Facing foreclosure?
Foreclosure is the big word in the news. Maybe sub-prime is in the first spot, but most of you aren’t wondering whether you’re sub-prime or not. You’re wondering what happens if you fall into foreclosure.
The news media is making sure you know that there are plenty of people in the same boat. So maybe you won’t lose sleep wondering how you’ll explain your situation to your friends and family. But you might want to consider what you’ll need when you come out on the “other side”.
One of these days, there will be underwriters who want to approve loans again. Will your home loan of the future be one of them? Will you be able to prove that you were caught in the nightmare that was ForeclosureVille 2007?
In a few years, underwriters will be trying to follow guidelines about approving people who have been in foreclosure in the last 10 years. That might be you. Here’s what that underwriter is going to want to document in that file:
- You got caught by the “big bad wolf” of sub-prime lending and lost your home
- Before that, you were a “good guy” who paid your bills on time
- You understand the importance of paying your bills on time and you just couldn’t keep up with the spiraling payments as your mortgage adjusted upwards
- It could happen to anyone (like you) and it did
How in the heck do you prove that? Memories are not only short, but they are very plastic. Underwriters will be thinking whatever the guidelines tell them to think when the time comes to loan mortgage money again to people with spotty credit and foreclosures in their history.
My advice is to assemble and KEEP all the evidence that will help prove what happened. Yes, I know it’s in all the newspapers today, but in three or four years will you be able to prove you paid your bills on time in 2006? What about 2005? We all know you crashed and burned in 2007, but if you can prove you were stable before then, it will really help, believe me. I’ve looked at those files in the past and was able to plead my case and my reasoning to the powers-that-be. I was able to point to a good credit history prior to the “incident”, which in this case is your upcoming or recent foreclosure.
If possible, pull a credit report on yourself, complete with credit scores if you can. Even if the recent months SUCK, the history of the last two years should be there and you can file it away for future reference in your explanation.
I would start keeping a notebook or a diary – something you can file easily, but make notes about conversations with lenders, increases in your payment, the increasingly large amount of cash required to stop the action and save your house. This documentation will become very valuable in the future when you’re trying to convince a mortgage underwriter that you DO understand the importance of financial responsibility.
It’s possible that your careful records will be just the thing that convinces that conservative underwriter that you deserve another chance.
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October 16th, 2008 at 8:23 pm
My Question for the underwriter is:
I am considering taking advantage of the HUD’s new Hope for Homeowners program. I originally purchased my home with an 80/20 (ARM/fixed) from New Century (no longer around), 1st is now by JP Morgan Chase and 2nd is with Wilshire Credit, in May 2005 for $523K. It adjusted two years later and my wife and I were able to work with Chase to re-nogiate the terms into a 30yr fixed (7.9% outrageous rate). We have been wanting to refi for a better rate, but we just had the county lower our property taxes to a now appraised value of $350K
I see that the H4H would have the banks write off the difference, of the balance of the loan, to 90% of the appraised value. Then refi or have another bank mortgage the property at 90% with the clause of a sliding scale to split any equity earned on the property with HUD. After 5 years the equity is split 50/50, and there is no penalty to refi out of this loan.
That beginning is to hopefully give you enough information to better answer my question…
By their guidelines, I qualify. If I apply and the creditor agrees to doing this, when the creditor writes down (I may not be using the right terminology) that loss (approx. $200K) will this information go into my credit report and what kind of impact would that have for me to be able to refinance out of the H4H loan terms within 5 years? I did call the IRS and asked them about any tax implications on me for that loss. They said that one of the provisions in the bailout bill would protect me from the tax liability as long as it was under $250K.
This H4H program looks like it could help out many people, but at the same time, I think there is some way or clause that HUD or the FHA is going to make it almost impossible to get out of their loans, therefore, any equity I make 10 years down the road will have to be shared.
Thank you for any assistance in this,
Justin
San Diego, CA
July 10th, 2009 at 3:22 pm
poor credit mortgage…
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