“The Day of Reckoning is Near”

If you’ve been paying the least bit of attention to the news lately, you know that the subprime mortgage industry is causing all sorts of problems. There is a lot of talk about the problem, and a bit about large-scale solutions. But when you get right down to it, every homeowner has the solution. Did you get an adjustable-rate or negative amortization mortgage? (Check and find out, if, like one in three homeowners, you don’t know.) Are you up for an adjustment this year? If you are, and if that you will have a hard time affording the new payment, be proactive: call your lender before they call you.

Refinance to a fixed-rate loan. You can probably get one lower than what your rate will adjust to. If you can’t do that, consider selling your house. You will probably make more than you lose, if you do.

From the New York Times article about this very subject:

The smart thing to do is to take action before the lender does. The homeowner should initiate the contact with the lender. So first thing: know when your loan resets are scheduled and by how much and how often. Read those loan documents you got at closing.

Then 90 to 120 days before the loan resets start talking to the lender. Lenders usually approach their borrowers 45 days before a reset. That is not enough time for a borrower to act. Here is an online calculator so you don’t even have to bother to count the days by hand[.]

If you started out with a 5.5 percent interest rate, it will adjust to something like 7.75 percent. “If you want to wait and get that rate you can,” said Joe Rogers, executive vice president for the sales and service systems office of Wells Fargo Home Mortgage. “Or you could get a 6 percent fixed loan now.”

If you have no equity in your home, or you are upside-down on your loan, it’s time to think seriously about what benefit you are getting from “owning” that home. In essence, none. It might be your best move to call your lender, tell them the situation, and say you are willing to walk away for a deed in lieu of foreclosure. Either the lender will work something out, or if nothing else, you walk away having basically paid tax-deductible rent since you moved in.

There are other options, as well, but most of your options evaporate once the bank starts the foreclosure process.