Steps to Preventing Foreclosure
MADELEINE BRAND, Host:
Interest rates are up and some homeowners are finding they can't handle their mortgages anymore. Those are mainly people who have adjustable rate mortgages. And joining me now is DAY TO DAY's financial guru, Michelle Singletary, to discuss what you can do if you find yourself in that position, unable to pay the higher monthly mortgage payments.
Ms. MICHELLE SINGLETARY (Financial Columnist): Hi.
BRAND: Well, so what are the options if you can't make those monthly payments?
Ms. SINGLETARY: Well, one option is something called forbearance. And basically that's when the lender will allow you to temporarily pay less than the full amount of your mortgage payment.
For example, lots of folks who were victims of Katrina - Hurricane Katrina got forbearance on their mortgages. This is not something that you get automatically. Obviously, you've got to contact your lender. And if you can show that you're going to be getting funds soon, like a bonus or tax refund or some other source that will let you bring the mortgage current at a specific time, this is something that may be an option for you.
BRAND: But forbearance means you have to pay eventually, right? They're not just going to erase those monthly payments?
Ms. SINGLETARY: Correct. They're not erasing it, they're just giving you some breathing room for you to catch up. For example, say you lost your job but you know there's one coming soon and you're going to get some money that will help you catch up. This will give you an opportunity to have a little break. But I encourage you to contact your lender. Not every lender's going to do this. But it is an option if, somewhere down the road, you see that you're going to be able to catch up.
BRAND: Well, will you be able to negotiate a repayment plan or will you just be, you know, faced with those high payments again once it starts going again.
Ms. SINGLETARY: Right. Well, in addition to forbearance, there is something called a repayment plan. And with a repayment plan, typically a lender will give you a fixed amount of time to repay the amount that you are behind by combining a portion of what is past due with your regular monthly payment. So if you've got a large amount, they'll take some of that, perhaps split it up, add it to what you need to pay going forward. And at the end of the repayment period, you will have paid back all the delinquent amount.
BRAND: And what happens if you are facing foreclosure? Can you sell your house and try to pay down some of that loan, or does the bank just take it over?
Ms. SINGLETARY: No, there are definite steps that are taken. First of all, they're going to be contacting you. And it's interesting that lots of folks in this position don't respond to those calls or letters, obviously because they're scared and don't have the money. But that's the last thing you want to do.
You want to call your lender the first sign that you can't make that mortgage payment, because you have options. We have forbearance, you can have repayment plan, and if all else fails, you can sell your property and that way will get you out of foreclosure and you won't have that on your credit report. Or you may be able to refinance and bring that mortgage down, although rates are going up. So the options to refinance and get a lower rate are certainly far and few between these days.
BRAND: Because certainly the bank doesn't want you to foreclose. They want you - then they don't get their money.
Ms. SINGLETARY: That's right. They're not in the business of foreclosing properties. And I think lots of homeowners get scared and they don't know what to do so they don't do anything. And that's just not what you should do.
Call your lender. You know, they want to work something out. I mean, I've talked to homeowners who spent, you know, weeks not contacting their lender and when they finally did were surprised that they did have options. They will work with you.
I also want to caution you to be very cautious of scam artists out there who are looking for people in this position, so be very careful. But please, please, contact your lender.
BRAND: Thanks, Michelle.
Ms. SINGLETARY: You are so welcome.
BRAND: Michelle Singletary writes the syndicated column, The Color of Money. She's our regular contributor on matters of personal finance. And if you'd like Michelle's advice on your finances, please send them in; go to npr.org and click on the Contact Us button. Please put Michelle in the subject line.