This article first appeared in the St. Louis Beacon: June 17, 2008 - Get help now. Open your mail. Answer the phone. Don't avoid those calls from your lender; deal with your mortgage problems while you still can.
That is the urgent message to U.S. homeowners from nonprofit housing counselors, economists, the Federal Housing Administration, state and federal housing agencies, and even the lenders themselves.
Among the pages and pages of statistics cited in "Defaulting on the Dream," a recent report by the Pew Charitable Trusts on the foreclosure crisis, here is the most alarming -- and sad -- fact: Of all the homes that entered into foreclosure between 2001 and 2005, at least half of the borrowers might have avoided foreclosure if they had tried to work out a solution with their lenders.
Such negotiations are complex and confusing -- and that is where a nonprofit housing counselor can help. In the St. Louis region, five agencies have formed a coalition to help: Beyond Housing, ACORN Housing Corp., Better Family Life, Catholic Charities and the Urban League of Metro St. Louis.
Contact them by dialing 211 if you live in Missouri, or 1-800-427-4626 if you live in Illinois or if you are calling from a cell phone.
Now a caution: Be wary of scam artists who contact you offering assistance. At best, they will charge you to perform counseling duties that nonprofits will do for free. At worst, they will rip you off with any number of schemes that could cost you any chance of keeping your home.
In some cases, there are funds available to assist local homeowners who need help. These funds are very limited -- usually no more than $1,000 to $1,500 -- but the counselors from the five agencies will know if you qualify.
If your mortgage is insured through FHA, you could be eligible for a one-time interest-free loan to bring your loan current over a period of time. You sign a promissory note that is interest-free until you pay off the first mortgage or sell the property. HUD will pay the lender the amount to bring your mortgage current. Ask your counselor about that, as well.
For the majority of homeowners, though, the remedies will involve negotiating with lenders, a complicated and time-consuming process that counselors know how to navigate.
Here are the six basic options:
Forbearance: Your lender agrees to temporarily reduce or suspend your loan payments, giving you time to correct your situation. This may be an option if you act early and can prove to your lender that you have the means to solve the problem: Perhaps you will soon receive a tax refund or an insurance settlement, can liquidate investments, or have found a new job.
Repayment plans: Your lender agrees to spread out your missed payments over a period of time by adding a portion of past due amounts to future monthly payments.
Loan modifications: Your lender agrees to permanently change the terms of your loan to make your monthly payments more affordable, particularly in the case of adjustable rate mortgages where your payments jumped because of a jump in the interest rate. In other words, you can afford the old monthly payment -- but not the new one.
Modification options can include: adding past-due payments to the existing loan balance (the principal); reducing the interest rate on the loan; extending the number of years you have to repay.
Sales assistance: When a temporary fix won't work, selling your home may be the only option. Lenders might help by postponing mortgage payments until the home sells and may even provide referrals to real estate agents.
Short sale: Your lender agrees to accept less than the total amount owed in a pre-foreclosure sale.
Deed-in-lieu of foreclosure: You give back your house, and your lender "forgives" your debt. Sometimes called a "walkaway" solution, the borrower still loses the home, but this is less damaging to a credit rating than a foreclosure.