Foreclosures have hit the American dream hard. Few things represent in our society than owning your own family home. And few things make us feel failure as hard as when we lose it. The housing crisis that started in 2008 is still affecting us today. Millions of homeowners are at risk of losing their homes, while hundreds of thousands already have. This has, quite naturally, created a mass hysteria, which is the perfect breeding ground for myths. Myths are a great read when they tell the stories of ancient heroes; but they are dangerous when people base important financial decisions on them.

We will dedicate two articles on debunking six myths that are widespread among homeowners nationwide. Unfortunately these misunderstanding are sometimes stopping homeowners from getting the help they need.

Myth 1. I am only one month behind; I can easily catch up. I am not at risk.

Foreclosure procedures start when you are behind in your payments, whether one month or ten. If you do not act quickly you could lose your home. Remember that when you are a month behind in your payments you owe two months: the one you are behind on and the current one. Ideally you should ask for help before you are behind in your payments. The earlier you contact a free housing counselor the more chances they will have to help you. Contact your lender and explain you are struggling with your mortgage payments as soon as you as you can. This gives the message you are serious about paying your mortgage, and increases the likelihood your lender will grant you a loan workout.

For free professional housing advice contact the Housing and Urban Development Department (www.hud.gov) or the Home Ownership Preservation Foundation (888-995-HOPE).

Myth 2. My lender would prefer to foreclose on my mortgage than help me keep it.

This is a dangerous myth because it creates a sense of helplessness. “If the mortgage company wants me out of this house, what can I do?” The truth is of course different. Mortgage companies are in the business of lending money for profit not owning, managing and selling homes. A recent study by the TowerGroup consulting company revealed that lenders lose $58,000 on average for every foreclosure. This happens because foreclosed homes rarely are sold for the balance of the mortgage, and the lender must also cover the fees and costs that go with selling a house.

The bottom line is that mortgage companies prefer you catch up with your payments and save your home. Of course, if they realize you can’t afford any payments and there is little chance you will be able to do so in the future; they will cut their losses and foreclose. That is your job;  to prove them you can afford reasonable payments if you are granted a loan modification.

Times are not easy for Michigan homeowners, as in the rest of the U.S. thousands of homeowners are facing the possibility of losing their homes to a foreclosure. From January to May 2010 alone, there have been 74,475 foreclosure filings and 9,703 foreclosure sales in Michigan. However, there is hope for those that are willing to fight for their home. Even when a homeowner simply cannot afford their home; there are alternatives to foreclosure if you take advantage of federal and state mortgage help programs.

Michigan foreclosure law has changes in the last two years to adapt to the rise in foreclosures. For instance, since July 5, 2009, state law requires lenders to work with you (and all other troubled borrowers) to avoid a foreclosure. There are also specialized government and non-governmental mortgage aid programs that focus on providing help to Michigan troubled homeowners. These include the Department of Housing and Urban Development section for Michigan, the Michigan Foreclosure Prevention Project, the Michigan Attorney General Office and the Foreclosure Intervention and Neighborhood Stabilization Collaborative.

All of these organizations agree that when your lender starts foreclosure proceedings you must immediately contact a free housing counselor or an attorney. In some cases you might even want both.

A housing counselor will help you understand the foreclosure process in Michigan and provide you with a list of mortgage workouts available to you. They will also help you communicate with your lender and collect all the information you need to negotiate a mortgage workout with your lender. The good news is that housing counselors are free. Contact counselors federally approved by the Housing and Urban Development by calling  800-569-4287 or visit www.HUD.gov. Or visit a state approved counselor by calling 866-946-7492 or visiting www.michigan.gov/mshda.  You can also contact the Michigan Foreclosure Prevention Project (http://miforeclosure.mplp.org), an organization that combines the services of legal aid offices and housing counselors throughout Michigan, as well s the Legal Services of South Central Michigan (LSSCM) and the University of Michigan Law School.

A foreclosure starts a legal process which will end in you losing your home if you don’t take steps to avoid this from happening. Foreclosure and bankruptcy attorneys have experience in dealing with debt problems, and can help you negotiate with lenders. If you cannot afford a lawyer you can find legal aid at www.michbar.org/public_resources/legalaid.cfm. They can provide you with a list of lawyers that do pro bono work (free or for reduced fees) for low income borrowers.

Contacting government and state approved agencies will protect you from so-called foreclosure prevention specialists which are often scam artists that prey on vulnerable borrowers. Remember there is no need to pay for a housing counselor, help is available for free.

Finding a housing counselor and an attorney is only the beginning, to avoid foreclosure you are going to have to contact your lender and negotiate a mortgage workout. Our next article Avoid Foreclosure Michigan: Contact Your Lender and Negotiate will look into further steps Michigan homeowners must take to protect their homes.

The housing crisis has not only hit those that own a mortgage. Those that own their homes outright have also seen the value of their homes drop, which reduces the money they have unlock from their home. One way to unlock cash from your home is to buy into a reverse mortgage. Reverse mortgages are, as their name suggests, a mortgage but backwards. Instead of paying monthly payments the bank pays you monthly payments, a lump sum, or a line of credit you can use when and how you like. This way you can stay in your home but still enjoy the cash. This is a personal finance version of having your cake and eating it.

The problem with reverse mortgages is, as everyone knows, they are expensive. However, they just got cheaper. Big reverse mortage providers like Bank of America, Metlife and Wells Fargo have dropped the origination fees and other charges related to reverse mortgages. What has caused this generous display of philanthropy to the elderly? Lenders are selling reverse mortgages as securities on the stock market, and demand is high. This is because reverse mortgages are backed by the government have a shorter lifespan, and their performance is more predictable.

Another reason is that less people are taking on these mortgages because the prices of homes has plummeted. The Federal Housing Administration also reduced the maximum amount available for a secured reverse mortgage.

Lenders are sweetening the deal by reducing the cost of reverse mortgages by up to $11,000. This does not make reverse mortgages cheap, they are still pricey, but if you were thinking about buying one they might deserve a second look now they got cheaper.

Who are they for?

Reverse mortgages are for elderly (over 62) homeowners that own their home outright or have a very small balance on their mortgage. With a reverse mortgage a homeowner can borrow money and use their home as security while still living in it. The upside is that you do not have to meet mortgage payments until you either sell the house or die. In both cases the money from the sale (sale or immediate payback of the loan is compulsive in case of death of the borrower) is used to pay back the loan. Anything left over will be given to the homeowner or his survivors.

The downside is that these mortgages are expensive. Take this example. A 67-year old gets a $200,000 reverse mortgage on his $370,000 reverse mortgage on his home. His initial costs will easily amount to $16,000, servicing costs over $5,000, and don’t forget interest rates which by the time he hits 80 will amount to $364,000. Even if the property is worth $720,000 at the time of death, the heirs will only receive $100,000.

It is worth talking to your children and other heirs before going down this path. They might be happy to help you out now and protect their inheritance.

Anyway, make sure you contact a free housing counselor near you and ask for what government aid programs you are eligible before you choose to get a reverse mortgage. You might not qualify for government aid once you buy a reverse mortgage, which is another factor to weigh out when deciding  to buy a reverse mortgage.

Photo by epicharmusTreasury Department is taking hits from all sectors, private, academic and government, for its handling of the housing crisis. The latest report produced by the Congressional Oversight Panel said Treasury’s response continued to lag behind the pace of the crisis.

Treasury has responded in two ways.  1) By pointing out the successes they feel the Making Home Affordable Loan Modification has achieved; namely, an increase in 35% of permanent loan modifications in March. This placed the total number of permanent loan modifications to 230,000 homeowners enjoying reduced mortgage payments and fixed interest rates. 2) By announcing it is still implementing new programs which should be more aggressive with the housing crisis. The problem is that big banks like JPMorgan Chase and Wells Fargo are not buying the new deals Treasury is proposing.

A centerpiece of the new loan modification program is the plan to increase the reducing of mortgage principals as a loan modification measure. Up to now the main methods banks and lenders have used to reduce mortgage payments have been increasing the term of the loan, reducing the interest rate of the mortgage, and changing variable and ARM interest rates to fixed interest rates. Clearly, this is not producing the results hoped for, so Treasury is suggesting lenders get more aggressive and is asking lenders and servicers to reduce the mortgage balance of underwater mortgages.

What does this mean?

Reducing the principal balance of a mortgage means forgiving a chunk of the money owed to the bank. For instance, if you have a mortgage of $100,000 for a house that is only worth $80,000, your mortgage is $20,000 underwater. This is also called negative equity, owing more than the value of the home. Treasury is suggesting that lenders consider reducing the mortgage balance for troubled homeowners who own underwater mortgages. Using our previous example a lender could decide to forgive the lender $20,000, bringing the mortgage out of negative equity. The theory is this would create a win-win situation. First it would allow banks to avoid stockpiling unsellable foreclosed homes. Second it would give borrowers a strong incentive not re-default on their mortgages.

A more radical version of this program is to apply principal balance reduction to mortgages that are not delinquent, that is, not behind on their payments, but have a large negative equity. This is the proposed modification that banks and lenders have more of an issue with. The worry is that reducing the mortgage balance of borrowers would give the wrong message to borrowers, which would receive compensation for borrowing irresponsibly. It would also undermine the chances of lenders taking the risk of providing new mortgages if they know the principal balance could be cut at any moment.

What does it do?

The progr
Photo by woodleywonderworksam focuses on “responsible homeowners” that can afford a reasonable mortgage but need help to get a modification to reduce the monthly costs of a mortgage and avoid foreclosure. It is not designed for investors, owners of vacation homes or people who bought homes they could not afford.

The Facts

The program set out to help 4 million homeowners by 2012. Currently it has helped over a million homeowners with their mortgages. The main method used is to provide homeowners that are struggling to make their monthly payments with loan modifications that reduce the monthly cost of mortgages. This help is not always permanent; only a small percentage – 230,801 by March 2010 – has received a permanent loan modification. The program requires borrowers to enter a three-month trial modification before receiving permanent loan modifications. According to Treasury’s March report on the program 780,951 modifications are still in the trial stage. If a homeowner does not provide the necessary paperwork or does not pay his mortgage regularly he will not qualify for a permanent loan modification.

Loan modifications are designed to reduce monthly payments by various methods. These include extending the term of the loan, reducing the mortgage interest rate and reducing the principal balance of the mortgage. Nevertheless, lenders are rarely willing to reduce the balance of the mortgage except in extreme cases. Loan modifications have, according to the Treasury Department’s own report, saved homeowners over $3 billion in reduced monthly mortgage payments.

Eligibility

To qualify for a loan modification:

-       The mortgaged home must be your primary residence.

-       The loan balance must be less than $730,000.

-       Your monthly mortgage payments must be greater than 31 percent of your monthly income.

-       You must prove you have suffered some kind of financial hardship.

Check if your are eligible for a Home Affordable Loan Modification Program (HAMP)

Illinois Mortgage Help and Illinois Homeowner’s Rights

Photo by erjkprunczykMost US states are providing their citizens with targeted help in avoiding home foreclosures. If you are a resident of Illinois struggling to make your mortgage payments and want to avoid foreclosure you should be interested in this information. Each state has different laws that regulate foreclosure procedure; make sure you know the law of your state.

In the state of Illinois the law requires lenders to provide homeowners with information on their legal rights and explain what options they have when filing a foreclosure claim. This notice (see reference below) must include a detailed description of the homeowner’s rights and practical advice on the next steps they can take. These rights include:

The right of possession.

This means a homeowner can live in his house until a judge files an order for possession. No bank, loan servicer, or debt collector can force you out of your house; only a judge can. Illinois law specifically bans power sales without a judicial foreclosure. According to the Illinois mortgage foreclosure law (see reference below) anyone who “threatens to injure the person or property of occupants or mortgages real estate, or knowingly gives such occupants false and misleading information or who harasses or intimidates such occupants, with the intent of inducing such occupants to abandon the mortgaged premises, in order to obtain a finding of abandonment under subsection (b) of Section 15?1603 or subsection (d) of Section 15?1706 of this Article, shall be guilty of a Class B misdemeanor.

Ownership rights.

You are the owner of your home, not the bank, at least until the court says so. This means you are in the driving seat; you decide what is done to your property until the court decides on the foreclosure.

Reinstatement Rights.

You have the right to pay to bring the mortgage current within three months of your court summons.

Redemption rights.

In Illinois you have seven months from the date the foreclosure was serviced if you live in the house; six months if it is not your primary residence; or three months after the foreclosure judgment is entered.  Remember, during this time you have the right of selling, refinancing, or paying the loan in full. This means you have up to seven months to find a solution from the foreclosure process begins; good reason to start working on a solution as soon as possible.

Rights of Foreclosure Surplus.

If your home does foreclose and your house is sold, you have rights over any surplus remaining after the mortgage and any additional expenses are paid.

Payoff Amount rights.

Once you receive your foreclosure notice you can request a written statement of the total amount needed to pay off your mortgage. The bank or servicers must reply to your request in 10 business days from receiving the payoff amount request. The first request is free. It is useful to know the exact amount you owe on your home, as it gives you a specific target to aim for when refinancing, selling, or modifying your loan.

If you would like more information on your legal rights as a homeowner you can visit the Illinois Attorney General website which provides help for Illinois homeowners (see reference below).

Illinois Mortgage Payment Help

Photo by wallyg
Photo by wallyg
Photo by wallyg

Photo by myoldpostcards
Photo by erjkprunczyk

References:

Illinois Mortgage Foreclosure Law

Fact Sheet attached to foreclosure home notices in Illinois.

Example of Mortgage Foreclosure Summons.

Illinois AG, Lisa Madigan, aid for homeowners.

Foreclosure Alternatives – Options for Homeowners to Avoid Foreclosure

  Given the rough economy, many people can’t keep up with mortgage payments and face the possibility of losing their homes. They should know that there are foreclosure alternatives, including the advice of HUD counselors, short sales, and deeds in lieu of foreclosure. Before incurring the financial and emotional toll of a foreclosure, they should explore all the advice and options available.

HUD Counselors
Anyone who has received a notice from their lender about their mortgage payments should arm themselves with as much information as possible. Don’t ignore the letters sent by lenders; they often contain information on the lender’s own foreclosure alternatives. In addition to help offered by lenders, the U.S. Department of Housing and Urban Development (HUD) provides low-cost or free housing counseling. HUD counselors help homeowners understand their rights and options, can help reorganize finances, and may even represent homeowners in negotiations with lenders. Each state has its own housing laws and regulations, so contacting a local HUD counselor can be a good way for homeowners to get relevant, individualized advice. It’s better for homeowners to begin looking at options early on, before it’s too late to make changes that can help.

Short Sale
Short sales are a common option for homeowners facing foreclosure. In a short sale, the house is sold for less than the mortgage amount. Typically, the lender then forgives the remaining balance of the loan. This arrangement allows homeowners to get out of the situation without utter financial ruin while the bank gets a partial return on the loan. It’s not ideal, but it’s an option for some. Unfortunately, short sales aren’t available to everyone; lenders generally won’t allow them if homeowners have a second mortgage. Many lenders require that buyers try a short sale before attempting other foreclosure alternatives, like deeds in lieu of foreclosure.

Deeds in Lieu of Foreclosure
A deed in lieu of foreclosure is an arrangement between the homeowner and the lender whereby the homeowner turns over the deed of the house to the bank in exchange for a promise that the bank won’t foreclose. During a foreclosure, the bank takes control of the house and evicts the former owners. In deeds in lieu of foreclosure, homeowners can generally stay in the home for a short while. CitiMortgage is testing a new program that offers deeds in lieu of foreclosure in several states; their agreements allow homeowners to stay in the homes for 6 months and offers $1,000 relocation assistance if the homes are left in good condition. The process is better for lenders because it keeps legal costs down; it’s also better for the former homeowners because it doesn’t hit their credit score as hard.

Fannie Mae, the government-run mortgage company, has similar programs. In its "Deed for Lease" program, a homeowner transfers the deed to Fannie Mae and signs a one-year lease to rent the house at market rates. Month-to-month extensions are available after the year term. Fannie Mae also has a deed in lieu of foreclosure program where homeowners transfer the deed and then walk away.

While some arrangements release the former homeowners from the obligation to repay the loan, in some states lenders retain the right to collect after a foreclosure, deed in lieu of foreclosure, or short sale. That’s why it’s important for homeowners to seek advice of HUD counselors or lawyers before making a decision. It’s a tough situation with lasting consequences, so it’s not one to ignore or take lightly. With such foreclosure alternatives out there to help, homeowners having trouble with their mortgages should take advantage of every resource available to them.

Walking Away From Your Mortgage 2010

That the economy is hard right now is no secret. People are unemployed. Those that are fortunate enough to still have their jobs are finding that they are working longer hours, often for lower pay. They are struggling to pay their bills, including the mortgage. Making this already bleak picture even worse, is the fact that for many people, they now owe more on their house than it is worth.

It has always been commonly accepted that your home was an asset. People bought their houses for the stability, the investment and the financial security that they offered. By purchasing a home, people had something to fall back on in hard times. They made sure the mortgage was always paid, before all other bills. People would forego paying other credit card bills, and even buying groceries, because the mortgage was sacrosanct. Nothing stopped them from making that payment. In turn, their homes could be refinanced, equity tapped into.

This current economic situation finds homeowners in very bad positions. Not only are they finding that there is no equity in their homes to utilize, they are finding that the homes are worth much less than what is owed. This situation prevents them from being able to refinance the homes to achieve a lower monthly payment. Simply put, they find themselves in the position of struggling to keep a house that is not worth the payments they are making.

This creates a paradigm shift in the mentality regarding house payments. Once thought to be the comfort and safety that they couldn’t live without, they are starting to believe that keeping the house will be impossible. Therefore, people who once sacrificed all other debts in favor of the mortgage are now doing the exact opposite. They are sacrificing the mortgage in favor of keeping up with car payments and credit card payments. What once was an embarrassment has almost become a badge of honor. People who once would have never admitted to defaulting on their mortgages now are almost proud to say that they were forced to walk away from a mortgage on a house that was valued at less than the note. They are looking at rentals around them and deciding that they can very happily live in a smaller home where they will pay less in rent than they are currently paying on their mortgage.

Interestingly, this phenomenon is even happening with people who can afford to continue meeting the mortgage. Even people who can pay the mortgage are making the same decisions. There is a belief that the market will never recover, that they will never recoup their monthly investments in the property. These people begin to view the monthly mortgage not as money well-spent to protect a valuable asset, but as money thrown away. They are also making the painful decision to walk away from their mortgage in 2010. Like people who are unemployed and can not make the mortgage, they are realizing that they can live quite happily in a rental that requires a lower monthly commitment.

However, there is hope for some families. The Federal Government has a strong desire to see homeowners stay in their houses, and out of foreclosure. They are offering financial incentives to mortgage holders to work with homeowners. They are encouraging mortgage companies to meet with homeowners who are in default to rework the mortgages and offer lower interest rates. These lower interest rates can mean the difference between being able to make the mortgage and keep the house, or being forced into default.
Anyone currently facing foreclosure who wants to keep their home should contact their bank for more information on mortgage assistance. With the incentives being offered, there may be hope that you won’t have to walk away from your mortgage in 2010.

California Government Mortgage Help

If you are reading this then you are no doubt one of hundreds of thousands of Americans with a mortgage that has become nearly impossible to maintain. The state of California is seeing the highest rate of foreclosure in the history of the mortgage industry. Whether you have lost your job, your income has changed or simply cannot afford your mortgage payment any longer, there are ways to get help.

Before seeking help, one important thing to remember is that banks do not want to take your home. Sure, when it comes down to it, the banks will foreclose to protect their interest but foreclosure is extremely costly to the banks and will often cause them to lose money. It is more beneficial for the banks to work with you rather than against you.

When you are having trouble paying your mortgage, there are many different options that you can turn to. There are currently many options for government mortgage help in the state of California. The help you seek will of course be dependent on certain guidelines and restrictions.

Here are just some of the options available to homeowners in California:
1. The Making Home Affordable Program – This program is the brainchild of President Obama. There are actually two parts to this program. The first is the Home Affordable Refinance. Under this plan, if you are making your mortgage on time each month but can’t refinance due to owing more than the home is worth, this option may be able to help you refinance into a more affordable rate. The second option is the Home Affordable Modification. This option is for those who are behind on their payments or actually already in the foreclosure process. This plan can also be used by those who have experienced a recent hardship. Under this option you can modify your payments to get you into a payment that you can better afford.

2. HOPE for Homeowners – The HOPE for Homeowners program is for borrowers who are having trouble making their mortgage payments and are facing foreclosure. The HOPE for Homeowners program will refinance borrowers who can’t afford their current mortgage but would be able to afford a new loan insured by the Federal Housing Administration.

3. Local Resources – Depending on the county that you live in, there are various groups and organizations that can help you save your home. There are a lot of groups such as Consumer Credit Counseling and Acorn that can be of assistance if you are facing foreclosure. All of these organizations have different programs available.
Worrying about losing your home can be very traumatic and at times, it can overtake your life. Take solace in knowing that there is assistance out there. You simply have to find it and begin the process.

what do when you are Underwater with your Mortgage

“Underwater” mortgages occur when a homeowner’s mortgage note balance is greater than the actual value of the home. Because the value of real property exceeded true market values as a result of loan saturation and real estate investment speculation, homeowner’s that took out first and second mortgages now find the value of the property to be less than the amount owing.

Mortgagees caught in this particular predicament may face rising mortgage payments due to ARM loans (Adjustable Rate Mortgages) and/or artificially high property taxes.
Ride out the real estate downturn:
Though underwater mortgagees may owe more than the property is worth that does not necessarily mean the borrower cannot afford the monthly mortgage payment. Mortgagees who are in this particular situation might attempt to ride the real estate downturn into recovery. Real property values have historically rebounded and if given enough time, borrowers may see a break-even point or an eventual appreciation greater than the mortgage balance.
Seek a loan modification:
Should an underwater borrower be unable to make mortgage payments in the near future, approaching the lender for options sooner rather than later is paramount. Lenders may offer short or long term forbearance agreements or a partial reinstatement. In any case of loan modification the borrower should know the fix is temporary and failure to meet any provision can negate the modification. Borrowers with FHA loans should consult HUD guidelines for federal loan modification plans and/or programs.
Rent the property out:
Another choice for underwater mortgage borrowers is to rent out the property and if necessary, cover the difference between the monthly rent and the mortgage payment. Homeowners should collect first and last month’s rent, along with a refundable security deposit.
Negotiate a short sale:
Borrowers that cannot wait out the real estate market or do not have the means to meet a forbearance plan and cannot meet or do not meet HUD guidelines, might elect to negotiate a short sale with the lender. In a short sale, the lender agrees to take a loss on the mortgage but may seek legal restitution even after the short sale has been approved and the property has sold.
File for bankruptcy:
Filing under Chapter 13 bankruptcy protection will allow the borrower to stay in the home but does not absolve the mortgage. Missed payments must be made up over the course of 60 months in addition to the regular mortgage payment.

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