Foreclosure No Longer a Taboo Topic

Foreclosure used to be the kind of unpopular situation people would rather not talk about. Times have changed. Bad news pouring in from every state and on a daily basis demands an extra effort to ensure parties involved in a foreclosure process know exactly what it means and how to deal with it. Homeowners usually do not know how to protect themselves and avoid losing their home. Therefore most lenders, servicers, brokers and nonprofits are now facing the challenge of educating borrowers.

The American Bankers Association, Washington, recently suggested counselors must be more aggressive in helping borrowers take action if they fear foreclosure.

"No one wants a foreclosure," said Diane Casey-Landry, ABA chief operating officer, stressing what lenders know but some homeowners are still skeptical about. "Consumers need to know there is help out there if they ask for it. Banks will work with borrowers to keep them in their home and maintain a long-term relationship."

The first step, ABA said, is to inform that "there is help and hope for those who ask." The No. 1 tip is to maintain an open and honest dialogue with bankers. Survey after survey has shown that one major problem with homeowners is that they do not contact the lender early enough, which is right away once they fear they might not be able to make a mortgage payment.

ABA offers several tips that can help homeowners avoid foreclosure. And it starts with assessing one's financial situation honestly. Homeowners need to calculate all financial obligations and measure exactly how much of the monthly mortgage obligation they would be able to pay in the upcoming months.

A well-prepared and knowledgeable borrower makes it easier for the lender to come up with a work out plan. Especially if homeowners have called the lender before they miss a payment. Counselors need to make sure these homeowners know that informing the lender is not just a courtesy call. A missed payment will damage their credit score for a long time, so it is important to discuss with the lender and determine the next steps that will avoid credit score damage. Even if the borrower misses a payment, calling the lender to find a solution and work together to fix the problem before it worsens is the best response to the crisis, ABA said.

Lenders are always willing to create a mortgage action plan, since they are not interested in dealing with foreclosures, which often risk turning into real estate-owned properties that are extremely costly for lenders to sell and/or maintain.

Homeowners should be encouraged to find out if they can get an extension on payments, a flexible payment plan, or a loan modification.

However, remedies such as payment plans or extensions are "only a temporary fix to a larger problem," ABA warns. These borrowers need to meet with both financial planners and credit counselors to be able to change their financial situation and plan for the long term.

Information about how to prevent foreclosure is readily available and from many sources. It makes one believe that by now people know where to look for advice. For instance, everyone in the industry knows their clients can contact Hope Now, the ABA-affiliated alliance of counselors, servicers, investors and other mortgage market participants that joined together to reach out to at-risk homeowners and help them stay in their homes. Yet, surveys show the No. 1 challenge to lenders and servicers remains borrower education. Over and over again I have heard mortgage industry professionals express disbelief that many borrowers fail to benefit from available help because they do not know about it. And when it comes to financial education counselors are in the front row. Homeowners can find the phone number of their lender by calling the HOPE Hotline (888-995-HOPE).

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