Resources for preventing foreclosure

Being a resident of the Baltimore-Washington D.C. area, I read the Baltimore Sun quite often and recently there was a blog post by one of their bloggers, The Real Estate Wonk, that contained a lot of valuable information for those looking for help in dealing with a potential foreclosure. She gave the usual “call your lender” advice but then followed it up with some valuable resources if you find that the loss mitigation department of your lender is, as many are, swamped.

Let’s play the other side of the game for now, let’s say you are a prospective real estate investor and you’re looking to find a few good investments in our down market. One of the resources you might consider turning to is a foreclosure listing service such as RealtyTrac. RealtyTrac is a monthly paid service that will let you search for the foreclosure listings online and give you the address of the homeowners (and homes, of course).

Now, you might be saying – “What? Those people are evil!” Well, before jumping to that conclusion, recognize this if you are about to be foreclosed. The evil party in this whole ordeal isn’t the investors looking to buy your place on the cheap, it’s everyone else. The bank gave you a loan you couldn’t afford, you didn’t do the due diligence to know whether you could make the payments, the seller didn’t seem to complain much when they took your money (I wouldn’t call the seller evil though!). The real estate investor might be your one chance at getting a little of your equity out of the house, depending on how much you paid vice the value of the home.

So, if you’re an investor, don’t hesitate to call up one of these to-be-foreclosed to see if you can work something out. Don’t see it as kicking someone out of their home (the bank will do that in a month or two), see it as perhaps getting a bit of the owner’s equity out from the walls before the bank takes the whole thing.

There’s a CNN article today about how Cleveland homeowners facing foreclosure are turning towards pay day loans to make ends meet. It’s horrible because pay day loans have ridiculous interest rates and fees that, if spelled out plainly, would make most people run for the hills.

A payday loan is a small-dollar, short-term loan with fees that can add up to interest rates of 400 percent. They’re generally taken out when the borrower is caught short on cash and promises to pay the balance back next payday.

If you’ve considered a pay day loan to make your next payment, read the article because it’s especially informative on the predatory nature of these loans.

Today it was leaked that the Bush Administration has hammered out a deal in which ARMs could be frozen for five years to help the economy recover from the subprime mess. The agreement was a compromise between banking regulators who wanted 7 years and the mortgage industry who wanted 1-2 years. Ultimately, the detail have yet to be released but here are a hint: “the rate-freeze plan would apply to borrowers with loans made at the start of 2005 through July 30 of this year with rates that are scheduled to rise between Jan. 1, 2008, and July 31, 2010.”

More in this My Way article but the only salient detail released was what I wrote above..

Henry Paulson, the Secretary of the Treasury, is confident than an arrangement may be in place for a freezing of adjustable rate mortgages for homeowners. The current plan is to freeze ARMs for financially responsible borrowers, whatever that means, for a period of anywhere from one to two years to as many as five or seven. This would help the housing market recover what is the worst housing slump in at least twenty years.

An estimated 2 million subprime mortgages, loans offered to borrowers with spotty credit histories, are scheduled to reset to much higher levels by the end of 2008. Those resets will push the payment on a typical mortgage up by $350 per month, taking it from $1,200 currently to $1,550.

What does this mean for you if you’re going to take an ARM rate increase? Not entirely sure because they haven’t been clear on who will be eligible other than to say that it’s “financial responsible” borrowers who can “make the lower payments, but not the higher ones.” Which really is a bunch of baloney to me because everyone fits that description. If you couldn’t make the lower payments, you wouldn’t be in trouble because you wouldn’t be in homes. It’s the adjustment that’s killer.

We will have to wait and see how this shakes out.

That’s right, even when you’re losing your house someone is looking to profit from it by dinging you with foreclosure fees. It’s not enough that you’re losing your home, that the process is stressful and potentially embarrassing, but the lack of oversight in the foreclosure process also means that some places will try to squeeze a little more out of your wallet or pocketbook. If you are currently going through the foreclosure process, it pays to read this harrowing article on foreclosure fees in the New York Times.

In an analysis of foreclosures in Chapter 13 bankruptcy, the program intended to help troubled borrowers save their homes, Ms. Porter [associate professor of law at the University of Iowa] found that questionable fees had been added to almost half of the loans she examined, and many of the charges were identified only vaguely. Most of the fees were less than $200 each, but collectively they could raise millions of dollars for loan servicers at a time when the other side of the business, mortgage origination, has faltered.

Thanks to Consumerist for pointing out a story on CNN about how debt counselors are getting slammed in the subprime meltdown.

“I don’t think people fully appreciate the pressure that’s being put on those counselor organizations today,” says a Housing and Urban Development official. In addition to offering financial advice, the counselors try to help negotiate payment plans with lenders, stave off foreclosure notices, and even offer mental health support for people so distraught that they become depressed or suicidal. The average pay: $30-50,000 a year.

If you’re facing foreclosure and working with a debt counselor, please be very very patient. They are trying to help and the last thing they want to do is screw you over or screw up; so if they slip up, be patient and work with them – it’s in your own best interest.

Is your loan with Countrywide? They announced today that they would be working with borrowers to refinancing or modify their loans so that borrowers aren’t going to get slammed when their ARMs readjust. Their taking the hit because if they don’t and all these borrowers default, Countrywide goes under. What does this mean for someone who foresees their loan readjusting significantly higher in the near future? It’s a way out. It’s an opening.

The gun isn’t up to your head anymore, it’s up to Countrywide’s head (they don’t want to join the 50 other lenders that went under so far this year) and now is your opportunity to refinance and take action. If you have a Countrywide loan, call them. Call them right now before they start calling other people. In the beginning, if I was to hazard a guess, they’re probably going to want to get as many refinances on their books as possible so they can get this whole thing settled. As time goes on, the criteria for who gets to refinance or modify their loan will get tighter and tighter. You need to refinance to avoid foreclosure, you need to call right now.

So far this year, Countrywide has completed about 20,000 loan modifications — a figure that represents less than 5 percent of the more than 500,000 loans the lender reports were behind in payments as of last month.

Act now. Call 1-800-556-9568.

A loan modification is exactly what it sounds like, a modification of a loan. A lender and a borrower come to terms with the fact that the loan stipulations put it at risk and so they come to a happy resolution such that both parties win. In this period of uncertainty, with loan rates being adjusted and borrowers finding themselves in a crunch, lenders are more receptive to a loan modification because it’s much better than having a borrower default on a loan. In a default on a loan without collateral, the lender often just sells it for pennies on the dollar to a debt collector. In the default of a mortgage, the lender has to go through the messy and expensive process of foreclosure in which they’re certain to lose money in the process. So, a loan modification, if terms can be reached, is a winning proposition for both parties.

There are several risks to this on the lender side that I believe a borrower needs to understand so that you are fully prepared for the questions that will come. First, you won’t actually be talking to the lender, you’ll be talking to the servicer of the loan. This means that you’ll be talking to someone who may not have all the facts and may not have all the facts correctly, so you have to make sure that you keep the person you’re working with very well informed about your financial situation, the market climate, and any other pertinent details.

Secondly, there are scamming borrowers as much as there are predatory lenders, just because you’re on one side of the fence doesn’t make you immune to greed. There are borrowers who will want a loan modification because it’s better financially for them, not because they’re in dire straights and need the modification in order to stay in their home. This means that there’s a higher burden of proof on the folks who legitimately need a modification to stay in their house, you must accept the scrutiny and the extra workload if you want to succeed.

Lastly, there is a lot of work involved and so the borrower has to be persistent. Part of the persistence required will weed out some of the scamming borrowers because it’s not really worth it for them. The ones who are forced to persist, because they must in order to save their homes, are the ones who are left and your servicer understand this.

So, the key to a loan modification is to get all your paperwork in order, remain persistent, and be proactive.

The foreclosure numbers for September are in and it appears that they, as a whole, have fallen. September was 8% off its highs in August with “only” 223,538 filings, according to RealtyTrac, but are still twice as many as one year ago.

States in the Sun Belt and the Rust Belt continued to dominate foreclosure filings.

Nevada led the pack in the rate of September filings: one for every 185 households for a total of 5,504. Other hard-hit, Sun Belt states were Florida (one in 248), California (one in 253), Arizona (one in 316), Georgia (one in 316), Colorado (one in 326) and Texas (one in 615).

What does this mean for folks facing a crunch? It only means that lenders are more likely to work with you. If you’re in an ARM that will reset, don’t wait around to see if someone in Washington will lend you a hand (those guys are notoriously slow anyway), call up your bank and see if you can work something out. You might qualify for a refinance, you might not; calling is the only way you’ll find out.