Reporting from Washington—People fear foreclosure almost as much as they fear death. But unlike death, foreclosure can be prevented.
Unfortunately, just as some people ignore an illness' symptoms in hopes that it will just go away, some troubled owners are afraid to confront their problems and take the necessary actions to save their homes. But with so much misinformation flying about, who can blame them? Here are some common responses and misconceptions.
Dread: "If I tell the mortgage company I'm having a problem, it will speed up the foreclosure process."
Contacting your lender is an important first step, and the sooner, the better. It provides you with an opportunity to explain your situation and what steps you are taking to deal with it. Yes, your lender can be your adversary, but that's much later in the process. Right now, the lender can be your best ally. So call the lender early.
Fear: "If I miss just one payment, I'll lose my home."
The foreclosure process doesn't even begin until you are at least 90 days delinquent on your mortgage. But by that time, you are three months behind, and that's a deep hole from which to try to dig out.
It's much easier to get back on track after missing a single payment, so reach out to your lender and ask for help in making up your deficit. Even if you think you might miss a payment or two, let your lender know what's up. Lenders have a financial interest in keeping you in your home and may be willing to modify the terms of your loan or devise a repayment plan.
Regret: "I'll rob Peter to pay Paul until I can get back on my feet."
Many people try to ride out their financial difficulties by depleting their savings or even dipping into their retirement accounts. Although using your mattress money may be the right step, pilfering from your IRA or 401(k) plan should be the last thing you do, if you do it at all. Long before that drastic step, seek help. Otherwise, by the time you do seek help, you could be in even more desperate straits and your options will be fewer.
Ignorance: "What choice is there but to lose my home?"
There are plenty of choices, but most people don't know what they are. And they won't until they speak with a lender. Yet many delinquent borrowers think they can handle their problems on their own without help. Most can't.
Panic: "I'm receiving so many offers from people who say they are trying to help me save my home that they all must be scams."
Yes, there are a lot of dishonest people offering false promises. And if you take up with one, it could make your financial situation much worse. At the same time, lenders are hiring all sorts of companies to try to make contact with borrowers who won't answer their mail or pick up their phones. So how do you know the good guys from the bad?
Beware of cold callers who don't already have your loan number. If that's missing, the deal is probably bogus. According to Freddie Mac, one of the country's largest mortgage investors, the companies it hires to deal with delinquent borrowers will know that number.
Other tip-offs include upfront fees and pressure to sign something immediately. You shouldn't have to pay anything in advance. Pay only for services rendered. And don't put your signature on anything, especially something that's incomplete, until you have a chance to run it by a financial advisor, your tax preparer or someone you trust.
Terror: "My lender isn't responding to my inquiries."
Don't give up. Never give up. Again, this is a process, and it takes longer than you think. So be patient.
At the same time, keep detailed records of all your calls. Once contact is made, write down the name of the person with whom you spoke, his or her identification number, the date and time of your conversation and a summary of what was said. Also make copies of all your correspondence and other paperwork. Lenders tend to lose things.
Alarm: "To get my lender's attention, I should stop making my payments."
You don't need to be behind to get help. Millions of owners are in the same boat as you. Lenders are absolutely swamped. Even years into the housing crisis, they still don't have the staffing with the training and experience to handle the onslaught. So be patient — and keep trying and trying to reach your lender.
Keep making your payments, too — to your lender, no one else. If you stop, it will hurt your credit and increase the possibility that you will lose your home. And if someone wants you to mail the payments to him or her instead, you almost certainly will lose your home if you do.
Alert: "If I've been turned down for a loan modification, there is no point in seeking further help."
Just because you didn't qualify before doesn't mean you won't qualify now. Look at the federal loan-modification programs as well as your lender's. Besides, program parameters change all the time, so the rules might have been liberalized since you last sought help. Or your situation may have changed for the worse.
A housing counseling agency can help at any time, but it can be particularly helpful if you've been rejected. The Consumer Credit Counseling Service of Greater Atlanta says many owners are refused because they did not provide proper documentation or failed to consider all their expenses.
Also, the lender may have made a processing error or not followed the rules. You won't be able to spot these miscues, but an experienced counselor will. You can find a government-approved counseling agency at http://www.hud.gov.
Reported by the Los Angeles Times