fischer says he is frustrated with lenders who persuaded buyers to get subprime mortgages. The higher-cost loans are typically awarded to those with spotty credit or with irregular income. One of every eight Maryland homeowners with a subprime loan started the year already delinquent, according to the Mortgage Bankers Association. “It’s a frustrating time for our counselors,” says Fischer, “We still can help people, but the number of people that we can help by dealing with the mortgage companies has dwindled dramatically.”
For some families the only way to avoid a foreclosure is to sell the house. The HOPE hotline counselors say 18 percent of those who reached out to them for help this summer were told to put their homes up for sale because counselors saw no other way for callers to pay the lender. “It’s hard to imagine not having your home, but most people want to get out of this without a foreclosure,” says Morgan.
Trying to sell a house even if it means getting less than what you owe the lender is worth it, credit counselors say, because foreclosures normally stay on your credit report for seven years. They have such a negative stigma, that a foreclosure that shows up in a prospective employee’s credit report may be a deciding factor in the hiring process.