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Homeowners in Trouble Need to Be Proactive
According to a November report by Standard & Poor's,
about half a trillion dollars' worth of adjustable-rate
mortgages are due to reset to higher rates in 2008 when their
two-year teaser rate periods come to an end.
Even though general interest rates have been headed down
recently, you should know that it may not affect the mortgage
market all that much. And if you suspect the lapse of your
teaser rate will make your future monthly payments unaffordable,
you need to take action now, not when higher payments take hold.
Mortgage trouble can be a sign of other concerns in a person
or family's financial life, and it makes sense to review your
entire financial picture. One way to do this is to seek out the
advice of a trained financial expert such as a Certified
Financial Planner™ professional. A CFP can examine what you're
doing right and wrong with credit as a whole and make
suggestions on how to circumvent immediate problems. In general,
their advice might be the following:
Act first. If you believe that you are going to be
late with a payment of any kind — not just your mortgage
lender's — contact the lender first. A recent Freddie Mac survey
reported that of 2,000 homeowners reporting they were behind in
their payments, 31 percent said they had not contacted their
lenders despite repeated warnings of penalties and foreclosure
in the mail.
Use every contact you have. If you have a
person-to-person relationship with your lender, start by talking
to a branch manager or an actual human you can use as a stepping
stone to getting the right answers. If you have worked with a
mortgage broker for years, perhaps they can help you get closer
to a lending official who can consider your case more quickly
and effectively.
Know the best time to act. There's a key window to
exploit. At 15 days past due, a file is typically referred to a
lender's collection department, and at 30 days, the delinquency
is reported to the credit bureau. Once the 15-day notice
arrives, immediately respond to the letter, and try to reach a
department manager during the day to explain your situation and
formulate a plan of action. If you are late, it won't prevent a
ding in your credit rating, but it may save your loan and your
home.
Know your mortgage rights. Check your loan agreement
and learn what your lender can or cannot do if you fail to make
payment. Check the State government housing division and get
information on the applicable law.
Go back to the basics. Review your spending plan and
make appropriate changes. Now is the time to prioritize.
Ask for a change in your loan agreement. Under certain
circumstances, such as loss of a job, medical problems or
evidence of other financial burdens beyond your control, a
lender might either renegotiate the terms of your loan or
temporarily grant a forbearance agreement that would suspend
payments or allow you a lower payment over a period of time. Ask
under what conditions you might be eligible for either option.
Refinance if you can. The best option to rescue
yourself from a huge jump in your monthly mortgage payment is to
refinance, preferably into a fixed-rate mortgage. Keep in mind
your lender won't be all that excited about it if your credit
picture isn't that healthy and if your home value has dropped,
refinancing will be even less likely. Have a conversation with a
tax advisor or a financial planner to see if there are options.
If foreclosure is looming, use your advisors to see if
they know legal or other resources to help you negotiate with
your lender to prevent the loss of your home. Obviously, the
time to act was before the foreclosure notice was issued, but as
a situation worsens, it's obviously no time to go it alone. Keep
in mind that a lender doesn't want you to go into foreclosure
any more than you do — lenders almost always lose money in
foreclosure. Do consult with tax and legal advisors during this
process, and stay away from foreclosure prevention companies
since their fees are high. Always keep in mind that foreclosure
victims are easy targets for scams.
December 2007 — This column is produced by the Financial
Planning Association, the membership organization for the
financial planning community, and is provided by Don McCarty of
Financial Decision Partners, a local member of the FPA.
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