Despite the struggle, most responsible homeowners don’t think twice about whether they should make the mortgage payment each month. You’ve worked like crazy to stay on top of bills for years. You may have already fought your way back from bad credit and don’t want to let your credit score sink again. Whether you choose to fight and stay in your home for the long-haul, or you have given it your all and just can’t bear the crushing weight anymore, it’s important to know that there are better options than simply abandoning your home before you are late on the payments.
As the stigma associated with losing a home has subsided considerably in the past year, more people are creating their own economic stimulus package. Why refinance (if you have equity) or pay the guy who wrote your original mortgage to take a shot at a loan modification, when you can just take the “Free Housing For Six Months Package” and simply stop mailing payments to the lender? Many people are exacting their revenge on the lenders who put them into the time-bomb loans, and some are not only getting even with the bank financially through withholding payments but are gutting and destroying the home on the way out.
Should we seek first to be ethical in this situation despite what others are doing, or should we do what is best in the near-term (and perhaps even the long-term) for our own families first? This presents a real dilemma for us, because we have always placed so much value on fulfilling our obligations, yet more and more people feel like their lenders betrayed them first. So, having done your best, what can you do to feel like you have done your best ethically to stay in the home, while also making a tough decision that could make your financial turn-around come sooner?
We Are Current, But The Payments Are Killing Us
First, the quickest call is to find out if you can refinance (which you probably already tried) which will be made tougher by the loss of income. There are many debt consolidation and loan modification companies springing up, and you might recognize the voice of the guy on the other end of the phone – it’s the guy who put you into your negatively amortizing pay option hybrid wacky funzone ARM! That’s right, the former loan officer who loved you enough to give you a three year prepayment penalty that you couldn’t afford to get out of two years ago when you had equity and could still qualify for a new loan, if it weren’t for that $15,000 charge to get out of the old loan! If you aren’t getting anywhere with your lender, it is definitely possible to find reputable loan modification companies, but first look for a personal recommendation and compare pricing with a few different companies.
We Just Went Late On the Mortgage – Should We Catch Up?
There is at least some consolation in the decision-making process here, in the sense that you (unfortunately) have already taken a hit to your credit score, yet this now allows you to make some firm choices without clinging to your FICO score for dear life. At this point, or even if you just have a maxed-out credit card or a late payment on your car, your credit is too low to get any traditional financing, so don’t waste time trying to refinance or get loans or credit lines. At this point, find a local real estate agent who knows your neighborhood (the man or woman whose sign you are sick of seeing everywhere is a good place to start). If you owe more than the property is worth, it is very important that you choose a real estate agent who has experience with short sales.
There is nothing to lose at this point in putting your home on the market, and you should call your lender to get information from the loan reconciliation department and start pulling together your financials – most recent paystubs, bank statements, two years worth of tax returns and the most important piece, a well-written hardship letter that explains what has changed in your situation. The decision to catch up on a late payment or two is personal and obviously based on a lot of unique variables, but one thing to keep in mind is that borrowing money from friends or family to stay current may just delay the inevitable and most likely could cause strain on the relationship down the road. If it feels like it is impossible to catch up without continuing to borrow, you could potentially be moving in the next six months or sooner, and it is a good idea to keep in mind moving costs, deposit and first month’s rent and start planning to get back on your feet.
What is the Government Really Doing to Help?
On December 15th, a very extensive loan modification effort (which has been marked with some controversy) backed by the government goes into effect. If you are able to document the financial events that caused you to fall behind (essentially to prove that you didn’t stop paying the mortgage on purpose) and qualify for the modified loan payment, you have a strong shot at staying in your home. Find out if your lender is part of the Hope Now Alliance and most importantly, no matter how bad your situation is, do not ignore your lender’s phone calls or letters, and stay in touch with them, because the sooner you begin working with them, the better your chances of finding some resolution that will allow you to recover much sooner than walking away. Remember, you can get back on your feet again no matter how far down you fall.