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You can still qualify for a mortgage in shaky credit market

The Mortgage Bankers Association (MBA) announced this week that new foreclosures hit a record high in the second quarter. Also, the number of loans in the foreclosure process has risen and delinquencies are up. And it's quite likely that coming quarters will bring more of the same problems, according to the group.

The increased activity has caused loan-servicing firms to staff up in order to work with all the homeowners in trouble.

There's no question that firms have been working feverishly to get ahead of the curve. The high servicing expenses involved with managing delinquencies and foreclosures are enough to give lenders a renewed commitment to getting people into loans they can afford to pay.

The MBA has an online resource, Home Loan Learning Center, which educates visitors about mortgages and homeownership. Visit the Home Loan Resource Center.
The HomeLoanLearningCenter.com provides step-by-step information on how to become financially literate. Armed with the facts, your next move could be into your own home. Learn about credit reports and scores; the true cost of owning a home; and how to compare the costs of owning versus renting a home. The Web site provides in-depth, easy-to-read home loan product information in the All About Mortgages section, which includes information on how to qualify for a loan, what the documents mean, what's in the mortgage payment and mortgage calculators to help consumers plan their payments.

While policymakers work on ways to address the current foreclosure problem, it certainly appears that many in the industry are looking toward educational efforts as one way to keep people out of loans that they just can't afford.

You can still qualify for a mortgage even in today's shaky credit market.

Understand that some types of lenders are more apt to loan you money in today's markets than others. Plus, certain types of mortgages may be easier to get than others.

Above all, don't be discouraged. Even if your credit is too far gone, or your home appraisal falls short of what you owe, government efforts are under way to make money available to bail out cash-strapped borrowers.

The best way to qualify for a mortgage with decent terms may be to shop savings institutions, smaller commercial banks and credit unions. The key is to find a "portfolio lender." Portfolio lenders both originate and hold onto the loan. They don't sell to investors.

By contrast, mortgage brokers generally offer mortgages from a variety of lenders. Mortgage brokers typically don't finance a loan with their own money. They're intermediaries: The more people involved in a deal, the more chances that the chain could break or something could fall through the cracks. Also, be sure to consider a mortgage broker's fee, which could take the form of a higher rate or points. One point equals one percent of the loan amount.

Mortgage bankers, on the other hand, front their own money for your mortgage, but often sell loans to investors. It's investors who are demanding higher interest rates due to their higher perceived risk.

Credit unions
Right now, for example, "credit unions have $170 billion of first mortgage loans on their books," says Bill Hampel, chief economist for Credit Union National Association. "Lately, they've been selling about one-third of their production, which means they hold onto two-thirds. So they're primarily portfolio lenders." To join a credit union, you generally must fit into a specific "field of membership," and open a "share" or savings account. Find a credit union you can join at www.cuna.org. - goto (Consumer information).

Large savings institutions
Large savings institutions making mortgages include IndyMac Bank, Pasadena, Calif., and Astoria Savings, New York.
But IndyMac officials acknowledge that the days of no-down payments may be over -- at least for now. Also, except for loans it can sell to government-sponsored secondary market players, IndyMac no longer offers subprime loans, or those for less creditworthy borrowers. It has eliminated second mortgages except for some home-equity lines of credit.

High-quality borrowers, however, still may qualify for mortgage loans with a 10% down payment. If you can't get attractive terms on a 30-year fixed-rate mortgage, you might find a 5/1 or 7/1 adjustable-rate mortgage. With those mortgages, the interest rate is fixed for five years or seven years. Then, the rate becomes subject to change annually. Borrowers usually only stay in a home for seven years anyway.

Foreclosure Prevention

People may face foreclosure for many reasons. Extreme changes in life situations — death, divorce, prolonged illness and many others — or because they must immediately relocate. Foreclosure can occur when payments become three to four or more months late, depending on the mortgage terms. In most cases even if the bank is able to sell the property, the borrower may be liable for any shortfall that may occur between the remaining balance on the loan and the sales price of the property at foreclosure, depending on the mortgage terms and state law. Foreclosure stays on a credit report for seven to 10 years.

For those in situations that could lead to foreclosure, the U.S. Department of Housing and Urban Development offers some tips to avoid it at http://www.hud.gov/foreclosure/index.cfm. In addition, Home Loan Learning Center provides an overview of 12 things to know about the foreclosure process before calling a lender or servicer. Also, several lenders have provided HomeLoanLearningCenter.com with a list of contact information for borrowers who may be having difficulty making their mortgage payments.

When is a mortgage delinquent?
The mortgage payment is considered late if the lender or servicer receives it after the due date set out in the mortgage. A history of chronic lateness will harm the owner if or when a real emergency occurs. Serious consequences can begin when a payment is more than 15 days late. Here is a typical scenario:

* At 15 days late: The lender usually charges a late payment fee (the timing and amount of late charges vary from lender to lender or servicer to servicer).
* Two or more mortgage payments owed: Unless specific arrangements are made with the lender, all payments and late charges must be made before another payment is accepted and the loan is considered current.
* Three or more mortgage payments due and unpaid: The loan may be given to the lender’s attorney and foreclosure proceedings initiated. The entire balance of the loan may be due and payable immediately. In addition to the loan payments due, the owner is liable for legal fees incurred by the lender. At this point, the owner is in danger of losing the home.

Sometimes those in severe debt want to simply give the keys to the bank. This is called a "deed in lieu of foreclosure" and may not be as seriously damaging to credit but can still harm chances of renting a home or apartment elsewhere.

Planning for unexpected changes to income
The primary causes of delinquency, foreclosure and bankruptcy are not poor planning, but illness, loss of employment or marital problems.

Few of us factor these things into our plans when evaluating loans and purchasing a house, but all of us should have some idea what we can do if trouble strikes. It’s much easier to look at alternatives before problems occur. If we know a layoff or major medical operation is pending, we can address the situation as soon as possible. Don’t risk losing a home. Meet with the lender immediately if you are forced to miss a mortgage payment.

If the owner has equity in the house, he or she may be able to acquire a second mortgage or equity line of credit in order to consolidate bills. This can improve the financial situation in an emergency, but borrowers should be careful—they are incurring greater indebtedness. Unless there is a solid plan for meeting these new obligations during reduced financial circumstances, borrowers should not add to their debt.

For those who cannot generate the funds on their own, there are many legitimate organizations dedicated to helping people in short-term trouble. Many churches, civic groups, and non-profit housing assistance or counseling agencies have or know of programs. State and local housing agencies are also places to seek help. Remember that time is both an enemy and a friend—use it wisely and take some preliminary steps before real trouble strikes.

What to do if financial trouble hits
Here’s the good news: Lenders and servicers don't like to foreclose on mortgages. Foreclosures cost more than can be made back, so lenders foreclose only as a way of limiting losses on a defaulted loan. If homeowners get behind on payments, lenders likely will work with them to bring the loan current. In order to do so, however, the owner must stay in communication with the lender and be honest about the financial situation.

The lender’s willingness to help with current problems will depend heavily on past payment records. If the owner has made consistently timely payments and had no serious defaults, the lender will be more receptive than if the person has a record of unexplained chronic late payments.

For those falling behind in payments or who know they are likely to do so in the immediate future, they should contact the lender right away about meeting to discuss alternative payment arrangements.

The lender will ask for information about monthly income and expenses. Owners must use realistic figures based on their current financial situations. The lender will also ask about assets and liabilities, including all debts and monthly payments and when they are due. If the lender needs proof of income (pay stubs, unemployment check stubs, tax returns, etc.) he or she will let the owner know. Remember, lenders do not want to foreclose.

Lenders often can help
An agreement between borrower and lender to prevent the loss of a home is called a loan workout plan. It will have specific deadlines that must be met to avoid foreclosure, so it must be based on what the borrower really can do to get the loan up to date again.

The nature of the plan will depend on the seriousness of the default, prospects for obtaining funds to cure the default, whether the financial problems are short term or long term and the current value of the property.

If the default is caused by a temporary condition likely to end within 60 days, the lender may consider granting “temporary indulgence.” An example of where this would be considered is a house that has been sold but the sale has not settled; another is a pending insurance settlement. The lender will want documented evidence, such as the sales contract, before granting indulgence.

Those who suffered a temporary loss of income but can demonstrate that the income has returned to its previous level may be able to structure a “repayment plan.” This plan requires normal mortgage payments to be made as scheduled along with an additional amount that will end the delinquency in no more than 12 to 24 months. In some cases, the additional amount may be a lump sum due at a specific date in the future. Repayment plans are probably the most frequently used type of agreement.

In some cases, it may be impossible to make any payments at all for some time. For those who have a good record with the lender, a “forbearance plan” will allow them to suspend payments or make reduced payments for a specified length of time. In most cases the length of the plan will not exceed 18 months and will stipulate commencement of foreclosure action if the borrower defaults on the agreement.

These plans represent last-ditch efforts by borrower and lender to keep the borrower in the home. They are not a substitute for good financial planning and likely will not be available if the borrower's payment record is poor. Lenders or servicers may work closely with good borrowers who are having a period of real emergency and hardship, but they are not inclined to cooperate with those who demonstrate little financial discipline.

Clearly, having a good payment record is important as is meeting with the lender at the first sign of trouble and being honest about any impending difficulties. There’s no shame in having problems; hiding them just makes overcoming them harder.
For more information about mortgages on the Texas Coast visit http://www.texasgulfcoastonline.com/Rates.aspx

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