How at-risk homeowners can cope with delinquency
In the subprime mortgage market, lenders have been extending loans to consumers without focusing on their credit history or credit record, and in many cases not requiring a down payment and now this is resulting in an extreme rise in subprime defaults. Some of these lenders have decided to stop making such loans and are getting out of the subprime mortgage business.
Subprime borrowers are typically people with bad credit, extensive debt and because of this pay 2 to 3 percentage points more for a mortgage than a customer with better or good credit. Many of these loans are made at an adjustable rate, which leaves the borrower at risk for defaulting if the borrowing costs rise or the lenders decide to enforce their standards.
As many of these borrowers begin to default people with good credit and are being affected a mortgage that was created during the housing boom and they are also becoming delinquent approximately 3-5 years after their purchases. This rise in delinquencies will result in more foreclosures and if this happens potential borrowers for mortgages will be looking for cheaper home prices.
The meltdown in the subprime mortgage-lending industry has been fast and furious, affecting the way many lenders extend credit and approve mortgages. So what happens to the people who can’t pay their mortgage payment? What can they do if they are in danger of losing their homes as the mortgage rates sky rocket?
Some of the things a homeowner can do when they find themselves in this situation are:
• Visit their lender and rewrite your loan
• Ask for a temporary hardship payment plan
• Ask if deferred payments (interest only) are available
• Pay off mortgage arrearages — one of the most common reasons that people file for Chapter 13 bankruptcy. If they have enough money left over after paying necessary expense to fund a plan, they can spread out their payments over a 3-5 year period and keep their homes.
Once a homeowner has taken the above steps they should also look at their specific situation and go over their budget. Some things that can be done to create more money to pay towards a mortgage are:
• Cancel cell phones
• Cancel cable television
• Downgrade your home phone service to basic service
• Contact any other creditors and ask about adjusting interest rates or payments.
• Bring lunch or coffee to work rather than stopping each day to purchase these items.
• Stop going out to dinner.
Michelle Dunn, author of the “Collecting Money Series,” is the founder and president of Never Dunn Publishing LLC and the Credit & Collections Association, which has over 1,000 members.