Hope Now: Support & Guidance for Homeowners in Trouble

What is Hope Now?

As I was browsing the WSJ this morning I found an article about a new group called Hope Now. Apparently Hope Now is a cooperative effort between counselors, investors, and lenders to maximize outreach efforts to homeowners in distress. The alliance members include many of the leaders in their respective industry and includes the likes of Homeownership Preservation Foundation, NeighborWorks America, Bank of America, Citigroup, Inc., JPMorgan Chase & Co., Fannie Mae, Freddie Mac, American Bankers Association, Mortgage Bankers Association, and many others. The main goal is to provide assistance and resources to homeowners who are either in trouble or are facing future problems with their sub-prime mortgages when they reset.

Hope Now is Working with the US Treasury to Freeze Sub-Prime Rates

According to the Wall Street Journal they are also in negotiations with the US Treasury Department to temporarily freeze sub-prime mortgage rates to keep them from resetting. The goal is to help people stay in their homes and provide confidence to investors anxious about the spiraling mortgage problem and possible recession. Obviously the banks have their own interests to protect along with the interests of the sub-prime mortgage holders but if they can work out a deal it could go a long way in helping those who may be facing foreclosure when the loans reset.

The Sub-Prime Crisis will affect everyone. Will Hope Now Ease the Burden?

The sub-prime mortgage crisis and subsequent foreclosure crisis could continue to cause huge problems for the entire US economy if something is not done. While the mortgage banks and lenders are not the only reason for the recent meltdown they do share part of the blame. They were willing to give mortgages to people who had no business getting them. Now everyone is paying the price and everyone involved needs to be a part of the solution. I am not sure if Hope Now will be the ultimate solution but it is a step in the right direction. The myClosingSPACE.com blog will continue to keep an eye on this and follow up with any news.

5 Ways to Avoid Foreclosure

In November of 2005, Greg and Mary Edwards purchased their first new home in New Jersey. Greg, a big rig mechanic, and Mary a receptionist, thought their dream of owning a home would never come true. With below average credit scores their financing options were thin, but through a three-year adjustable rate mortgage loan (ARM) they were able to purchase the home with no money down and an extremely good introductory interest rate.

That was a common story back then, but now the couple faces a sadly more common story as they come up on the end of their introductory term. Their interest rate has jumped almost two points. They’re barely able to pay for this month’s mortgage and next three month’s payment are looking grim. They have the opportunity to refinance, but sadly programs for sub-prime borrowers no longer exist. With no help in sight and their rate starting to climb they face a credit damaging and emotional scenario – foreclosure. They have now joined almost a half million homeowners who as of last quarter are facing foreclosures. Even more so, the numbers are growing.

Greg and Mary are only examples, but their story is a reality for thousands of Americans. The growing numbers of foreclosures has caused a ripple effect in the housing market which has led to the closing of more than 170 mortgage lenders, according to Mortgageimplode.com, as well as a glut in the American housing market and a drop in home prices. What happened? Did anyone see this coming? How can consumers be saved from financial ruin? In order to look ahead, let’s take a look back at the late 90s.

In late 1999, Wall Street rating services like S&P and Moody’s told investors that securities backed by sub-prime mortgages carried minimal risk. These investors poured billions of dollars into mortgage companies who then aggressively push mortgages on this new class of homebuyers. The mortgage company would then sell bundles of mortgages (called Mortgage Back Securities - MBS) to the secondary market to raise more capital to continue their business. The original mortgage companies made great profits while investors experienced great returns. This cycle continued for about six years.

Fast forward to 2006. Heavier than expected defaults caused rating companies to change their tune and they lowered the ratings on sub-prime Mortgage Back Securities. Home values started to drop, weakening investor confidence. Thus, Wall Street stopped investing in mortgages, leaving mortgage companies with no market for the mortgages that they lent to homebuyers. Then as introductory rates began to expire, thousands of homeowners seeking to refinance began defaulting on their loans found that mortgage programs that were so plenteous a few short years ago had vanished.

Why didn’t anyone see this coming? For those whose introductory rates are about to expire here are five simple tips to avoid defaulting on your mortgages or, even worse, enduring foreclosure.

1. Speak to your lender: Usually your best opportunity to avoid foreclosure is to contact your current mortgage lender. Your lender doesn’t want to own your home. Foreclosure administration and subsequent marketing costs to unload your property will cost them thousands. Your lender would rather work with you than have your house on the foreclosure market. Ask them about forbearance, reinstatement, payment plans or loan modifications. It is estimated that over 70% of homeowners in default don’t talk to their lender. Many lenders are now creating new programs targeted to assisting homeowners in financial distress. Call them to determine your options.
2. Consult state and Federal foreclosure relief programs: While state governments scramble to catch up with the rising foreclosure rates, the Department of Housing and Urban Development’s (HUD) Federal Housing Administration has set up a website offering helpful advice to consumers trying to avoid foreclosures. You can also call HUD’s foreclosure hotline at (800) 569-4287. State organizations also have hotlines to help alleviate foreclosures.
3. Utilize credit counseling services: Credit counseling services have the power to negotiate with your mortgage holder to help alleviate your debt. In most major cities, HUD-sanctioned housing credit counselors are also available to talk to homeowners about their options during foreclosure, http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm. I only advise credit counselors as a last resort, but in today’s market this might be an option for many people. But be warned, some counseling services may be fraudulent. Don’t sign anything without consulting your attorney. Many scams literally have homeowners sign their houses away without paying off their original mortgage. In all cases, check with our local BBB representative to see if a company is fraudulent or not.
4. Don’t be too proud: Can you honestly afford to keep this house? You may just have to sell and start over. Each person’s situation is different, so talk to a financial adviser about your personal situation. Most importantly, be as truthful as possible when talking to your mortgage company, lender, bank, program or service. They can only help you as far as the information you give them.
   
5. Lower your closing costs: When refinancing after or during foreclosure don’t forget to shop around for savings on title and settlement services. You can “Google” title insurance and choose from companies that can help you find the lowest cost. You can save hundreds of dollars in closing costs that you can use to alleviate some of your financial burden.
   

In conclusion, never be afraid to be proactive in foreclosure process. You may have just missed a payment or your interest rate recently adjusted. Don’t lose heart. If you follow some of these suggestions you very well may avoid foreclosure.