Unlike most borrowers in [tag]foreclosure[/tag] trouble believe, the lenders don’t want your house back; even if it has equity!
Homeowners facing mortgage problems and can't keep up with their mortgage payments can often get help from the lender that holds their mortgage. Foreclosure is a losing proposition for the bank, the borrower/homeowner… everyone involved. The lender is eager to and required to get a bad loan off its books in any way possible.
All the attention from Wall Street, regulators and those politicians seeking the spotlight, has been on the sub-prime mortgage meltdown. Delinquencies are soaring and an estimated up to 1.5 million homeowners could face foreclosure on their homes this year.
Can that be avoided?
Believe it or not, the lenders would prefer to help delinquent borrowers keep their homes, and the more creative and aggressive of these lenders, the more options they will find to do just that.
A lender's response to mortgage delinquency depends on many factors, including how long the borrower has owned the home, how much equity there is, local real estate market conditions and the borrower’s own economic and financial snap-shot.
The first step is usually up to the borrower who should contact the lender as soon as he or she sees they may be getting into trouble. The earlier the problem is addressed, the easier it is to deal with it.
If non-payments go on for more than a couple of months, the size of the debt involved may grow too large for a borrower ever to get out from under it, as it grows quickly and each and every month.
Many borrowers in the foreclosure trouble get scared and try to ignore the problem. Often, the borrowers in trouble, stop opening their mail or answering the phone. That just makes it worse.
The lender's reaction may seem almost two-faced. On the one hand lenders have a responsibility to their shareholders to try hard to collect debts. But a hard-nose attitude can work against them by discouraging borrowers in trouble from seeking help.
In fact most [tag]mortgage[/tag] outfits have two different departments to deal with late payments. One is a collections department and the other a loss mitigation department. Delinquent borrowers should make sure they are talking to the mitigation department and not collections.
Just what are lenders prepared to do to ease the difficulties of mortgage borrowers? That depends upon a lot of factors. The help they generally offer falls into two categories: One that will enable borrowers to keep their homes and ones that will not.
Here are examples;
1. Loan modification: Changing at least one term of the mortgage. It is used to do things like bring the loan current by capitalizing the delinquent interest 9adding it to the end of the loan; extending the fixed rate period on an ARM loan or lowering the interest rate, often by as much as a full point, to help reduce the monthly payment amount. These options will typically be available only if the borrower's income can support the modified payment. (Do they still qualify?)
2. Repayment plan: A formal, written agreement in which delinquent borrowers pledge to bring their loan up to date within a limited amount of time, usually less than 18 months. This is used often by borrowers who have had serious setbacks, such as illnesses or injuries or temporary layoffs that will most likely not be repeated. Something in their situation is going to change for the positive.
3. A Forbearance Agreement: This is when the lender reduces or suspends payments for a specific period of time, usually no more than three months. It's a useful strategy for people who have experienced a catastrophe such as a natural disaster, short-term illness, short-term unemployment, or if there is a pending sale of the property. The suspended payments are added on to the loan balance.
4. Preforeclosure sales: This is especially good for owners with home equity left in the property after the loan is paid off. That sum goes right to them. At least they don’t lose everything.
5. Deed-in-lieu-of-foreclosure: If there's not enough home equity to yield a profit, lenders may accept this option, which results in no exchange of cash. The homeowner simply turns over ownership to the lender and walks away. The borrower preserves more credit worthiness than if the home is foreclosed on... but just barely. This is sometimes an option, as it also save both parties a ton of legal fees and time.
In addition to these mitigation options, if the [tag]mortgage[/tag] is an FHA insured loan, the owner may be eligible for a one-time payment from the FHA insurance fund that will wipe the arrears clean. Few know this option may exist and wait too long.
The [tag]borrower[/tag] does, however, have to sign a promissory note for the amount FHA pays, and there will be a lien placed on the property that will only be removed after the note is repaid. Fortunately, the note is interest-free and is due when the property is sold or the first mortgage is paid off.
These are the different options, other than simply walking away. It may be worth a shot, because the lender truly doesn’t want the house.
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