Mortgage trouble? Here’s what NOT to do
Have you seen the signs on busy corners or plastered to telephone poles: “Facing Foreclosure? We Buy Houses! Save your home or Sell It!” The BBB is keeping a close eye on these signs by calling the phone numbers just as soon as we see them.
Who are these people, and why are they so aggressively offering to buy or help you sell your foreclosed home? Good question, yet we are not finding a whole lot of success when we call and start asking questions. Funny, those businesses that don’t want the BBB knowing what they are up to, for when a business refuses to communicate with the BBB it naturally raises red flags.
I just sold my condo, and have had some conversations with my Realtor about the housing marketing, the subprime mortgage situation, as well as the length of time it is taking to sell homes in certain price ranges these days. The national print media has been full of “tug-at-your-heartstring” stories of families stuck in high-risk mortgage messes.
So, what is happening right here in this region on this front? Plenty.
First, how did this “foreclosure mess” ever come to happen? In the most recent past, loans were made to people who were counting on increasing values to continue at the pace we have seen over the last several years. These people thought they could just refinance in a couple of years once they provided a proven track record that they could pay their loans on time. The other scenario is that some borrowed more than they could pay in the first place. They were gambling using their homes, which, alone, is the subject of several other columns!
There are a couple of problems with these two situations:
Many of the high-risk loans these people agreed to when they signed carried a pre-payment penalty of 10-15 percent on the loan. Swell. However, that teaser rate was only good for a couple of years, so the payment jumped several hundreds of dollars.
If the market supported that increased value, the consumer then needed to find a lender willing to refinance and pay off that pre-pay penalty with the increased value.
What is compounding this problem is that the market is beginning to cool off in most parts of the country, meaning that buyers are few and lenders are actually making people qualify for loans again. And believe it or not, the cooling market in California has had an effect here in our area, too, because there is a whole lot of California money here in the Spokane/Coeur d’Alene area, and when that money pool shrinks, we feel it.
Case in point, meet John and Suzie Smith.
John and Suzie have a $200,000 home and a $198,000 loan. Their two-year introductory rate expires in November, when their monthly payments will go from $1,263 to just under $1,600. They are already having a tough go at meeting their $1,263 payments, so they contact their lender to refinance.
It is only then that they come to realize that there is a 5-year pre-payment penalty on their loan and that means they will have to bring almost $24,000 to the closing table. OK, well that should not be a problem, they think. If the value of their property is up, they can simply borrow more, pay the penalty, and get their payments lowered to where they can better manage them.
The appraisal on their house comes back at $224,000 — not enough, as the lenders now want to only loan 80 percent of the home value, or in this case $179,200. Oh, boy. Now what?
Then the unpredictable happens. John gets hurt while working on a home project and can’t work, so his income is cut in half. Now their mortgage is impossible to pay, and they know refinancing is out of the question. They talk with their Realtor and she explains there are 160 homes for sale in the $180-$225,000 price range and things are taking a long time to sell. Even if they sell for the full appraised value, deduct the Realtor’s fee, and factor in the pre-payment penalty, they are still taking money to closing, money they don’t have.
Desperate, Suzie sees one of those “WE BUY HOUSES” signs and calls. They bring over all sorts of paperwork and tell the couple they can stay in their house and make payments to them, the “helpful” company. The “helpful company” tells them that in a year they will be able to buy their home back for a fee, and the company will gladly pay any late payments and get them all caught up so they can keep their dream, the home their family now lives in. In a perfect world, all would go well, and they would pay several thousand dollars in about a year and take the mortgage back. Suzie convinces John to go with this offer, and so they do.
But it is not a perfect world, they still struggle, and are now late on some payments to the rescue company. What they are not aware of is the papers they signed included a deed that “will be executed if they are 10 or more days late on a payment.”
The “once helpful” rescue company comes in and takes the home and all of Suzie and John’s equity they have built up, and they lose the house as well as their equity.
Predatory lending is the term regulators use for any company that seeks borrowers like Suzie and John Smith (who are in dire straits) and offers them a solution without letting them know the risks. Equity skimming, predatory lending and other such terms are becoming all too common to the local BBB office, and it is exactly this type of activity that prompted the BBB system to recently issue a warning on such issues, to heighten awareness, and to educate people about such traps.
If you or someone you know is in trouble with a mortgage, or is struggling with foreclosure, follow these steps:
“Call your mortgage company and see what solutions they offer, but don’t wait until you are months behind.
“Contact your bank or credit union and see if they can offer any assistance.
“If you speak with someone who seems to have all the solutions, PRIOR TO SIGNING, be sure to take all documents they present to you to your attorney for counsel.
Also, check their BBB track record and make sure all required licensing is in place before going with them.