Your Mortgage Questions Answered

The subprime mortgage crisis is still rearing its ugly head. Should you be worried? Get answers to your pressing questions.

By Kathryn M. Tyranski

From Reader's Digest

Worried about your house being foreclosed? You’re not alone. The number of home foreclosures has increased by 141% since 2005. In November 2008 alone, there were 259,085 home foreclosures in the United States according to RealtyTrac. That number is down 7 percent from October 2008 (279,561 foreclosures), but still up 28 percent from November 2007. The bottom line: We’re not out of the woods yet. There’s hope, though. Read on for answers to some tough questions on this crisis.

Q: As a homeowner, should I be worrying about foreclosure in this economy?

A: Homeowners who have been affected by foreclosure have usually been folks who had put little to nothing down on their home, had poor credit, and opted for an adjustable rate mortgage (ARM). When the housing bubble burst, rates soared and homeowners couldn't make their monthly payments. Payments accrued to the point where lenders repossessed a property, resulting in foreclosure.

In other cases, homeowners have been targeted by and fallen victim to predatory lenders. Borrowers who have accepted loans are often stripped of home equity and are threatened with foreclosure. In these cases, borrowers are naïve and are scammed into accepting unfair loan terms, often through aggressive sales tactics. Most victims of predatory lending are unable to get a better loan elsewhere. In some cases, homeowners who have paid off their mortgage re-mortgage their property for cash. However, when these homeowners can't make the payments, their homes are foreclosed. Read about some of these heart-wrenching cases.

If you have a fixed-rate mortgage and you've been making your payments every month, you probably have nothing to worry about. But if you’re concerned, a call to your lender never hurts.

Q: I'm having trouble making my monthly mortgage payments. I haven't received any notices from the bank yet. What can I do to keep it that way?

A: The first and best thing troubled homeowners can do is talk to their lenders to see if there is a way to "workout" the debt. Debt workout programs are agreements between a borrower and a lender. Some possible workouts include:

• Temporary reduction in your interest rate (APR)


• Temporary forbearance (reducing or skipping a few payments)


• Adding missed payments to your loan balance (so you can pay them later)


• Extending the term of your loan


• Setting up a repayment schedule

The U.S. Department of Housing and Urban Development (HUD) has a very useful one-stop resource for homeowners who want to avoid foreclosure. Visit its "Guide to Avoiding Foreclosure." The guide includes resources for getting help now whether your home is already in foreclosure or is in danger of being foreclosed.

Another option for homeowners in trouble is HOPE for Homeowners, a mortgage assistance program unveiled by the Bush Administration. This program offers to refinance mortgages for borrowers who are having difficulty making their payments, but can afford a new loan insured by the Federal Housing Administration (FHA). Find out if this program may be right for you.

Since the FHA only insures the new loan, homeowners are borrowing from lenders. To see if there is a lender who participates in the H4H Program.

• Aggressive and deceptive marketing
  
• Making loans without ample consideration to the borrower's ability to pay
  
• Financing excessive fees into loans
  
• Charging higher interest rates than a borrower's credit allows
  
• Home improvement scams

Your best defense to avoid a predatory trap is a good offense. Learn all you can about the housing market. Know your credit rating. Never sign documents that a trusted attorney has not reviewed. Never send your mortgage payment to anyone other than your lender.

If you think you've been scammed, report it to the Federal Trade Commission, the Better Business Bureau, your state Attorney General, or file a Housing Discrimination Complaint form through HUD.

Q: I'm facing foreclosure. I know I probably shouldn’t have ignored the notices from my bank. Is there anything I can do now?

A: Yes. Here are the steps and resources:

Step One: Get an expert’s advice. A housing counselor approved by HUD can inform you of your rights and options. Visit expert advice or call 800-569-4287.

Step Two: Collect all the notices from your bank, pay stubs, medical bills, and any other papers that document income or lack of income. Make copies.

Step Three: Call your lender's loss mitigation department. Ask the lender to waive prepayment penalties for refinancing.

Step Four: Don’t sign anything that may be referred to as a "quitclaim deed." This will forego your ownership of the home.

Step Five: Continue to consult with your HUD counselor with questions or concerns.

Other Resources:

Foreclosure Risk Assessment. The National Foundation for Credit (NFCC) has created a housing website which enables consumers to take a short quiz to determine their risk of foreclosure. To use the tool offered by the NFCC.

Go Local. Don't count out state and local groups. They can often be very helpful. Most cities have a nonprofit housing advocacy organization, which typically offers troubled homeowners advice and hope. As a caveat: Make sure these local groups are HUD Certified. If the HUD seal of approval isn’t stamped on the organization, it’s probably a scam. See the list of legitimate local groups.

Links to Helpful Articles:

• The Office of Policy Development and Research (PD&R) and HUD USER has and online guide to assist those facing foreclosure.


• Learn more about the foreclosure process.
  


• An accredited Better Business Bureau site, Avoiding Mortgage Foreclosure, is another resource.


• MSN Money’s resource guide to foreclosure can be found here.