Chances are, more of you reading this are currently on shaky ground with your mortgages than two years or even one year ago. It’s not likely that you’re feeling too great about it, either.
But you’ve got to face facts. Shelley Murphy, director of program services at the Piedmont Housing Alliance, will tell you in no uncertain terms that ignoring the problem is really a bad move. “Don’t wait until you’re six or seven months behind,” she says. “If you’re one or two months behind, you should be working with us and talking to the lender.”
Asking PHA for help will get you, first and foremost, a education about your options for a “workout”—that’s the umbrella term for a whole variety of solutions that help homeowners
avoid bankruptcy and foreclosure. We asked Murphy to break down some of the terms we’ve all heard more often since the housing crisis began, including some common types of workouts:
Upside down/underwater. Murphy’s seeing lots of folks in this situation: owing more on their house than it’s worth. “People bought a house in the last two or three years,” she explains. “They probably bought at the high end, and with the market change they’re going to owe more now.” If you’re upside down and unable to make payments, you may be facing a…
Short sale. Essentially, this means selling your house for less than you owe and convincing your lender to forget about the difference. “Say the mortgage balance is $200,000, but because of the market [the borrower] can only sell for $185,000,” says Murphy. “The lender is going to agree to accept less than what is actually owed to them.” Naturally, lenders are reluctant to do this, so they impose conditions: For one, your house must have been up for sale for a certain time period.
Forbearance. You can possibly avoid having to move if your lender will agree to give you a break from payments for a few months—but you’ve got to catch up on those missed checks all at once when the forbearance period ends. “For example, [a lender might say] I’m going to suspend October, November, December,” says Murphy; “I want all my money in a lump sum January 1.”
Loan modification. This is another solution meant to keep you in your house. “We’re having great success with loan modifications right now,” Murphy says: getting lenders to change mortgages’ interest rates, terms, or payment amounts so they’re manageable for borrowers.
If you just plain bought too much house, though, modification probably won’t save you. “If there is no money coming in that house to make that mortgage payment,” says Murphy, “the chances are kind of slim. It might be better to sell the house and look at scaling down.” She says that rental prices are going down, so that “someone that has a mortgage payment of $3,000 might be able to rent a similar house for $1,600 or $1,800. They’ll be living within the means that they have.”
Deed-in-lieu. This workout is, says Murphy, “very tough to get.” The borrower, quite simply, gives the house back to the bank, losing all equity but avoiding foreclosure. Again, Murphy says, strict conditions apply.
A final note: Murphy warns that, with many homeowners in trouble, scams that promise mortgage help, but deliver just the opposite, are “running rampant.” Scammers might claim, for example, that for $1,000 they can stop foreclosure, but Murphy says plainly that “if you’re not dealing with your direct lender or working with a HUD-approved housing couselor agency, you are going to get ripped off.” She has seen two local borrowers who had signed over their houses to scam artists without realizing it, and were essentially making rent payments they believed to be mortgage payments. “People have to start paying attention,” Murphy says.
Above all, don’t put off getting help. PHA is at 817-2436 or piedmonthousing alliance.org. “People are scared, embarrassed, feel like they’re failures,” says Murphy, “but you gotta keep the roof over their head. It’s a lot harder to help someone when they’re homeless.”