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.


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