ROBYN: I’m Robyn Moreno for howdini.com. Every day brings more news of homeowners facing possible foreclosures. What causes mortgage meltdown, and how does it affect homeowners who either want to sell their home or readjust their mortgages? Joining me to help break down the current housing crisis is Gerri Willis, CNN’s personal Finance Editor and author of Home Rich: Increasing the Value of the Biggest Investment of Your Life. Welcome, Gerri.
GERRI: Hi Robyn.
ROBYN: What is this sub-prime mortgage mess anyway, and how did we even get into it?
GERRI: And the height of the boom, a lot of people got mortgages that they couldn’t afford, sub-prime mortgages. These were mortgages given to people who couldn’t afford the best terms. Unfortunately, they couldn’t afford their houses, and their houses were taken away from them. This started a domino affect, and we saw the real estate crisis deepen and get worse, and now we’ve got a situation where prices are falling.
ROBYN: If someone is behind on their mortgage payments, what can they do to avoid foreclosure?
GERRI: Well job number one is to pick up your telephone and call your lender. It’s the most important thing to do, and it’s one of those things that people never do. You have to ask for help, forbearance, you can get your loan modified or changed so that you might be able to afford that loan. If that doesn’t work, you want to find a buyer. And you get even do something called a short sale. That’s where the buyer of your home pays less than you owe, and the bank has to sign off on this. Times are so troubled right now, frankly, that a lot of lenders are willing to do this. So think about finding a buyer if you absolutely cannot afford this house on your own.
ROBYN: If someone had an adjustable rate mortgage, can they switch to a fixed rate mortgage?
GERRI: Not necessarily. Some of these sub-prime loan holders, they have fees when they, when they try to change out of that loan, fees that result in thousands and thousands of dollars. So you want to make sure if you’re in one of these sub-prime loans that you’re speaking to your lender, that you’re getting help to try to get out of this loan.
ROBYN: So if I’m in, behind on my payments and I want to go ahead and call the lender, do you think they’re really going to be amenable to this?
GERRI: It’s tough, you know, I have to tell you. We get complaints all the time from people who say, you know, look, my lender’s not picking up the telephone. You might call the Department of Housing and Urban Development. They have a website, hud.gov, they have counselors in cities and communities all over the country, and they can help you find out the best way to get a better mortgage.
ROBYN: Gerri, how bad is the housing crisis, really, and is it going to last?
GERRI: It’s pretty tough out there for people. If you have to sell right now, I mean my heart goes out to you. It’s a tough time. And it’ll probably last for, you know, several months, probably through the beginning of next year. Look, what’s going to happen is that prices will stabilize, they’re going to go into a period of time where they don’t go up, they don’t go down, and that’s going to last for a while. It’ll be tough to sell a house.
ROBYN: The worst-case scenario: what is the downside of just walking away?
GERRI: We’re seeing a lot of people do that right now, and unfortunately they’re ruining their credit history for five to seven years. That’s a real killer. There is one other thing you might try instead of that, and it’s called a deed in lieu of foreclosure. Basically what this means, is that you take your house keys, and you mail it take your lender, its called jingle mail. You’re giving up your house; you’re giving up your equity. You’re turning it over to the bank. If you decide that you want to do deed in lieu of foreclosure, at least you’re telling the bank, you’re being up-front: I can’t make these payments, I’m giving you the house, I’m giving you my equity. Here is the investment. And at the very least, you’re being up-front about your intentions. Of course your credit score will get hurt, but at least you’re not just running away from a problem.
ROBYN: It’s a really, really tough market right now. Thanks so much for helping us try to figure this situation out.
GERRI: My pleasure.
ROBYN: Thanks, Gerri. I’m Robyn Moreno for howdini.com