Q: I am a concerned homeowner who is currently locked into an adjustable first mortgage and a second mortgage with our credit union. I have done all of the things you suggested in your articles -- to no avail.
The rate on the ARM is locked in for the first three years. We did not want to buy out early because of the penalties, so we stuck it out until the three years was almost up. The market has since taken a serious nosedive. We were all approved and ready to close when we were given the bad news that our house is now worth $70,000 less than it was the year before and $20,000 less than what we originally paid.
Our mortgage did adjust in December and is due to adjust again in November. I spoke to our lender who said the rate would be going up 1.5 percent. That's at least $200 more per month, making our payment a total of $350 more per month since December. I spoke to three different departments -- refinance, retention and modification -- but, of course, none could help us out.
We were also told that we were not candidates for a rate freeze. I guess it's easier for them to foreclose on the homeowner. Any suggestions?
A: No, it's not easier for lenders to foreclose. It's an expensive, time-consuming process, from which arise no winners -- only losers, you and your lender. You are out on your fanny, and while your lender will eventually find someone else to buy your house, the company will be out thousands by then. So, no, foreclosure is a tale of woe for all parties -- except perhaps for the middlemen who are paid to fix up the house, keep it in good working order while it is sitting empty and sell it.
But that doesn't answer your question. As far as suggestions go, I am running out of ideas. You didn't say you couldn't afford to make the higher payments, so if you can continue to pay your mortgage, than do so. If you get behind, your lender will eventually come calling but by then your credit record will be laced with late payments and perhaps even a foreclosure.
Lenders are so overwhelmed right now with problem loans that they aren't even returning calls unless the borrower is at least 60 days past due. I have been telling people for years that if they can't make their payments, call their lenders right away. Now people are doing just that and their lenders aren't returning their calls. They just don't enough trained people to handle the deluge.
Besides, if you can afford to make the higher payments, your lender won't be very cooperative. You are going to have to prove you are now in over your head, perhaps way over your head. If you are in trouble, then be persistent. Call your lender every day if you have to. Don't take no for an answer, and don't take no answer for an answer, either. Keep trying until you find a sympathetic ear.
Once you get behind on your payments, you will have a better chance of being heard. If not by your current lender, then hopefully by an investor who is purchasing troubled loans from lenders for 60 to 70 cents on the dollar. These kinds of investors have what's called "patient money," which means they can work with borrowers until the market returns to "normal," whatever that is.
Because they are buying mortgages at deep discount, they can afford to rework the loans so borrowers like you can remain in their homes or sell them for what they're currently worth without incurring any sort of penalties. I've spoken to a number of this kind of investment bankers over the last few weeks, and they all say they have the dough to wait out the down market and the leeway to work with borrowers no matter what they want to do, sell or stay.
Another possibility is the Federal Housing Administration, Uncle Sam's mortgage insurer. The agency, which protects lenders in case of borrower defaults, has a program under which people like yourself can refinance their homes. There are some limitations to the FHASecure program -- it can back loans only up to $729,750, for example -- but so far, the FHA says it has helped some 200,000 owners who were either current on their loans or overdue avoid foreclosure.
There's one more point I'd like to make. As I mentioned earlier, foreclosure is a long, drawn-out "process." You aren't going to get a notice until you are at least 90 days past due, and then it could take months longer for the case to go to court, depending on the state in which you reside.
On top of that, if you don't move out, the lender will have to evict you, which could take several more months. In other words, foreclosure is a process, not a sudden event. So you will have plenty of time to get your affairs in order and take the steps that are necessary to move on.