Foreclosure Prevention Efforts Grow

Foreclosure prevention efforts are growing as fast as foreclosures. Here's a rundown on some of the programs you may know about and others that haven't gotten as much publicity. Either way, one of them could save your day.

by Broderick Perkins
© 2008 DeadlineNews.Com

Deadline Newsroom - Facing foreclosure?

You are not alone.

According to foreclosure monitor RealtyTrac, 1,769 Santa Clara County households faced some level of foreclosure in March 2008, almost double the 874 households in March 2007.

In California, the state with the nation's second highest foreclosure rate, 64,711 homeowners faced foreclosure, up 106 percent from a year ago.

The good news is that you also are not alone when it comes to the growing number of places you can turn to for help keeping your home.

First, a word of caution. Avoid "foreclosure rescue" operations and solicitors promising to save you from foreclosure. Many are scams operated by frauds looking to cash in on your financial and emotional vulnerability. Stick with your lender and other known and recognized resources in the field of foreclosure prevention.

• Your first source of foreclosure prevention assistance is your lender, provided you don't wait until you get into trouble. The rule of thumb? As soon as you begin to feel the pangs of payment panic, but before you actually miss a payment, call your lender and confess your fear.

"Absolutely. The more delinquent you become, the more options that will start going off the table" says William Higgins, chief lending officer of online bank Ing Direct.

Your lender may offer a variety of foreclosure prevention loans, but they generally boil down to two approaches.
Do-overs. Your lender is your resource for "restructuring" or "modifying" your mortgage. A restructured or modified loan temporarily or permanently changes one or more of your loan terms -- interest rate, time to repay, amortization, even the balance -- generally to reduce your monthly payment to a more affordable level.

• New loans. Your lender may also be your best resource for a refinanced mortgage, especially if it doesn't sell loans and wants to keep its portfolio of loans intact and in good stead. Refinancing pays off the old loan with a new loan with terms more suitable to your circumstances. That typically means a lower monthly payment.

Seeking help before you miss a payment is also wise when you seek assistance from foreclosure prevention programs outside your bank. Some new programs will turn you away if you've been delinquent even once.

• FHASecure is a special, government operated, Federal Housing Administration (HUD) low-equity refinancing program. It's designed for subprime borrowers and others with adjustable rate mortgages (ARMs) that came with teaser rates or other exotic terms. Teasers can cause a sudden, large increase or "reset" in the mortgage rate and monthly payment.

To qualify, you must have a history of on-time mortgage payments (missing none) before your teaser rate expired. If you are delinquent, the late payment must have been due to the payment shock caused when your interest rate reset or your so-called "Option ARM" was recast as a fully amortizing mortgage. A recast can cause a sudden, large payment increase.

Other requirements include: a qualifying mortgage with an interest rate that has or will reset between June 2005 and December 2008; as little as a three percent equity stake in the home; a sustained employment history; and sufficient income to make the new mortgage payment, which can include mortgage insurance.

"The problem has been a lot of people don't have any equity in the house and lenders want equity to refinance," said Glenda Queensbury, a mortgage adviser and real estate agent at Referral Realty in San Jose, CA.

For years, low-down payment FHA loans came with maximum loan amounts that made them of little use in high-coast areas like Silicon Valley and much of California. However, this March, the Economic Stimulus Act of 2008 raised the amount for FHA mortgages to $729,750 in Silicon Valley and other areas with a high cost of housing.

For more information call 800-CALL-FHA (225-5342) or visit http://www.fha.gov.

• Untaxed mortgage forgiveness debt. The is not a program, but a federal tax break that allows borrowers to avoid foreclosure, and related taxes, when they use a "short sale." A short sale occurs when a lender agrees to write off the portion of a mortgage that is higher than the value of your home (in an "upside down" mortgage), provided a buyer is willing to purchase the property or the lender is willing to finance the remaining balance. Previously, the forgiven portion could be considered income and taxed as such. The Mortgage Forgiveness Debt Relief Act of 2007, effective through 2010, removes federal taxes from forgiven debt for qualifying taxpayers.

Your certified public accountant, enrolled agent or other licensed tax professional can provide details about your qualification.

• HopeNow. This private coalition, staffed with U.S. Department of Housing and Urban Development (HUD)-approved counselors, includes lenders that could come to your aid even if you are already delinquent. Also, HopeNow offers assistance for both subprime and prime borrowers down on their luck. The group includes financial counselors, loan servicers and others from the mortgage industry. The group generally helps you work with your lender for a modification or repayment plan for late payers. A repayment plan allows you to become current and catch up on missed payments. Contact HopeNow online at http://www.hopenow.com or call 1-888-995-HOPE (4673).

• HUD-Approved Counseling Agencies. HopeNow programs mandate HUD-approved counseling because savvy homeowners are more likely to remain long-term homeowners. Other HUD-approved community, housing and counseling agencies and virtually every other foreclosure assistance program mandates counseling as a foundation for recovery from mortgage meltdown. The agencies also help you work with your lender to save your homeownership.

Agencies include the national NeighborWorks America program which is represented in Santa Clara County by the Neighborhood Housing Services of Silicon Valley. The group plugs into local housing assistance efforts around the county.

Other HUD-approved agencies include national organizations that typically have local chapters, the Association of Community Organizations for Reform Now (ACORN); Catholic Charities USA; National Association for the Advancement of Colored People (NAACP); the National Council of LaRaza, Asian Real Estate Association of America (AREAA), and the National Association of Real Estate Brokers, among others. Call HUD at 800-569-4287 for the complete list or visit the HUD site.

• State programs. State governments typically tie into federal programs, nonprofit groups, or, as in California, offer their own efforts. Check with your state to see what's offered.

• The National Community Reinvestment Coalition's (NCRC) National Homeownership Sustainability Fund (NHSF) assists families that hold high-risk mortgages or have experienced a change in financial circumstances that undermines their ability to repay. It also helps senior citizens who have refinanced their homes with high-cost mortgages, including reverse mortgages. If necessary, the coalition intervenes with your lender or servicer to help restructure mortgages and to secure a delay or stay in foreclosure proceedings. It also recently proposed a Homeowners Emergency Loan Program (or HELP Now)

• The Institute for Foreclosure Legal Assistance helps those facing legal issues that arise from loan orginations, foreclosure proceedings and bankruptcy. Affiliates include AARP's Legal Council for the Elderly and California's Housing and Economic Rights Advocates (HERA) a not-for-profit legal service and advocacy organization that protects people from discrimination and economic abuses, especially in housing.

• Mortgage Bankers Association. The mortgage industry offers the Home Loan Learning Center's Foreclosure Prevention Resource Center , an educational effort which loops back into the HopeNow effort.

• If you are in the military, you have special relief under the Servicemembers Civil Relief Act (SCRA) to stop the foreclosure. You could also be eligible for a reduction in the interest rate. For more information visit or contact your military unit leader or the legal assistance office at your installation or base.

• Disaster relief. When the president declares a disaster, lenders typically offer foreclosure abeyance, mortgage payment holidays and other related relief. Check with the Federal Emergency Management Agency (FEMA) to determine if you are in a disaster area. Then check with your lender or your loan's underwriting overseer, Fannie Mae or Freddie Mac.

Fannie Mae and Freddie Mac, two of the nation's largest sources of financing for residential mortgages, dovetail their foreclosure prevention efforts into many of the programs mentioned above. They also offer foreclosure prevention tips and information on their Web sites.

© 2008 DeadlineNews.Com

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Broderick Perkins, an award-winning consumer journalist of 30 years, is publisher and executive editor of San Jose, CA-based DeadlineNews.Com, a real estate news and consulting service, and the new Deadline Newsroom, DeadlineNews.Com's new backshop. In both cases, it's where all the news really hits home.

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