The downturn in both housing and financial markets in 2008 affected more than half of all American households in one form or another. As financial markets struggle to regain pre-bubble levels, the after-effects of the dramatic decline in home values are still being sorely felt all across this country.
Ask your neighbors, friends, and family just how much this decline in home prices has impacted their spending habits, buying power, and overall consumer confidence. The answers are sure to shake even the most hardened fiscal conservatives. Many homeowners in today’s economic environment are either upside-down in their mortgage or have very little equity in their property. Perhaps they have even witnessed their own block and/or neighborhood being littered with foreclosure signs or advertisements by brokers for short-sales or loan modifications.
If you are like many Americans you have been raised by your parents with many of the same values that we all universally share. One of those values pertains to paying your debts, and more specifically, paying your bills on time each and every single month.
But, what happens when you lose your job, your spouse loses his or her job, your small-business dries up, the factory that you have been dutifully employed at for many years folds, or better yet sends your job to a lower-skilled, lower-paid worker in China? What happens when you get hurt on the job, and have very little or very poor medical coverage? Or, no medical benefits whatsoever?
Unfortunately, these are all of the case scenarios the American family is faced with today! Sometimes paying your bills on-time is virtually impossible. It’s at that moment that as the head-of-household you are forced to make some very tough life-altering decisions. Do I pay my mortgage this month or stop paying because this is the biggest bill I have, and we need to buy groceries and gas? Do I skip paying my credit-card bills because after-all I will just use cash or debit? Credit Cards are a luxury, aren’t they?
Well, if you stop paying your mortgage and at least your minimum payments on your credit cards, on time, you can count on severely negatively affecting your credit score. Usually, if you are at the stage of “survival-of-the-fittest” then maintaining a good credit score takes a back-seat to getting through this economic downturn unscathed.
A few years ago the government created a program known as the “Home Affordable Modification Program” to assist homeowners who are behind in their mortgage payments, and at risk of having their home foreclosed upon. Essentially, the lender that provided the original loan to you is much more apt to consider modifying or refinancing your mortgage once you are well-behind on payments. The crux of what makes the modification work is that it is a well-known fact that your lender does not want to evict you from your home.
Contrary to popular belief, the lender does not want to take your home away for a variety of reasons. First of all, your home may not be in tip-top shape and it can be very expensive for the bank to fix-up or rehabilitate the property. Secondly, because markets in many parts of the country are still soft it would be a long-shot for the bank to kick you out, and then get good market value for your home. Thirdly, the pool of qualified potential home-buyers has evaporated because of extremely stringent lending requirements by the banks.
In a nutshell, if you are behind on payments, and can establish a legitimate argument to the bank as to why they should indeed modify your mortgage, you have a strong chance at getting approved. Most banks will want to speak to you directly; and have underwriters that will want to get a sense of your personal commitment to wanting to retain your home. The banks will read a hardship letter that they will provide to you. That letter is a blank canvas that you have to fill-in with a heartfelt strong, and well-articulated reason as to why they should help you.
Finally, the government is investing in our banking infrastructure by reimbursing banks that help their clients…you the consumer. So, in essence, their is very little risk on behalf of the banks. The banks are therefore more inclined to help you stay in your home because their executive teams know the government will step in to help “them.” However, if you are in financial trouble, and at risk of losing your home, don’t wait around and do nothing. Be pro-active…help is available to you.