Troubled by foreclosures? It is not the end of the road for there are many short and long term alternatives to opt for. It is health of each house owner that impacts on the recovery of the housing segment of the economy – it being the most important one. The moot point is to convince the homeowners that they need not feel doomed.
The housing crisis has not gone away. Foreclosures are continuing to rage. But house owners should not despair by burying their heads in the sand like the proverbial ostrich. It is a mistake to be overwhelmed by the situation and think that the battle is lost even before facing the enemy. The bull has to be taken by the horns. There are many routes to be followed that will help in avoiding foreclosure.
There are two temporary solutions – advanced claim and forbearance plan. In an advanced claim the due amount is paid by the insurer to the servicer; in exchange the borrower gives a promissory note. The mortgage now returns to its original whole status. Over a period of time or at one go the insurer then collects the dues from the borrower.
The forbearance plan is best for those homeowners who are going through a temporary period of financial problems and are confident of their future prospects as regards income increase; it would mean that they would be able to carry on with their mortgage commitments in not too distant future. This plan also is effective when the homeowners in trouble try to sell of their units themselves. Fannie Mae and Freddie Mac – the insurers consider this plan to be a servicer issue but rarely put into practice. This causes the house owners to unnecessarily forfeit their houses.
There are two permanent solutions – modification of loan and deed-in-lieu of foreclosure. For those who want to permanently reduce their housing dues and yet keep their houses the best is to apply for loan modification. There are two types of loan modifications – reduction of interest and extension of loan terms. The loans carrying rates above the prevailing market rates can refinance their mortgage and bring down the interest to current market rates. For this the typical origination fees have to be paid. If however the rate of interest is already at par or below the prevailing market rate then also the monthly commitments towards mortgage dues can be reduced permanently by extension of mortgage terms; it could even lead to the beginning of an amortization new schedule for 30 years.
Another attractive permanent solution is the plan of deed-in-lieu of foreclosure. This is the last resort that a house owner can opt for to avoid foreclosure. He or she can of their own accord transfer voluntarily their property rights to the bank or the servicer. This method is nothing new. It is a better alternative than foreclosure as regards impact on the borrower’s credit history. But the troubled house owner should not take this step without proper legal advice. In a deed-in-lieu of foreclosure the house owner simply signs over the title deed of the property to the lender. The latter does not go through the process of foreclosure.
No matter what the odds the house owner should avoid foreclosure as far as possible. The alternatives will strengthen ownership of houses, put checks on the plummeting of prices in the property market, ensure health in the lending and the insuring of residential mortgages and help in securing recovering in the housing segment of the economy for a long term.