Foreclosure is Not the Only Option if You Can't Make Your Mortgage Payments

This post was inspired by a comment from Alex regarding my post Borrowers Don't Wait for the Well to Run Dry. That post discusses some changes in mortgage underwriting guidelines and how it is getting more difficult for borrowers to qualify for a mortgage.

"Well it is sure the trends show that it is going to harder for the consumers to cover the requirements but what happens with those who didn't make their payments. Those who failed at a certain point. They loose their home?"

Alex,

You are correct about the trends. Lenders are being much more cautious.

You've asked an excellent question that I am sure is on the mind of many homeowners these days. Based on what I am seeing and hearing, lenders are willing to try to work something out with those who have become delinquent...a foreclosure is very costly for the lender. AND bad for everyone all the way around. The lender prefers to avoid this option. As long as the borrower can demonstrate an ability to repay, the lender may do one of the following:

-Reduce the interest rate for a few years
-Allow the borrower to "skip" a few months of payments to get caught up (the "missed" payments are added to the balance of the loan, effectively extending the mortgage term a few months)
-Extend the term of the mortgage from 30 to 40 years
-Freeze the rate on an adjustable mortgage when the rate has increased to the point that the borrower cannot afford the payment.
-The FHA Secure loan is another option..borrowers who have fallen behind due to an adjustable rate increase may qualify to refinance into a lower fixed rate program to reduce their monthly payment. If you have a 2nd mortgage or HELOC, and owe more than the property is worth, you may still be able to refinance. FHA will allow for subordination of the 2nd lien.

-A short sale is another option. If you own more than your home is worth and you can prove hardship, you may be able to sell your home and start fresh. A short sale is less damaging to your credit report than a foreclosure. If you want to explore this option, be sure to work with a realtor who is experienced with short sales. This can be a time consuming, tricky process.

There is also some proposed legislation that may provide some relief in the form of reduced interest rates to make monthly payments more manageable.

Options are there. It is very important for a borrower who has gotten behind to contact their lender to see what can be done. They should also contact a mortgage professional to see if they qualify for a refinance to reduce the monthly payments. Folks are giving up before they explore their options.

Information brought to you by The South Florida Mortgage Lady, a mortgage broker in Boca Raton, FL