The past week or so I've been posting my thoughts on the current housing situation in the U.S., looking at various aspects of the issue and recommending how to deal with the situations caused by rising inteerest rates, bad mortgages, and falling housing prices. Today, we're looking at part six (the last part) of my thoughts on the recent U.S. News series on the slowing real estate market. In this post we'll focus on how to deal with the threat of housing foreclosure.
Foreclosures are on the rise because many people get adjustable-rate mortgages and borrow the maximum their budget will allow to get a house they really can't afford. Then, when the rate adjusts upward (which they've been doing lately), the borrowers get into financial difficulty. Then another money emergency arises (like a job loss, medical emergency, divorce, etc.), and the owners are in deep trouble financially.
What to do? The good news is that banks seem to recognize the problems and (partly because of falling housing prices) may be willing to work with people through these situations. Thoughts from U.S. News:
Lenders have little incentive to force that situation (foreclosure), especially now--when the properties they repossess could end up languishing on the market. Instead, some may be willing to restructure the loan or reduce payments in the short run if the borrower makes them up later. Even in the worst situations, lenders sometimes will accept a "deed in lieu of foreclosure," in which the property is returned to the lender without leaving an indelible black mark on the borrower's credit rating.
"I understand the embarrassment of not being able to meet your obligations, but the smartest thing you can do if you're having trouble is to call your lender and ask what your options are," says Duncan. "Unfortunately, a lot of people wait until it's too late."
That's really the key in my book. Through the years I've spent coaching people who are in debt how to get out, I can say that the best policy is to talk to your lender as soon as you think there's an issue -- or even better, when you THINK an issue MAY arise. The sooner you approach them, the more time both of you will have to work on a solution that is satisfactory to each of you.
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