Adjustable-Rate Mortgage Holders: Call Your Lender Before it Calls You
The day of reckoning is near for millions of homeowners who financed their dream house or condo by taking out adjustable-rate mortgages.
Rates are resetting higher, and in some cases, the monthly payments that were so affordable in 2004 or 2005 when the loan was signed will push homeowners to their limit or beyond.
What is a borrower to do? You can try to make ends meet by cutting back on your expenses. Shut off HBO and the premium cable channels, skip your Starbucks run and bring your lunch to work rather than eating out and you might have enough to cover the bump-up in your mortgage payments.
Don’t despair. There is another way to look at this problem (a very basic way of looking at it, in fact). You, the borrower, are not powerless.
“Consumers get the feeling it is a lost cause to do anything, but it is pretty much the opposite,” said Harry H. Dinham, president of the National Association of Mortgage Brokers.
“The most motivated people are the lenders.”
Homeowners could seek a lower home loan rate or even switch to an interest-only mortgage for a spell. They might even ask for more time to pay, just as long as it does not create “negative amortization,” that is, letting the amount owed increase with each payment.
Dinham has been through six real estate cycles since 1967, and each time the real estate market goes sour, he said, consumers make the mistake of dodging their mortgage company.
But know this: Your mortgage lender does not, under any circumstances, want to get stuck with a property. They have to maintain it and then try to sell it on the open market, usually at a loss.
Some industry analysts say that it costs a bank an average of $40,000 to foreclose on a home mortgage loan. That amount gives the borrower that much more room to negotiate than they think.
About 1.1 million homeowners will lose their homes to foreclosure because of a mortgage resetting to a higher rate over the next 6-7 years.
Christopher L. Cagan, the director for research and analytics at First American CoreLogic, a mortgage research firm in Santa Ana, Calif., studied databases with information on 58 million mortgages.
He sees a wave of mortgage resets moving through the system - first mortgage loans with teaser rates, followed by subprime home loans and finally, as the decade comes to a close, loans to people with good credit.
This transition is not enough to hurt the overall economy - about $112 billion will be lost, he estimates - but it is a world of pain for the households and the people left holding the mortgages.
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