Home foreclosure rates continue to escalate with an anticipated total reaching 11 million by the end of 2010. Thus far, strategies to reduce the number of real estate foreclosures have failed. The two primary reasons stem from unprecedented unemployment rates and lack of lender participation to help borrowers find alternative solutions which could help them save their home.
Individuals who want to stop home foreclosure must be aggressive in their efforts to work with mortgage lenders. Delinquent accounts are turned over to bank loss mitigation in attempt to collect outstanding balances.
Loss mitigators are responsible for helping borrowers devise a payment plan to prevent foreclosure. When mortgagors do not possess the financial means to cure loan arrears or remain current with future payments, loss mitigators can offer strategies to minimize the financial fallout associated with foreclosure.
In order to obtain a successful outcome, borrowers should become familiar with the different home foreclosure prevention options. Banks are not eager to incur losses against real estate loans and may not be forthcoming with all available options. Those in the know will have a better chance of reaching an amicable agreement and can lessen the impact against credit ratings.
Foreclosure Prevention Strategies
Loan deferment is the simplest way to cure mortgage arrears. This option allows borrowers to skip a maximum of three payments which are rolled to the end of the loan. In order to qualify for this option, borrowers are usually required to submit financial records, along with a letter of hardship which details events that caused borrowers to become delinquent with home loan payments.
Real estate forbearance temporarily alters mortgage terms. Banks can allow mortgagors to skip one or more loan payments in attempt to help borrowers get back on track. Missed payments are rolled to the end of the loan by extending the terms of the note.
Loan modification permanently alters mortgage terms. Banks generally lower the rate of interest for a predetermined amount of time to reduce the monthly installment. Others extend loan terms by adding an additional year or two to recapture reduced payment amounts.
Mortgage refinance involves taking out a new loan with a reduced rate of interest. Refinancing can be challenging because borrowers must possess sufficient credit scores to qualify for the loan. Most people facing home foreclosure have credit blemishes that could prevent approval.
Another consideration of refinancing mortgages is the costs involved. Borrowers are responsible for costs typically associated with taking out a real estate loan. Common costs include: loan points, loan application and origination fees, real estate appraisals, property inspections, legal fees, and closing costs.
Mortgage loans often contain prepayment clauses which can add additional expenses to refinancing. Prepayment penalties can add upwards of 5-percent of the loan value to refinancing costs. Borrowers should review the Truth in Lending statement attached to their real estate note prior to entering into mortgage refinance.
Strategies to Minimize Financial Fallout of Real Estate Foreclosure
Short sale real estate is complicated and can take 4 to 6 months to complete. When short sales are offered the bank agrees to accept less than the full balance owed on the mortgage note. This type of transaction often requires the services of a real estate attorney.
Borrowers must determine which type of real estate short sale is offered. Most banks hold borrowers responsible for the difference between the loan balance and purchase price. When borrowers are unable to pay the difference in full, banks can obtain court ordered deficiency judgments.
Deficiency judgments are exceptional detrimental to credit reports. Borrowers’ credit scores can drop by as much as 100 points; preventing them from obtaining any type of credit for several years. Additionally, deficiency judgments remain on credit reports for up to 7 years after the debt has been repaid.
Deed in lieu of foreclosure is typically the last option offered to borrowers facing foreclosure. Deed in lieu does not allow mortgagors to retain their property, but does offer financial relief. Using deed in lieu, borrowers give their house back to the lender and walk away. Just as with short sales, banks can issue deficiency judgments when the property sells for less than the amount owed on the home loan.
In order to prevent foreclosure or lessen impact to credit, borrowers must be proactive in communicating with their mortgage lender. Those who ignore collection letters and phone calls will limit available options and generally must endure the harshness of the foreclosure process. Those who take action can save their home or minimize the financial fallout.