Millions of homeowners who went for one of those enticing variable or adjustable rate mortgages two years ago are reeling from budget shock, as their house payments are beginning to rise rapidly. Many have already teetered into the abyss, as the most recent statistics indicate.
The Mortgage Bankers Association reports that foreclosure actions in the second quarter of 2007 were at their highest rates in the organization's 55-year history.
The MBA report found that homes entering foreclosure were at 0.65 percent of all outstanding loans, an increase from the previous high of 0.58 percent for the first quarter of 2007.
While the prospects may seem bleak, homeowners in this predicament do have some options. While free, reliable help is available, a University of Arkansas consumer and family finance expert says time is of the essence.
William Bailey, associate professor in the School of Human Environmental Sciences, says nearly two million homes could go into foreclosure over the next 12 to 18 months, but quick action could greatly reduce that number.
If consumers find themselves behind on their mortgages, they should start by talking to their mortgage banker or whoever owns the mortgage to see if they can work something out, Bailey said. The quicker you respond to this crisis, the more likely you will keep your property.
"Some recent research showed people are waiting three to six months before they seek help, and as a result they never recover, he warned.
Act fast
Bailey said the ideal time for homeowners to contact their mortgage holders is before they miss a payment. Often, he says, financial institutions will still be flexible if the consumer has missed only one payment. Some mortgage holders are willing to cut interest rates and monthly payments.
Thats something you can negotiate with the mortgage company because theyre not interested in owning that property, particularly in a market where the value of homes is going down, Bailey explained. As a result they will do a lot of things to keep you in that house, because an abandoned house loses value as it sits there, and they dont want that.
This climate is advantageous to consumers during the negotiating process, and according to Bailey, they should have only one goal in mind: keeping their homes.
Its my personal and professional opinion that working out a deal is better than foreclosure, he said. Foreclosure will affect your credit rating for a long period of time.
Get help
Help is available for those who are unsuccessful at brokering a deal, whether because they dont know how to or because they are too far behind in their payments.
If you cant work out something with the mortgage holder or youre two months behind, go to a consumer credit counseling agency because they have the right people to talk to and they will serve as your intermediary for free, Bailey said.
They know what words to say, who to talk to and what telephone numbers to call all the things that most consumers dont know how to do. When credit counselors call, people listen because they know theyve got someone sitting there who needs help.
In about 90 percent of cases, Bailey said, credit counselors can keep homeowners in their homes if they are only one month behind in their mortgage payments.
Bailey recommends agencies like Credit Counseling of Arkansas, which is located in northwest Arkansas but also helps consumers nationwide through a toll-free number. Consumers in any part of the country should be able to find comparable agencies in their communities.
But, he cautions, avoid the growing number of so-called mortgage rescue agencies that are nothing more than scams.
Just make sure they are accredited and part of the National Foundation for Credit Counseling, Bailey cautioned. There are some fly-by-night operations that are fundamentally scams, and those organizations will say such things as Dont make any payments on your mortgage. When it gets so bad, well negotiate a 50 percent payoff. And that will put homeowners so far behind that theyll really be in trouble.
For more foreclosure avoidance strategies, see Mortgage Crisis? Act Now to Avoid Foreclosure.
