In my previous article I documented some of the causes of our currently bursting Real Estate Bubble (it's not over yet, Folks!). None of those things are relevant or important when it's your home, your family, your dilemma. What you need to know is--WHAT CAN I DO?
The absolute very first thing to decide is, do we want to save our home or shall we leave and start over? Sounds like a relatively easy question to answer. It may not be that simple.
You have basically two factors to consider when deciding to stay or leave. The first one is your monthly mortgage payment--can you afford it or will it cause you to struggle with other essential living expenses? Obviously, there was a hardship of some kind that caused you to get to this point. What are the chances that your hardship will continue or that the hardship, if temporarily relieved, will be an issue again in the near future?
The second factor is your home's current market value vs. the principal balance owed to your lender. It is not uncommon for a homeowner to owe more than the house would sell for on the open market (called "underwater" or "upside down" on your loan). That is considered negative equity and is a result of falling home values caused by the many homes for sale in the Denver Metro area (both foreclosures and listed properties).
Therefore, the first question to be answered is--Is it worth it to try and save my home or am I just throwing good money after bad, realizing that home values are not likely to rebound until the inventory of homes for sale in the Denver market is somehow decreased significantly? In fact, you may NEVER recover the home values we saw from 3-5 years ago.
OK, so you say, yes, I want to save my home. You have basically three options: Improve your financial situation, refinance your existing mortgage, or work with your lender to modify any number of terms in your current mortgage.
We are all painfully aware of the weak job market in Denver. Many homeowners are UNemployed and many more are UNDERemployed. If you have a chance to improve your financial situation, you are one of the lucky ones.
The refinace option is viable for homeowners with good credit, positive equity, and the financial wherewithall to afford a refinance. Again, a small minority, given our current economy.
So, that brings us to the third option, the highly publicized but confusing modification of your existing mortgage--the infamous LOAN MODIFICATION. A loan mod makes sense for many home owners because credit is usually not an issue, your home's value is less of a focus, and it is it relatively much less expensive than a refinance.
However, there is a big, black hole called negotiating with your lender to consider. Here you have two options: Negotiate on your own or hire a professional to handle your negotiations.
The benefit to negotiating on your own is that you can do it for little cost (it is definitely NOT FREE and, in the long run, may cost you much more than you ever imagined). You will be responsible for compiling all the documents your lender requires for the loan modification process, all the contacts with the lenders, keeping track of your timeline if you have an auction date scheduled for your home, keeping your financial information updated throughout the process, and figuring out if you got the best deal from your lender once you get their results.
You may get any number of results from forebearances to re-payment plans to requests for intervening payments to different kinds of loan modification (temporary interest rate reductions, extending the term of your loan, changing your type of loan--adjustable rate to a fixed rate, for example--or, rarely, some kind of principal reduction). Every set of circumstances will have varying results. It is completely based on your own unique set of circumstances.
Option two in loan modification is to hire a professional to handle your negotiations. There are many cautions to be noted here. First, make sure that professional is licensed to do business in Colorado. I have personally witnessed homeowners who have paid good money to an out-of-state company with no results. Nothing is more depressing than trying to contact one of these companies only to find that they are no longer there or they are unwilling or unable to see your process through.
Second, deal with professionals who are local and do it IN PERSON! Do not do it over the phone and most definitely not on the internet. Meet with them and understand what it is that they can do for you. Make sure that they understand your circumstances and make sure you understand the compensation terms.
Many lenders will discourage you from using a third party to handle the negotiations. The lenders will, in fact, encourage you to do it on your own, citing that you can do it for free. Doesn't that make you wonder why? I have most definitely considered that advice from lenders and I see some things that cause me concern.
You have an emotional investment in your home. Are you truly able to be objective in this process? The lender counts on that emotion to help them achieve results that best suit their interests, not yours. After all, they are a business that makes money on your loan and, to be honest, I'm not sure they even care about you individually.
So, who are these professional loan modification experts? They are many and varied. In my next two articles, I will interview one such expert and ask the questions a homeowner wants to know about loan mods (I qualify because I AM A HOMEOWNER) and I will discuss your options if you have decided to give up your home.