"ARM" Borrowers Beware!

After a period in which eligibility criteria for prospective borrowers were stretched to the breaking point, the chickens are coming home to roost in what is sometimes euphemistically called the "subprime" home mortgage market. Millions of new homeowners who got an adjustable rate mortgage (ARM) with terms that they could handle in the early years now face sharply higher payments as the interest rates are reset at higher levels. While it may be human nature to want to lay low and take cover when the financial strains mount and you begin to make late payments or miss them altogether, the better course is to be up front about your situation—first, with a legitimate housing counselor, and then with the lender. Communication is the first essential step in climbing out of the hole. Foreclosure occurs when the borrower defaults on the loan and the lender asserts its right to sell the home to raise money to pay the borrower’s debt. It is an outcome to be avoided by the borrower if at all possible. Not only is it an obvious setback to lose one’s home, but the negative ramifications of a foreclosure reach far into the future. A foreclosure likely will wreak havoc with your credit rating, and it could also create an impediment to getting a job or insurance. Among other things, a legitimate housing counselor can offer advice and assistance on avoiding foreclosure. The emphasis should be on "legitimate," because, unfortunately, there are many credit repair scam artists out there preying on people who can least afford to be ripped off. Consumers can steer clear of such outfits by consulting a list of reputable housing counselors that is maintained by the federal Department of Housing and Urban Development. The advice should be either free or at a low cost. As for communication with the lender itself, do not give in to any temptation to ignore the lender’s telephone calls or to toss its letters. Borrowers under stress may be surprised to learn that prompt and forthright communications with the lender could open the way to refinancing or restructuring the loan with terms that are more manageable and that will allow the borrower to stay in the home. After all, the lender, no less than the borrower, has an interest in seeing that the loan is paid off, one way or another. In the bargain, you just may get to keep the home of your dreams.

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