If you're running late on your mortgage payments, or you think you're about to because of some unforeseen devastating circumstances, don't panic - there are many options for those who need such help. While you may be tempted to jot down the phone number on the "Avoid Foreclosure" placard in the highway median, there are more effective ways of getting your mortgage house in order.
The latest news from California shows that notices of defaults (NOD's) are at an eight-year high in the state. Why is that important? In real estate, as goes California, so goes the Union (usually). Buyer brokerage started in California, as did property disclosure, runaway home prices and real estate slumps -- they all started in California.
A piece in the San Francisco Mercury News last week, cited figures from DataQuick Information Services, an online group that gathers real estate data from public records. Some jurisdictions reported increases of NOD's of nearly 80 percent over the same period a year ago. San Francisco's rate was up 63 percent.
Fortunately, for these homeowners (borrowers) lenders have put procedures into place to help their default customers who wind up in a temporary financial situation where they have missed several payments. The lender knows the homeowner is good for the money once they get back on their feet.
Both Fannie Mae and Freddie Mac are the two government-chartered mortgage funding companies who provide money to lenders across the country. The two mortgage behemoths have procedures (referred to as loss mitigation) established for their mortgage company affiliates to process default loans. Fannie Mae has two sets of Loss Mitigation procedures: one is for the homeowner who can keep the property and the other is for those who end up having to let the house go through either a short sale or foreclosure.
The first set of procedures involves three options: repayment plan, forbearance and loan modification.
Under the repayment plan, reviewed on Fannie Mae's consumer site , the lender "may be able to arrange an increase in monthly payments until the loan is brought current. This means that each month your clients would add an additional amount of money (determined by the servicer) to their regular monthly payment until the amount that was overdue has been repaid."
Forbearance is a little more formal, involving a "written agreement between your clients and the mortgage servicer to reduce or suspend monthly payments for a specific period of time."
This option was designed to provide the borrower some time to resolve the hardship, whether it's loss of job, illness, etc., until they can begin to resume their scheduled mortgage payments. After the time period passes, the borrower must "resume regular monthly payments as well as pay additional funds to make up for the past due amount."
Finally, there's the actual loan modification where the lender actually changes the terms of the mortgage to bring the borrower back in line with the original agreement and to avoid foreclosure. "This option generally is considered for homeowners whose financial problems are expected to be more long term," according to the site.
The second set of options to avoid foreclosure do not necessarily mean the borrower will come out unscathed, just without as many financial bruises as if the house went into foreclosure.
These alternatives include selling the house or turning the home over to the lender.
One way to sell the house is to find a buyer who will assume the loan. Even though the mortgage may be a "non-assumable," when facing a foreclosure, the lender may reconsider this clause if they can find another borrower who can take on the responsibility of the defaulting buyer.
A second way to sell the house involves a preforeclosure sale. In this process, the lender would "agree to accept the proceeds of the sale, even though it may be less than the amount owed on the mortgage. To avoid going through a foreclosure proceeding, Fannie Mae and the servicer can agree to accept the proceeds of the sale in satisfaction of the mortgage loan."
It's expensive to foreclose a home, thus a lender would rather get something for the mortgage than nothing at all and then have to pay out cash to sell the house at a discount.
Finally, there's the deed-in-lieu of foreclosure. This is where the borrower voluntarily gives over the deed to the lender. It's about the same situation as the preforeclosure and is considered a last resort since the lender is now going to have to sell the house themselves.
The above procedures may differ from Fannie Mae, Freddie Mac and government insured mortgages. Here are the web sites where you can research the requirements:
At any of these sites search "foreclosure alternatives" or "loss mitigation" for more information on avoiding foreclosure.
