Wednesday, October 11, 2006

$360 Billion of Mortgage Debt at Risk of Foreclosure among U.S. Homeowners

With mortgage interest rates on the rise, the U.S. economy teetering between expansion and uncertainty, and American consumer debt still raging, many U.S. homeowners risk foreclosure on their home. According to the Mortgage Bankers Association of America, 4.7 percent of U.S. mortgages were delinquent at the end of 2005. With $9 trillion in outstanding U.S. mortgage debt, that places $423 billion at risk of foreclosure. Homeowners who are at risk (as well as prospective homeowners) can use the tips below to avoid – and even prevent – foreclosure.
In many states, foreclosure rates have already started to increase, especially impacting the segment of the population that carries adjustable rate mortgage (ARM) loans and is seeing payments climbing upward with every interest rate increase. However, homeowners can make choices – ideally, before they purchase a home, but even after problems arise – that will help them keep a home, or at least minimize the damage a foreclosure could have on their futures.

For more information on Mortgage related topics please read Mortgage Resources

How to prevent problems

1) Create a budget and don’t stretch yourself too far - The unexpected can and does happen to millions of Americans each year. For people who live at the far edge of their means, one life event can hijack their lives and lead to defaults on bills and/or mortgage payments. The key is to build a detailed budget of income and expenses, making sure to allow some breathing room to weather an unexpected downturn.

2) Be very careful with Adjustable Rate Mortgages (ARMs) or Interest-Only loans - These types of loans let borrowers qualify for more expensive homes – but beware as rates and payments climb. If you can barely afford the payment on your ARM or the interest-only mortgage, you are asking for trouble in a few years. Give yourself even more budget space with these loans.

3) Don’t jump to refinance your home to pay off credit card debt - Many people faced with large credit card or other unsecured debts consider refinancing their homes. The problem is that this strategy only moves the debt and puts your home at risk of foreclosure if you are unable to pay. If you are not confident that you can keep up with the higher payments on your home loan going forward, consider debt resolution or another debt relief option.

Ways to avoid Foreclosure

1) Enter into a Forbearance Agreement - For a temporary hardship, lenders might grant a forbearance agreement to lower or eliminate payments for a limited time.

2) Consider Loan Modification - A loan modification seeks a permanent change to the loan, such as lowering the payment and extending the loan’s term, or incorporating any delinquencies into future payments.

3) Obtain a “Deed in Lieu” of Foreclosure - A “Deed in Lieu” essentially allows the borrower to return the title or deed of the property - giving the home back to the mortgage holder to avoid foreclosure.

4) Sell the home - Selling your home may not be ideal, but it is a way to avoid foreclosure proceedings on your house and pay back your lender.

5) Refinance the loan - It may be possible to refinance your mortgage for a lower interest rate and/or lower monthly payment (this is much different than refinancing to take cash out to pay off credit cards). However, if you already have had late payments on your mortgage, the interest rate offered to you may be too high to lower your monthly payment.

6) Be cautious - Be wary of so-called equity skimmers. If your house is facing foreclosure, you will probably receive solicitations from several people who are looking to “help” you prevent foreclosure by offering to sell your home for you or by taking ownership of your home. In most cases, these solicitations are scams trying to take advantage of people in difficult situations. The perpetrators are trying to take the equity you have built up in your home out from under you.

A reputable foreclosure assistance organization, such as a debt resolution firm, can help with these options.

Tuesday, October 10, 2006

Bankruptcy Reform takes hold. Is there anything left for the Consumer ?

With sweeping bankruptcy reform laws combining with increasingly high costs of living, many Americans who are reeling from financial turmoil face will no longer qualify for elimination of debt through Chapter 7 bankruptcy protection.

1) Chapter 13 Bankruptcy – Even with bankruptcy reform in place, Chapter 13 filings – which require consumers to repay debt on a repayment plan will still be available to those whom the state determines, through its means test, have enough income to pay back at least some of their debt.
Pro: May reduce debt and stop collection calls.
Con: The publicly available bankruptcy judgment remains on a consumer’s long-term credit report for 10 years. Repayment terms generally are less favorable than those found with debt resolution.

2) Credit Counseling – Most credit counseling agencies receive funding from creditors and, in constructing “debt management plans” for consumers, reduce only interest rates, not principal owed.
Pro: Lower monthly payments.
Con: Up to 5 years of making payments, and minimum payments may not significantly decrease. Enrollment in credit counseling also shows up as a negative on a consumer’s credit report.The new bankruptcy laws demand that consumers seeking bankruptcy protection obtain credit counseling from an approved agency within six months prior to filing for bankruptcy. However, the Internal Revenue Service has already revoked the tax-exempt status of every one of the 41 credit-counseling agencies on which it has completed an audit during a three-year-old crackdown on the industry.

3) Creditor Negotiation – Consumers who cannot make even minimum payments on bills can try calling creditors and asking for temporary hardship status. Some creditors may work out payment plans.
Pro: Can provide longer payment terms.
Con: Individual consumers may find it difficult to negotiate effectively with large creditors.

4) Debt Resolution – Debt resolution firms negotiate with creditors on the consumer’s behalf to lower principal amounts due. Consumers then pay the debt resolution firm a percentage of savings obtained. Debt resolution can obtain significantly better repayment terms than achieved with Chapter 13 – and with no bankruptcy judgment – especially for those facing financial problems because of a catastrophic event or medical problems.
Pro: Savings can often reach up to half the full amount owed. It’s the fastest way out of debt without Chapter 7 bankruptcy; consumers can be out of debt completely within three years. Con: It can impair your credit score.

In case of getting a better understanding on how to get a Successful Loan, read a Client's Testimonial.
Author: Steven James