Friday, February 27, 2009

To Stop Foreclosure Try Refinancing Before Missing A Mortgage Payment

Every single day now it seems the news is reporting additional woes piling up on the sub-prime mortgage industry. Let's be honest for a moment. We did this to ourselves. Our need for instant gratification coupled with the lending industry's inherent greed for more money has by and large caused the current crisis. The fallout from this is only beginning. Those homeowners attempting a fast way to stop foreclosure by refinancing are finding they may be out of luck. Worst of all the restrictions are only going to tighten as time goes on.

Lenders have been forced to tighten lending requirements by the very nature of this current dilemma. They are in the money business, and would rather make less profit than lose a single dime. For a potential borrower this makes refinancing especially difficult, more so if they have missed one or more mortgage payments.

Let's take a look at one peculiarity I find particularly interesting. The lenders still have enormous amounts of money to loan, yet their own current restrictions prevent a large percentage of potential borrowers from qualifying for low-interest mortgage loans, or qualifying for any loan for that matter. Talk about a dog chasing its tail!

Lenders have been forced to take greater precautions. They are going to ask themselves how this prospective borrower is going to afford the new higher (much higher in some cases) monthly mortgage payment, especially if the borrower had trouble making the original one. It's easy to understand this logic, but for the homeowner under duress it isn't any easier to swallow or help them solve their immediate problem.

So where does this leave the homeowner? Not in an enviable position for sure, and with far fewer options available to avoid foreclosure. Those who are fortunate enough to obtain refinancing, in spite of the previous bruises on their credit, are currently experiencing significantly higher interest rates coupled with almost draconian qualification requirements. Of those "lucky" few who qualify most are left with no choice but to accept Adjustable Rate Mortgages (ARM's) instead of fixed rates. If you've been following the news you know the fixed rate periods are ending, causing monthly mortgage payments to skyrocket.

The increase in monthly payments brought on by the ARM's is causing thousands upon thousands to hit a financial wall. Unable to afford the new monthly mortgage payments, they are faced with giving their property back to the bank through the foreclosure process. Bankruptcy filings are at all-time high. It's a vicious cycle that's going to repeat itself for years to come until it plays itself out, and the fallout may be devastating.

If your back is against the wall and you think refinancing is the way to prevent foreclosure fast, then you are going to have to make darn sure you'll be able to weather the storm. Can you afford the new payment? What steps have you taken, or are planning to take, to create the additional income to cover the added expense? Are you willing to walk away and try another option if refinancing isn't feasible? Answer these questions honestly before taking the next step, which if you aren't careful may bring about a slide into the financial abyss