How To Avoid Losing Your Home

The best way to avoid losing your home is to practice fiscal conservatism: Buy a modest home whose payments you can afford to make. Keep credit-card and other consumer debt at a minimum — preferably at zero. Get a fixed-rate loan and don’t refinance it and don’t take money out.

I know many of you are looking at your watches, wondering whether it’s April Fool’s Day. Ha! No, but as I write this, it is Cinco de Mayo, and no, I have not been drinking. Of course I realize that practically no one in Southern California has the impulse control and ego management required to follow these steps.

So, let’s get real. Say you’re a homeowner that paid too much for a home, took out an adjustable-rate mortgage with resetting payments you knew you’d never be able to afford, and refinanced multiple times to pull money out. Your house payment is now completely out of hand, and you’re in danger of losing your home. Can anyone help?

The Washington Post over the weekend carried a story about people who managed to avoid foreclosure by getting their lenders to change their loans. The new loans were fixed and carried a lower interest rate and lower payments, but the loan amounts usually grew.

From the stories of the foreclosure-avoiders profiled, here is some advice for distressed homeowners who want to stay in their homes.

• Contact your lender as soon as you think you may be in trouble — preferably before you miss any payments — to try to negotiate a “loan modification.”
• If your lender is unresponsive (many are), contact an attorney or a nonprofit homeowner-counseling agency, such as the Neighborhood Assistance Corp. of America (NACA), whose representatives can work with lenders to negotiate loan modifications. (Hint: They bypass Customer Service and go straight to the lender’s Loss Mitigation Deparment.)
• Never trust someone who approaches you, telling you they can save your house. They’re probably scam artists.
• If your lender tries to contact you, answer the phone. Communication with the lender can only help you.
• If you must stop making payments, do not spend whatever money you might have put toward your mortgage. Set it aside. It will help you in negotiations.

Also: Learn from the financial foolishness that got homeowner Zena Collins, 47, of Gaithersburg, Maryland, into this situation in the first place:

Yes, she admits, she made some bad financial choices, going from a 30-year, fixed-rate mortgage at an 8 percent interest rate in 2000 to an adjustable-rate mortgage at 8.5 percent two years later so she could use the equity to replace appliances and fix a cracked patio. When that rate was set to increase, she refinanced again and took out more money to work on her 32-year-old house. In February 2007, she refinanced to a 10.8 percent interest-only mortgage that would soar to as high as 13.8 percent after two years.

No, it’s not particularly fair that this irresponsible homeowner is getting bailed out of her mess. On the other hand, lenders should take a hit, too, because none of this would have been possible without their cooperation.

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Jose Canseco’s Big Encino Adventure
Why Own When You Can Rent?