Credit Counseling to Avoid Home Foreclosure

Over at Forbes.com an Associated Press article by Ellen Simon reports that home foreclosures are increasing in the US and that mortgage companies prefer to modify loans instead.

At Courier News, Sandra Block's article for the Gannett News Service says the rate of new foreclosures has hit a record high. She predicts that the problem is going to worsen, too.

Simon's news about the direction that mortgage companies prefer is good news, therefore. Block warns that it would be much better to find a loan solution because foreclosure means much more than just losing your home.

Block quotes the president of the Association of Independent Consumer Credit Counseling Agencies, David Jones, saying that a foreclosure will ruin your credit standing for many years and will make it even more difficult for you to buy another home.

It would be easier to renegotiate with your lender and work out a more realistic payment schedule, especially now that creditors are amenable to this. Apparently, foreclosures are not good for their business, either.

Block's article points out, however, that you should contact your lender immediately - that means less than 15 days after the first time you missed your payment. You should also prove good faith by showing that you have exerted all efforts in trying to meet your payments by reducing other expenses.

She quotes the chief economist for Quicken Loans, Bob Walters, saying a loan is declared in default after three to four missed payments. By then, most creditors demand full payment of what you owe plus late payment fees or else they will foreclose.

By reporting early and negotiating immediately, Block says you may be able to avail of the following from your lender:

1. Forbearance.

You will be allowed to reduce your monthly payments for a certain period of time, or even to hold payments temporarily. Afterwards, though, you are expected to catch up with larger payments.

2. Reinstatement.

You promise to pay all your missed payments on a certain date.

3. Modification.

The lender agrees to make your monthly payments more affordable by either extending the term of the loan or adding your missed payments to your loan balance.

If all these are still not possible because of the amount involved in the loan, you can still avoid foreclosure by selling your home instead and hope that the proceeds cover both the selling costs and your mortgage.