Your Mortgage : What You Can Do When Payments Pinch
An estimated 2.4 million homeowners are behind in their monthly mortgage payments, the highest level of delinquencies in nearly five years. And with the housing market weak and the country still mired in recession, that number is expected to grow in the months ahead.
But if you’re one of the millions of borrowers who’ve fallen behind on their mortgage, you probably don’t have to worry much about actually losing your home through foreclosure--as long as you contact your lender now to explain your financial woes and devise a plan to solve them.
“The first call you make should be to your lender,” said Jaimie Ogden, an official with the Federal Home Loan Mortgage Corp. “Most of them are pretty reasonable, and they’ll try to work something out with you. They don’t want you to lose your home any more than you do.”
The Mortgage Bankers Assn. of America reported earlier this month that about 5.3% of the 45 million residential mortgages currently in force are delinquent by at least 30 days. That’s the highest “late rate” since 1986.
Yet if traditional patterns hold, only about one of every 20 of those borrowers will actually lose their home to foreclosure.
The others will be able to save their home by getting emergency relief from their lender, find some other way to pay their bills, or simply sell their house before the lender can complete the foreclosure process.
Lenders don’t like to kick their customers out on the street, largely because it’s a costly and time-consuming process--not to mention bad public relations.
Still, the importance of talking with your lender when you first run into financial problems can’t be overstated.
“Most lenders have specialists on-staff who are trained to work with borrowers who’ve run into some financial trouble,” said Richard De Leo, a vice president with lending giant Countrywide Funding Corp. “The sooner you get in to talk to us, the sooner we can help you get out of your jam.”
The type of relief that a lender will provide--or whether you’ll get any help at all--will be determined by a variety of factors.
Much will depend on your past payment record: You stand a much better chance of working out a deal if you have always paid your mortgage on time than you would if you’ve constantly had trouble making payments in the past.
Lenders can offer help in a variety of ways.
If you’re simply short a few hundred dollars each month and expect to be back on your feet soon, the lender might agree to temporarily lower your interest rate to solve your cash-flow problems.
Or, it might restructure your debt so you can pay it back over a longer period of time, thus reducing the size of your monthly mortgage tab.
As an alternative, the lender might allow you to make “interest-only” or “principal-only” payments until you’re back on solid ground. Either change would reduce the size of your monthly obligation.
If the outlook for improving your financial situation is bleak--or if the lender wants to play hardball and flatly refuses to help out--you might want to visit a different lender who specializes in making loans based on the equity you have in your home.
Such lenders usually aren’t too concerned if you’re out of work or if you’ve had trouble with your credit rating. Instead, it’s the amount of equity that you have built up over the years that they consider most important.
You can usually find these lenders by looking under the “loans” heading of the Yellow Pages. They tend to use terms such as “fast money,” “easy-qualifying” or “no problem too large too handle” in their advertisements.
Lenders that specialize in equity loans usually have more flexibility than conventional lenders.
For example, they might be able to give you a loan that won’t require any payments for six months or a year, or perhaps give you enough cash to stave off foreclosure until your financial situation improves.
Unfortunately, this flexibility can be costly. Equity lenders often charge unusually high rates and their set-up fees can be five, 10 or even 15 times greater than the fees a conventional lender would charge.
If you don’t want to pay those high fees, you still have a handful of options remaining.
* Make a list of all your assets, and consider selling them to raise cash. This includes stocks, bonds, collectibles, even a car or boat.
You might be able to borrow against the cash value of your life-insurance policy or retirement account at an attractive interest rate. A financial planner or accountant would have even more ideas.
* Consider renting a room, or rooms, out to a boarder. You’ll sacrifice some privacy, but it’s a fast and inexpensive way to get some extra income to meet your mortgage payments or pay other bills.
* Also think of turning your home into a rental property. You could move to cheaper quarters and rent your current home out to a new family.
The rental income you collect could be used to make some or all of your mortgage payment and pay your rent. You could move back into the house if you’re in better financial shape when the lease with your tenants expires.
* Consider seeing a professional credit counselor, which you can usually find under the “credit and debt counseling services” heading of the Yellow Pages.
Be wary, though, of a counselor who makes lots of promises and wants to charge you high fees--you may wind up disappointed and even further in debt.
* Remember that the U.S. Department of Housing and Urban Development maintains a list of HUD-approved counseling agencies that provide their services free.
You can usually find these groups by calling your nearest HUD office, which you’ll find under “United States Government Offices” at the front of the White Pages.
One more note: If you’ve studied all your options and just can’t figure out a way to keep your home, your best bet will probably be to sell the house before the actual foreclosure sale takes place.
“Selling your home is a gut-wrenching decision, but you have to be practical,” said Richard Peach, an economist at the Mortgage Bankers Assn. “If keeping your house just doesn’t make economic sense, you’re probably going to lose it sooner or later anyway.”
“Besides,” Peach said, “if the lender actually has to foreclose to get you out, the foreclosure is going to stay on your credit record for a long time. That would prevent you from getting another home loan for years, even if you’re able to get back up on your feet soon.”
Average Rates for Residential Mortgages
Average rates for residential mortgages as of Sept. 13, 1991.
Survey Conventional Mortgages Adjustable Mortgages Area 15 Year 30 Year Composite 1 Year Composite National 8.81% 9.14% 8.99% 6.88% 7.19% California 8.97 9.28 9.13 7.07 7.08 Connecticut 8.79 9.12 8.98 6.88 7.12 Wash. D.C. 8.72 9.05 8.89 6.66 7.09 Florida 8.78 9.15 8.98 6.84 7.03 Mass. 8.75 9.08 8.93 6.76 7.33 New Jersey 8.79 9.11 8.96 6.82 7.31 N.Y. Metro 8.85 9.16 9.02 6.90 7.28 New York 8.91 9.23 9.09 6.96 7.29 N.Y. Co-ops 9.05 9.35 9.30 7.47 7.86 Pa. 8.59 8.96 8.78 6.74 6.96 Texas 8.73 9.09 8.91 6.87 7.13
SOURCE: HSH Associates, Butler, N.J.