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Help! How can I head off a foreclosure?

With millions of Americans facing foreclosures, a number of readers are looking for help to avoid losing their homes. What many may not realize is that lenders are often willing to try to work out an alternative – and avoid the losses that they’re usually hit with when they foreclose.  The Answer Desk, by's John W. Schoen

With millions of Americans facing foreclosures, a number of readers are looking for help to avoid losing their homes. What many may not realize is that lenders are often willing to try to work out an alternative — since it costs them money too.

So if you think you’re at risk of losing your home — or already in foreclosure — here are some things you can do to try to save it.

We are in one of those "bad" loans. We have been in our house for 30-plus years and don't want to lose it. Please help us!!!
— Darlene L., Ontario, Calif.

One of the first things you can do to avoid losing your home is to call your lenders as soon as you’re having trouble making full payments on time. Unfortunately, many people are afraid of letting their mortgage company know they’re in trouble and wait until they're so far behind they’re facing foreclosure.

“Do what you can to get over that fear,” said Nick Jacobs, a spokesman for the National Federation of Credit Counselors. “It’s such an important first step.”

For many homeowners, the biggest problem may be finding out who to call. Most mortgages these days are sold shortly after they are written; the company you make payments to may be just “servicing” the loan. That company is a good place to start, but it may take some time to find out who owns your loan.

Once you’ve found the company holding your mortgage, ask to speak with someone who has the authority to work out payment alternatives. You may have to move up the food chain past the person on the front line answering the customer service number.

When you explain your situation, ask for help. Possible solutions include “forbearance” — in which you get some breathing room to get past a temporary shortfall or unexpected expense. Lenders may also work with you to modify the original terms of your loan to make the payments more manageable.

If you’re having trouble with a loan terms that weren’t fully disclosed to you then you may have been a victim of predatory lending. In that case, call the consumer affairs department of your state’s Attorney General office and ask if they have a mortgage unit.

If the ads and marketing materials for your mortgage didn’t fully disclose the risks involved, the broker or lender may be guilty of deceptive advertising. If you think you've been duped, contact the consumer affairs bureau of the Federal Trade Commission at 1-877-FTC-HELP (382-4357). The FTC just announced it is cracking down on deceptive mortgage ads. (If you have a copy of the original ad or any marketing materials, that would help.)

You may also qualify for help under other special circumstances. Active-duty military personnel, for example, may be eligible for mortgage payment relief and protection from foreclosure under the Servicemembers Civil Relief Act of 2003. If your loan has an unusually high interest rate or charged high fees, you may also be covered by the Home Ownership and Equity Protection Act of 1994.

Since keeping track of all this is a full-time job, your best bet may be to get help from a professional credit counselor. Unfortunately, there are a lot of bad actors out there who claim they can help you keep your home — and end up snaring you in a scam that lands you deeper in debt. Many of these fraudsters are trolling the Internet and spamming for prospects. Avoid anyone who cold-calls you offering to help.

Instead, get a referral to an accredited debt counselor in your area. You can get a referral to a counseling agency approved by the Department of Housing and Urban Development on their Web site, or by calling 800 569-4287. You can also check with the National Federation of Credit Counselors which has its own program to certify counselors.

You may have to pay a fee for some of these services, but these agencies will work with you and your lenders to try to find a solution. They may also be able to help you work out other debts like credit card balances you can no longer manage.

The solution won’t be easy: You may have bought more house than you can afford, and wind up selling it to get a fresh start. But you’re better off maintaining control of your personal finances than waiting for your home to be taken from you.

And, if it’s any consolation, you’re not alone. Credit counseling agencies are swamped these days trying to help people in your situation.

“They’re busy — no doubt about it.” said Jacobs. “There are a lot of people who are hurting out there.”  

Living in the big city of San Francisco, the home prices are ridiculous. How is it that the Bay area can keep this $1,000,000 median home price?
— J. Green, San Leandro, Calif.

Here's our answer: 1) the Bay area is one of the nicest places to live on the planet Earth and 2) most of the developable land there has been built on. So you have a fixed supply and virtually endless demand. That’s a formula for rising prices.

People tend to think of the “housing market” as a single entity, but it’s really a collection of hundreds of local markets, each of which is marching to somewhat different drummers.

The result is a huge disparity in prices — and price trends — depending on where you live. The national median price of a single-family home was $223,800 as of the second quarter, according to the latest figures available from the National Association of Realtors. That’s down 1.5 percent from the second quarter of 2006, when the national median price peaked at $227,100. (The median is not the average, it’s the price in the middle; half the houses sold for more and half sold for less.)

In San Francisco, the median price of a single-family house sold for $846,800 in the second quarter. That’s more than 10 times the median price for a home in Youngstown, Ohio ($76,700) or Elmira, N.Y. ($71,700).

And while the “national” median price fell, many parts of the country continued to see healthy price gains in the second quarter. Binghamton, N.Y. was up 19.8 percent; Salt Lake City was up 21.9 percent. Meanwhile, prices in Sarasota, Fla. fell 11.3 percent; Elmira, N.Y. was down 17.9 percent, the steepest second quarter drop among the markets broken out in the NAR data.

It’s very possible that homeowners in the Bay area face price declines. All of these numbers were collected before financial panic swept through the credit markets in August. And regardless of where you live, the rapid price rises of the past five years were fueled largely by unsustainable forces: too much easy-money credit being unleashed into the mortgage markets. As that “credit bubble” unwinds, it’s gotten a lot harder to borrow money, which has put a crimp in demand.

Still, in the priciest neighborhoods, some people don’t seem to be having much trouble getting together the money they need to buy a house. In California, for example, some of the biggest gains in home prices in July were in places like Manhattan Beach (up 11.7 percent; median price: $1,628,500) or Saratoga (up 9.6 percent, median price $1,414,000). On the other hand, prices in Santa Barbara’s south coast region in July (median price $1,100,000) dropped 19.7 percent in just one month, according to the California Association of Realtors.

So, while the "national" trend in prices appears to be headed lower, it’s very difficult to forecast what will happen in any given community. One big unknown is how many potential sellers have been holding back and waiting for conditions to improve. If those sellers all decide to list next spring, for example, there could be too many sellers looking for too few buyers.

But in communities where there are more people who can afford to buy houses than there are houses for sale, prices could hold up fairly well.