There are options in mortgage crisis

Friday, July 4, 2008

At the other end, homeowners with subprime loans or nontraditional loans, such as interest-only mortgages or ‘‘piggyback” loans, might already be at the point of foreclosure. The culprit is irresponsible lending and how mortgages were structured.

If your monthly mortgage payment is a financial burden or if you anticipate falling behind on your payments when your rate increases, know that you are not alone.

Others — at all income levels — are facing the same predicament. How your particular situation resolves itself will depend on you taking the time to review your mortgage today and, if need be, contacting your lender at the first sign of trouble.

There are steps you can take that will improve your chances of keeping ownership of your home. If you are a troubled homeowner, the Better Business Bureau offers the following checklist to help you determine a plan of action:

* Carefully review the terms of your mortgage.

If you have a subprime, nontraditional or adjustable rate mortgage you should review all of your loan documentation today. Don’t wait to find out that your monthly payment will double because of a pending rate increase. When are the ‘‘reset” points? Will you be able to make the new monthly payment with a higher interest rate?

* Can you rework your budget?

It may be possible to make adjustments to your budget that will free up more money for mortgage payments. Reducing your spending or taking on a second job might help. Are there lifestyle changes you can make to bring down expenditures?

* If you don’t hear from your lenders, contact them.

Keep in mind that your lender would prefer to avoid foreclosure as much as you would. Over the past year, the industry has begun to offer more assistance to troubled homeowners. More lenders are taking the initiative to forestall financial difficulties for adjustable-rate mortgage holders. They are sending letters alerting homeowners to a pending ‘‘reset” and outlining refinance options. If you ignore phone calls or letters or other communications from your mortgage lender, you are adding to your troubles. Be aware that lenders are more likely to move quickly into foreclosure proceedings when they have not heard from homeowners regarding their situation. Take the initiative and contact your lender.

* Speak to the right person.

Most mortgage statements contain a phone number specifically for use by homeowners who need to discuss difficulty making their monthly payment. This may be listed as the loss mitigation or the collection department. Staff members within these departments can advise borrowers of the options or ‘‘workouts” available to someone in their situation. If you cannot find a reference to such a department on your mortgage statement, contact the main customer service number and ask to speak to someone in loss mitigation.

* Discuss your situation honestly.

Your mortgage lender will probably have a specialist ask some questions designed to help identify workout options that are available to you as the borrower. To accomplish this successfully, homeowners should have at hand their bills, statements, and anything else that will help give an accurate portrayal of their financial situation. Don’t try to fudge on the true details of your situation. It is important that you accurately explain your current situation. Being honest and open with your mortgage lender will help them to identify the most appropriate workout recommendations.

* Consider your options.

It is key to remember that there are always options available to assist you, no matter how serious your situation.

Your lender will either pinpoint ways to help you keep your home (retention) or identify options that will involve the sale or loss of your property (liquidation).

One example of ‘‘retention” is forbearance. That is a temporary reprieve from the full monthly payment in order to help the homeowner resolve financial issues and resume normal payments. An example of a ‘‘liquidation” option is a short sale.

This allows the homeowner to settle with the lender in situations where the home can only be sold for less than the balance owed on the mortgage.

Edward Johnson is president and CEO of the Better Business Bureau serving the greater metropolitan Washington, D.C., region.