Resolve this year not to join the growing ranks of consumers heading into default on their mortgage payments by taking steps now to keep your home. Some relief may be available from the Federal Reserve's surprise rate cut this week.

The delinquency rate for loans on one- to four-unit residential properties rose 22 basis points to 4.04 percent during the third quarter of 2000, the second consecutive quarterly rise in delinquencies, according to the Mortgage Bankers Association of America.

During the same period, the percentage of loans against which foreclosure was started increased by 5 basis points to 0.31 percent, the highest level since the first quarter of 1999. The percentage of loans in foreclosure dropped 1 basis point to 0.84 percent.

"The increase in the delinquency rate was expected," said Douglas G. Duncan, MBA's chief economist. "This is a continuation of the maturing of loans originated during the period from 1997 through 1999, which are moving toward their peak delinquency years. Another factor is the slowing of the economy in the third quarter."

Falling mortgage rates could slow or reverse that trend, Duncan says.

Home owners facing the possibility of a late mortgage payment, but who are not yet delinquent may want to consider refinancing soon.

In a surprise move, the Federal Reserve on Jan. 3 lowered the fed funds rate, the rate banks use for overnight loans, from 6.5 percent to 6 percent. The Fed also cut the discount rate, the Fed's rate on loans to banks, from 6 percent to 5.75 percent.

The unexpected rate cuts came weeks before the Fed's next scheduled policy meeting at the end of January. While many lenders had already lowered consumer rates in anticipation of such a move by the Fed -- most experts expected only a quarter percent drop in the fed funds rate, and not until month's end.

Expect consumer rates to continue to fall in coming weeks as lenders play catch up.

Before the Fed's rate cut on Wednesday Bankrate.com had interest rates on 30-year fixed mortgages averaging well below 7 percent at 6.82 percent, a drop from 6.84 percent a week earlier.

Beating back delinquencies

Refinancing is a good strategy only before you default on a mortgage payment. Lenders are reluctant to risk the going rate on defaults and prefer to see you return to grace first by bringing your payments current.

"The people who are already defaulted will have to go for the hard money lenders and they don't care what the Fed does," said Richard Calhoun, broker-owner of Creekside Realty in San Jose, CA.

In any event, if you see financial trouble on the horizon, don't wait until it's around the corner.

You could be considered in default the day your payment is due, but lenders often give you from 30 to 45 days before officially listing you as in default.

"The key is to make sure the term late is defined. Grace periods of 15 days are customary. A borrower only needs to make sure they don't go over 30 days. This is what effects credit and could initiate foreclosure procedures," said San Ramon-based Monument Mortgage broker Jeff Jaye.

After you've officially defaulted, you have another 90 days before most lenders actually begin foreclosure proceedings -- plenty of time to correct your financial problems.

Stay in touch with your lender or mortgage servicer and let them know immediately if you think you might be late.

"They may not count it as late, especially if it's the first time," said Rob McCarthy, a mortgage planner with 101Loan.com

In addition to refinancing a first and only mortgage, consider restructuring your debts -- but not to borrow more money.

If you are saddled with two mortgages, do the math to determine if consolidating them will help. Likewise consolidate non-mortgage debts. Also consider extending a 15 year mortgage to 30 years or a 30 year mortgage to 40 years.

Examine carefully how any restructured debt strategy will play out if your situation worsens or improves. Jack Guttentag, "The Mortgage Professor," offers "What You Should Do If You Can't Pay"

and a host of mortgage calculators to help you do the math on a variety of financial restructuring plans.

Avoid fast-money offers that promise to lift you from financial depths. When you are down on your dollars you are most vulnerable to debt-removal come-ons. You likely didn't get in over your head over night. Don't expect a quick solution.

Get financial counseling. Certified consumer credit counseling services are often free or offered for only a nominal fee. They will teach you your rights and work with you and your creditors, say, to temporarily reduce payments or otherwise work out a payment plan that will keep you housed and your credit relatively intact.

National Foundation For Credit Counseling is a network of non-profit consumer credit counseling offices offering information and assistance for those with credit and debt problems.

Published: January 4, 2001

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Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.