Fearing Foreclosure? How to Rescue Yourself

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Here’s the deal, or new “New Deal,” as it’s being called: Congress is expected to give the green light to a sweeping housing and mortgage reform plan that pledges to bail out the roughly 400,000 homeowners with failing loans. (Note that last month the nation’s foreclosure rate soared 7% to one in every 483 households, according to RealtyTrac.) The highlights of the rescue plan include letting troubled borrowers (you know who you are) qualify for 30-year fixed mortgage refinancing backed by Uncle Sam. Prospective homeowners may also have some help coming their way, as mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE) would raise the limit on loans they can buy from lenders in pricey housing markets to $625,000. That’s up from the current $417,000. There’s also $150 million reserved to help stressed-out borrowers on the possible verge of foreclosure and to demand more stringent disclosure rules from lenders.

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While the House ruling is being aimed for before the July 4 holiday, let’s not forget this is the federal government at task. Prepare for delays. The implementation of this plan, if approved, will take time, and in some cases much too long for borrowers hanging by a loose string, veering closer and closer to losing their homes. In the meantime, here’s an S.O.S plan for concerned borrowers, some strategies to help keep head above water.

CALL YOUR LENDER
Don’t assume that because you’ve missed some monthly mortgage payments your bank is plotting to ruin you. Understand that banks don’t want your house on their hands. Speak with your loan officer about possibly refinancing and alternative loan plans, even if they’re temporary (three to six months), to help you get back on track. “Re-approach them, just as you would any lender and go through your debt to income ratio, be able to show tax returns and pay stubs and re-qualify for the loans,” says Alexis McGee, President of Foreclosures.com. It’s not likely you’ll be forgiven altogether, but you may score better mortgage terms, she says.

DISCUSS YOUR SITUATION WITH FAMILY AND FRIENDS
While you may live in a distressed real estate community, prices aren’t dropping everywhere. Do you have house-rich relatives or friends in states like Wyoming, Montana, Utah or Texas, where home prices have actually appreciated in the last year? Consider a deal where they --or any rich friends/family -- may be interested in pulling the equity out of their home or savings from their bank accounts to help you refinance your house at a more affordable borrowing rate. That said, it’s always touchy-feely mixing family with finances, so make sure you get the transaction appropriately contracted through third parties like Virgin Money USA, formerly Circle Lending.

PAY YOUR REAL ESTATE TAXES
It’s one thing to miss a mortgage payment, but never fail to pay your real estate taxes. This could cost you your house faster than anything else. Once you’re delinquent, the county may issue a lien on your overdue property tax and being delinquent beyond a state’s redemption period may lead to tax lien foreclosure.

REDUCE YOUR COST OF EVERYDAY LIVING
Any way you can shave a few hundred dollars off your living expenses to put towards your housing costs? Consider these discount strategies that won’t necessarily cramp your style:
- Buy store-brand products from the grocery store and drug store, which can save you up to 50% on everyday goods.
- Save gas by driving slower (up to 20% savings in fuel costs), consolidating errands with family members to conserve gas and parking away from the sunlight, since a hot car can evaporate gas.
- If you haven’t been late on your Visa (V) or MasterCard (MA) payments, call up your credit card company and ask for a reduced APR, mentioning all the competitive offers you’ve been receiving in the mail. Less interest means less expensive debt.

GO SHORTY
Rather than foreclose on the home, some worried borrowers have been calling up brokers to initiate what’s called a “short sale,” which is when the broker tries to sell the house at a reduced price, to either just break even with the mortgage or, in some cases, sell the home at a loss. The bank may grumble, but it’s better than having the property sit on the bank’s hands for months and months following a foreclosure. “From a seller’s standpoint it’s definitely advantageous. [A short sale] is not a foreclosure. It’s just a delinquency,” says Staci Treloggen, a realtor with Prudential California.

Catch more of Farnoosh’s advice on Real Simple. Real Life. on TLC, Friday nights at 8 p.m.

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