The sinking housing market was recently big financial news. The trouble in the subprime lending arena has been around for several months. But now it's not just the risky loans that are going bad. The rising interest rates are putting more and more people into financial trouble. What can you do if you're one of the millions of people who needs to do something to avoid foreclosure?



One of the first things you need to do is talk to your bank or mortgage lender. Banks know foreclosures are bad for business. They would much rather get you into a different product than lose your business altogether. In fact, some of the big banks have joined forces with the American Bankers Association to prevent more foreclosures.

The banks also know they approved a ton of bad loans. They know they're on the hook for millions of dollars worth of homes if these loans go belly up. So they're looking for a way to save face. That doesn't mean you'll get out of your loan scot-free. But you might be able to make a deal with your lender.

Ask your lender if it's willing to do a "work-out" deal. If so, you might be able to get the lender to reduce the loan amount (giving you a lower amount is typically far better than sending the property to auction) or they can help you refinance into a better loan you can afford.

If you need to refinance, and can't afford any of the standard loans offered by your lender, look for one of these types of loans:

* Federal Housing Authority -- An FHA loan is insured by the government, but offered by private mortgage companies. The FHA has taken action in recent days to make it easier for low- and middle-income homebuyers and owners to get into its loans. These loans fell out of favor when the subprime loans came into vogue. But now that subprime loans are on the outs, FHA loans are gaining popularity again. You can get an FHA loan with very little down. And you can even get an FHA adjustable rate mortgage, to keep your payments down. Make sure you shop around for the best rates, as each lender sets its own rates based on FHA rates.

* If you're a veteran or the surviving spouse of a veteran (who died in connection with their service), make sure you check out Veterans' Affairs. VA loans are easy to get for veterans, even if they have poor or slow credit. And the rates can be competitive with many subprime loans.

* You also should check to see if your bank offers a Community Reinvestment Act (CRA) loan. When banks move into a new community, they're required to offer loans to help the entire community. These CRA loans are available to low and moderate income earners. And they come with some of the best rates around right now.

Before you let your house go into foreclosure, make sure you look at all your options. It's possible to find alternatives. But you've got to do some legwork to make it happen.