Mortgage Crisis and Foreclosure

Because I'm a REALTOR, I get a lot of people asking me about foreclosure since that is a big problem right now. There's a lot to talk about on this topic and it might require a few different posts to cover different aspects. One question I get asked a lot is "how we can fix the mortgage problem that caused this economic mess that we are in?" My answer usually stuns people--for the most part, it's already fixed. What we are dealing with right now is the collateral damage caused by having it broken. This is what I mean. Near the beginning of the year, subprime loans went away. These are loans that were being made to people with questionable credit. The mortgage industry also did away with 80/20 loans and then recently most 100% financing options were done away with. So that's what I meant by being fixed. There are not nearly the number of risky loans available.

I think what people mean to ask is "How can we fix the damage that has been done?" That's a question that is easy to answer, it's just that nobody likes the answer-"We are going to have to ride this wave until it stops." That's the cold hard truth. The real estate market will start to turn upward again when you-the consumer-has confidence again in the market. And confidence is a hard thing to have right now when you see so many Foreclosures out there.

If you are going into Foreclosure, the worst thing you can do, is to do nothing and just let the house go back to the bank. Information varies on this, but I've been told that a bankruptcy will take about 2 years to clear up on your credit and that a Foreclosure takes about 4 years to clear up. Both of these are not good options, but Foreclosure is clearly worse. And chances are if you have missed payments on your mortgage, you have already been missing payments on your car, credit cards and maybe even your utility bills. So, you may have to file bankruptcy no matter what.

What can you do if you are going into foreclosure? 1st--Try to talk to your bank. Depending on your bank, you might be able to get a loan modification or a forebearance. This can be challenging. The reason for this is because of the way banks operate. Let me give you a typical example of what people go through when they call into their bank when they are behind on the mortgage. You call the 800# on your statement, type in your 9 or 10 digit account number and then you get connected to a debt collector. That person's sole job is to collect any money they can from you. They don't seem to care about why you are behind, they just want $3000 from you to get your mortgage caught up. Usually this is about where the conversation ends because you do not have the $3000. If you did, you would not be behind on the payment and people don't know what else to do so they hang up. What people need to do, is keep pressing in and demand to talk to someone in the loss mitigation or workout department. That is where the solutions are.

If that does not work, find a REALTOR that has experience in dealing with this sort of thing. Write out a letter giving him/her permission to talk to the bank about your mortgage on your behalf. Why? Because if I call in, I get the same debt collector as you-only they know there's not a chance that I am going to pay them anything because I'm a 3rd party. Usually, I can get with the right people to talk to about what is going on. If the bank is willing to work things out, and most would like to, they will require certain information from you such as: your last 2 bank statements, your last months pay stubs, they may want tax information, a financial statement and they will definately want a hardship letter explaining why you are in the situation that you are in. If you can show that whatever problem you were having is over with and that you can financially afford the house, they will usually work something out with you. If you cannot show that you can afford the hosue, then they are going to encourage you to try to sell the house.