Foreclosures are on the rise

In mid-September 2006, the Mortgage Bankers of America (MBA) disclosed that foreclosures on adjustable-rate mortgages (ARM) rose 29 percent to a four-year high quarter over quarter. As interest rates continue to rise, more homeowners who borrowed using exotic mortgages are finding themselves with rising monthly expenses, and are facing balloon payments that they may not be able to pay.

Credit counselors are seeing a large upswing in appointments. The combination of rising interest rates and 'upside-down' mortgages (when the home value drops below the outstanding balance of the mortgage) are leaving some New Jersey homeowners with limited options. Those who cannot afford the rising monthly payments are beginning to face foreclosure.

Options

Foreclosure is a repossession process that essentially starts as soon as the first mortgage payment is missed. A single missed payment can cause a serious drop in the borrower's credit score. Each sequential late payment continues to damage the rating, which in turn makes it more difficult to refinance. Lenders will frequently charge around a 5% penalty for each late payment.

It's important to know what your options are ? even more important is that you move quickly. Lenders are playing the numbers, and with each day that passes, interest and legal fees will rise placing the odds against you. However, some lenders do offer assistance plans. They may:

Make sure you contact your lender's loss mitigation department (or equivalent) to discuss these options.

5 tips you should take into consideration

Analyze your financials

You must take a close look at your revenues and expenses will be for the next several months. Draw out in exact detail where your money is coming and going to, and examine each expense line item to see if and how it can be reduced or eliminated. You may also want to consider borrowing money from family and friends, but only do so if you are confident that you can pay them back in a timely manner.

Get help!

Your home is not the only asset at stake, your entire financial future is. Contact the Housing and Urban Development Department (HUD) to locate a government approved counseling agency. Their website at http://www.hud.gov also has good information on options, as well as information on the New Jersey Fair Foreclosure Act.

Can you refinance?

If you have equity in your property, and your credit is still fairly strong, you may be able to refinance your loan with your or another lender. The lender will present its requirements, but you should have your personal financials, hardship documentation, and a general outline describing how you will get your finances back in order.

Face the facts

People are attached to their homes. However, now is the time to make some important decisions based upon facts, not emotion. The truth may be that you are struggling to keep a home that you cannot afford, and may be better off without it. Selling your home may allow your to retain your equity, and even more importantly may save your credit rating.

Negotiate a "deed in lieu of foreclosure"

If your property isn't too "upside down" in value, your lender may accept a deed in lieu of foreclosure, and you may be able to minimize the damage to your credit, as well as relieve yourself from any further legal fees.

Accepting Foreclosure

While no one ever plans for foreclosure, the fact is it may happen. However, take into consideration that the financial damage will not last forever. If your finances improve, you may be able to qualify for a reasonable mortgage a couple years down the road. There are ways to rebuild your credit.

More info on your stop foreclosure information search:

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