How to Avoid Foreclosure
Foreclosures are reaching record highs all over the nation with even top celebrities experiencing foreclosures, making these past years the highest recorded foreclosures since 1979, according to the Mortgage Bankers Association (MBA).
Delinquency rates are when a loan is at least one payment past due. The number of loans entering the foreclosure process is nearly double than it was last year with states like California, Florida, Texas Foreclosures, Arizona, Nevada, Michigan, Ohio and Indiana as the hardest hit foreclosure states.
The amount of foreclosure began to really accelerate in the latter half of 2005 due to the defaults of many high-cost loans in the subprime and ajustable rate mortages (also called ARMs), made to high-risk borrowers causing the bubble to finally burst. The ARM resets from a lower introductory or teaser, to a higher percentage rate, causing an unaffordable spike in housing payments.
About 39 percent of foreclosures starts in the US involved subprime ARMs, 23 percent involved prime ARMs, 19 percent prime fixed-rate loans, 11 percent subprime fixed-rate loans and 7 percent FHA loans according to the Mortgage Bankers Association.
To add more stats, 61 percent of the people got subprime loans would have qualified for a cheaper and convential 30 year, fixed rate loan says the Center of Responsible Lending.
It’s a myth to avoid to the bank to avoid trouble. If the mortgage servicer wants to work something out, call them immediately. The servicer is really wanting to work out your loan if possible.
If you are in a bad subprime loan, a repayment is not going to help. You need to have a workout plan made to reduce the loan to a fair market value or freeze the interest rate permanently or for another 5 years. Repayment plans work best for those who have gone into trouble due to a one-time event such as illness, divorce, job loss or death.
If a loan can’t be worked out, try doing a deed in lieu of foreclosure where the lender will accept ownership of the home in place of the money owed on the note, or a short sale, which would require the homeowner to sell the home fore less than the loan amount owed to the lender.
For a first-time homebuyer, take a homeownership mortgage or financial counseling course where counselors will conduct a budget overview and analyze the potential buyers spending habits and patterns to make sure they can afford the home.
If Fannie Mae holds the loan, borrowers who owe more than the amount their home has been appraised, will have an opportunity to refinance their property up to 120% of the appraised value.