I can remember in the late 1960's the aerospace company that I worked for in Pasadena California decided to move to the Orange County area, about 60 miles from their current location.
I wanted to go with the company to make a new start in a new area. This meant uprooting my family that consisted of my wife and one small child with another one on the way.
The company did everything (short of actually giving anyone a raise) in their power to get us moved. At that time real estate in Orange County was booming and many companies were moving.
With the housing boom also came an escalation in the cost of the homes, making the monthly payments a little more challenging for young families just starting out. That's when someone came up with the bright idea of offering Adjustable Rate Loans (ARM) to 'help' people afford the same homes at the new inflated price. Do you get the picture?
So what caused the current sub-prime problem in the first place? Inflated prices based partially on speculated buying. I can remember people I worked with telling of the prices in the next phase of homes in their tracts increasing by $20,000 - $30,000 within a year. That's not much by today's standards but it was then and it didn't stop.
Could we/should we have seen this coming? Of course but I don't think we could have done anything to stop it. The people who drove this were those in the banking industry. You know those smart guys in the three-piece suits? And of course the government who was guaranteeing many of the loans.
According to Gerri Willis of CNN there are organizations set up by the government to help homeowners in trouble. Organizations approved by the Department of Housing and Urban Development (HUD) have helped homeowners for years but their phones are ringing like never before, especially with evidence that lenders aren't doing much to help delinquent borrowers revise their loans.
Tracy Morgan a spokeswoman for the Home Ownership Preservation Foundation, that operates a foreclosure hotline (1-800-995-HOPE) for Neighborworks, said their hotline originally handled approximately 75 calls per day nationwide. She stated that by June 2007, the number ballooned to 750. For September 2007 the average number of calls received daily was about 1,300 calls. Of course the service associated with this has slowed to a crawl, sometimes weeks go by before counselors have time to return calls. In the past people came to Neighborworks looking for advice on buying a home, says Doug Robinson, spokesperson. Now most people are calling for advice on how to save a home.
Morgan believes most of that increase is due to the sub-prime meltdown in California. In the city of Stockton, CA (in central California) there are whole tracts of homes that people have abandoned because they couldn't make their mortgage payments. For many of these loans the people financed the entire cost of the loan (down payment & closing costs) with an ARM loan. In fact Yahoo news called Stockton the foreclosure capital of the USA!
According to Morgan the Home Ownership Preservation Foundation (HOPF) has mixed results. Often counselors have to tell homeowners something they don't want to hear - that for any one of a variety of reasons it is impossible to help them.
Even outcomes usually defined as 'successful' may be less than ideal. These include a 'short-sale' or accept a deed-in-lieu-of-foreclosure deal from their lenders, which should be better for them than outright foreclosure.
'Foreclosure really damages your potential to ever be a homeowner again, and possibly a renter,' said Morgan.
Some of the solutions offered are:
Forbearance, when lenders suspend payments for a couple of months while borrowers regain their footing. Some lenders will place the missed payments at the end of the loan, thus extending the loan term by 2 extra months, but more often lenders will offer to allow borrowers to make higher monthly payments after the forbearance is up till they catch up.
Major fixes are also being offered to some borrowers. These include rate reductions for some borrowers who have been on time payers before their payments adjusted upward. Some borrowers will qualify for refinancing to eliminate their ARM mortgage - but not all.
Neighborworks and other non-profit credit counselors act strictly as mediators; they have no power to force agreements on lenders or borrowers. The value they provide is getting the parties talking early in the process. By working with a non-profit credit counselor you have a better chance of working out your problems than you would on your own, according to Doug Robinson of HOPF.
Credit counselors bypass the collections departments of lenders in favor of mitigation departments where they can get things done.
According to Morgan, 'we can look at a borrower and say, 'You're not a good candidate for a work-out right now.'' They may suggest that you 'take three months to repair your credit score'. Or find some extra income by renting out a room to a relative or take a part time job.
Counselors many times can offer very tangible aid, says Kaye Britton, a loan officer with the Home Ownership Center of Greater Cincinnati. According to Britton, she has connected clients with grants of up to $3,000, or three months mortgage payment, whichever is less from the Ohio Home Rescue Fund. Your state may have a plan like this.
HUD has a similar fund that makes money available to troubled borrowers who earn up to 140 percent of the median income in HUD targeted areas.
However these are in the form of loans not grants.
Our site 1-800BadCredit.com has credit counselors available on our site. One of the keys to success in working with a credit counselor is contacting them early when trouble arises. If you wait too late their chances of success are lessened.
Regardless of where blame for our current housing market lays, if you need help with your mortgage then please check out our lenders and credit counselors.
Explore every option and do your homework. You never know where a solution might come from, but nothing can happen until you take the first step!
