A FEW months ago, I wrote an article stating how I felt that lenders weren’t trying hard enough to help distressed owners in foreclosure. That may now be changing as housing prices continue to slide and the credit crunch continues to worsen. The number of so called “upside-down” mortgages is expected to rise to record levels. A recent survey showed that in the next 12 months, approximately one-third of all U.S. homeowners will owe more on their homes than they are worth. Here in California, in a lot of communities, negative equity has become the norm these days.
You have probably heard and read a lot about loan modification and how it can help homeowners stuck in a loan that they can no longer afford. First of all, what exactly is “loan modification”? Loan modification involves changing one or several terms of your current loan. For example, the lender may agree to lower your interest rate, extend the loan term, include missed payments or in some cases, reduce your principal balance to arrive at a much lower payment and stop the foreclosure process. If this can be worked out, it becomes a win-win situation for both the homeowner and the bank. Contrary to what you may think, the bank doesn’t want to foreclose on your house as much as possible. Today, there are billions of dollars of bad mortgage debt and the only way to turn these debts into performing assets is to restructure them. If the bank can look good on paper and you can stay in your home and get a fresh start, I can’t think of a better solution for all parties concerned. Now, you have to keep in mind that not everyone qualifies for loan modification, however. Generally, if your situation is one of the following, the loan modification option may be possible:
Borrowers who have sub-prime or adjustable rate loans. If you purchased your property with an adjustable rate loan, perhaps the interest rate has just reset, causing the monthly payment to become unaffordable.
Borrowers who are in a “hardship” situation. The situation can be temporary or permanent. The generally accepted hardships are: divorce or separation, military service, disability, injury and loss of job or income. Each situation is unique and explaining your circumstances to the lender will help the lender determine if you are a good candidate.
Severe decline in the value of your home may be another reason for your lender to consider modifying your loan. While decline in value alone is typically not an acceptable reason, the lender may consider modifying your loan instead of foreclosing on your property if the lender believes it is more cost-effective to do so. Remember that banks lose a lot of money when they foreclose and with the property’s decline in value, avoiding foreclosure cuts the lender’s losses.
The first thing you should do is to call your lender and find out what your options are. In some cases, the lender may only be willing to give you a repayment plan on the delinquent amount. In other cases, the lender may think that foreclosure is their best option. (These days, what I’m actually seeing is that a lot of these banks are simply overwhelmed with the massive number of foreclosures they are dealing with and they lack the manpower to work with borrowers, which makes the situation even worse.) One thing to keep in mind is that if you are already late on your mortgage payments, time is NOT on your side and the sooner you start working with your lender, the better your chance of being able to keep your home. In my opinion, more than 50% of foreclosures could be prevented if borrowers simply contacted their lender. Nothing happens until you move.
If you are in foreclosure and are confused about what options are available, let us help you understand them so that you can make an informed decision about your situation. For a free office consultation, call Toll-Free 1-866-477-7772. We have offices in Glendale, Cerritos and West Covina.
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None of the information herein is intended to give legal advice for any specific situation. Atty. Ray Bulaon has successfully helped over 4,000 clients in getting out of debt. For a free attorney evaluation of your situation, please call Ray Bulaon Law Offices at TOLL FREE 1-866-477-7772).
(Published October 24, 2008 p.A6 OCIE)
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