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By Michelle Dunn
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What can consumers do if they are in danger of losing their homes as mortgage rates sky rocket?
In the subprime mortgage market many lenders have been extending loans to consumers without focusing on their credit history or credit record and in many cases not requiring a down payment and now this is resulting in an extreme rise in subprime defaults. Some of these lenders have decided to stop making loans to these people who can’t pay and are getting out of the subprime mortgage business.
Recently there has been an increase in loan applications, much higher than it has been in recent months and there has also been a surge in refinancing. Many borrowers who are approved for these subprime mortgages are already over extended when they are approved for the loan, but get approved because the lender doesn’t check their credit history and now many of those borrowers are in danger of losing their homes as mortgage rates rocket upward.
Subprime borrowers are typically people with bad credit, extensive debt and because of this pay 2 to 3 percentage points more for a mortgage than a customer with better or good credit. Many of these loans are made at an adjustable rate which leaves the borrower at risk for defaulting if the borrowing costs rise or the lenders decide to enforce their standards.
In recent years lenders have become relaxed with their standards and criteria for approving such a loan and making many loans of “questionable quality.” As many of these borrowers begin to default it is also affecting people who have good credit and a mortgage that was created during the housing boom and they are also becoming delinquent approximately 3-5 years after their purchases. This rise in delinquencies will result in more foreclosures and if this happens potential borrowers for mortgages will be looking for cheaper home prices.
This meltdown in the mortgage lending industry has been fast and furious, affecting the way many lenders extend credit and approve mortgages. So what happens to the people who can’t pay their mortgage payment? What can they do if they are in danger of losing their homes as the mortgage rates sky rocket?
Some of the things a homeowner can do when they find themselves in this situation are:
- Visit your lender and rewrite your loan
- Ask for a temporary hardship payment plan
- Ask if deferred payments (interest only) are available
Paying off mortgage arrearages is one of the most common reasons that people
file for Chapter 13 bankruptcy. If they have enough money left over after
paying necessary expense to fund a plan, they can spread out their payments
over a 3-5 year period and keep their homes.
Once a homeowner has taken the above steps they should also look at their specific situation and go over their budget. Your mortgage should be the first bill you pay each month, sit down and go over your finances to find or create more money in your budget to make these payments and avoid bankruptcy or the loss of your home. Some things you can do to create more money for you to pay towards your mortgage are:
- Cancel cell phones
- Cancel cable television
- Downgrade your home phone service to basic service
- Contact any other credit bills you may have such as auto or credit card and ask about adjusting your interest rate and/or payment; make sure to explain to them you are having a hard time and that this is necessary in order for you to continue to pay them.
- Carpool
- Bring your lunch or coffee to work with you rather than stopping each day to purchase these items.
- Stop going out to dinner, eat in.
These are just a few ideas of ways you can save more money and therefore have more money to pay your mortgage until this hardship is over.
Michelle Dunn, author of an award winning book has spent the last 18 years stepping into dangerous debt collection potholes. She shares her hard-won expertise on debt collection with the titles in her “Collecting Money Series.” She is the founder and president of Never Dunn Publishing, LLC and her 10 year old Credit & Collections Association with over 1075 members. Michelle started and ran M.A.D. Collection Agency for 8 years.
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