How to Manage Debt and Proactively Avoid Foreclosure

How to Manage Debt and Proactively Avoid Foreclosure

More than 100 homes in and around the Fillmore area are in foreclosure, as homeowners here and across the country continue to struggle with mortgage debt. Since 2007, more than 4 million American homes have been foreclosed upon, with millions more homeowners teetering on the edge of default. 

Losing one's home can be a devastating blow to families that, for one reason or another – job loss, medical emergency, other debts – are finding it difficult to meet their monthly mortgage payments.

However, being proactive can help avoid foreclosure, and there are steps delinquent mortgagees can take in order to either remain in their homes and communities.

 

Mortgage Modification

Today, many foreclosures are the product of the sub-prime mortgage crisis the country encountered the past few years. The sub-prime mortgages had adjustable rates, which have risen to alarming rates. There are steps however, for homeowners to modify their adjustable rates to low, fixed rates that can help relieve some financial pressure. In the first instance, a borrower can attempt to work out a mortgage modification with his or her lender. This can take the form of a temporary reduction in principal or interest rate, temporary forbearance — i.e. skipping a few payments — extending the term of the loan, or any combination thereof.

 

Help for Homeowners

Almost half of the mortgages in the country are held by five big banks — Wells Fargo, JPMorgan Chase, Citigroup, Bank of America, and Ally Financial. In a settlement reached in early 2012 among these institutions, the federal government and 49 state attorneys general, these lenders are required to spend at least $13 billion reducing the principal amounts of loans for at-risk borrowers, whose homes are under water – meaning they are worth less than what is owed on them.  Homeowners with loans serviced by one of these lenders should contact them to find out about a loan modification.

The other half of America's mortgages are owned or guaranteed by either Fannie Mae or Freddie Mac, the two large mortgage lenders that are now part of the Federal Housing Finance Agency, or the Veterans Administration, which backs VA loans. Currently, loans in this category are not subject to principal reduction, but under the government's Home Affordable Modification Program (HAMP), homeowners can apply to have their monthly payments reduced via interest rate reduction and/or forbearance. The aim of HAMP is to keep people in their homes by preventing default and subsequent foreclosure.

 

Bankruptcy

A final step a delinquent borrower can take to save a home from foreclosure is to declare a Chapter 13 bankruptcy. This path allows all debts, including mortgage payments, to be paid off over a period of several years. Filing a bankruptcy petition can temporarily delay, though not necessarily prevent, foreclosure proceedings.

Regardless of what path you choose, proactively avoiding foreclosure could be the best choice made. Avoiding foreclosure keeps Fillmore together by keeping families in the community. If you are having difficulties with paying down your debts, we recommend seeking professional help.

Jeffery Sterner is a contributing writer with America’s Debt Help Organization- Debt.org, educating Americans on to live life to the fullest through debt settlement.