Sept. 29, 2008 — -- The federal government has two choices. It can bail out big banks and hope the help trickles down to homeowners. Or it can help homeowners and hope the help trickles up to big banks.
Regardless of what the government does, chances are the assistance will not be smart enough or fast enough to rescue you if you're struggling to pay your mortgage. I mean, when has our bureaucracy ever moved with the speed and savvy required in a crisis?
That's why I've always preached self-reliance. Here are some ways you can help yourself.
Ironically, the first step to helping yourself is to ask for help -- but not from the government. If you are facing foreclosure, you cannot -- must not -- go through the process alone. Just as you had a real estate agent and a title attorney who helped you get into the home, you need pros who can help you stay in it.
Specifically, you should reach out to one of the wonderful nonprofit agencies that provides housing counseling at low or no cost. Click here for a list of housing counselors nationwide. You can search within your state.
If you are facing foreclosure, start with those that list "Mortgage Delinquency and Default Resolution" as one of their services. And keep in mind they can be far more helpful to you when you are 30 to 60 days behind on your mortgage than when you are facing a sheriff's sale. They have more negotiating tools at their disposal the earlier you start.
Many people find it intimidating to approach their lender directly about negotiating a new payment plan. (In fact, the Illinois Attorney General's office told me 70 percent of homeowners never take this step.) Some housing counselors say it's a bad idea for you to call the bank yourself anyway, because your bank may persuade you to sign something that makes your situation worse rather than better.
I've also heard from housing counselors who say the bank "loss mitigation" departments that are supposed to help homeowners are utterly unhelpful. A seasoned housing counselor can help you through all this.
Do your housing counselor the favor of being on top of your paperwork. You can imagine how swamped they are right now. You will receive better, faster service if you are respectful enough to gather the documentation they need to go to bat for you. Things like:
One of the first steps a housing counselor will take to help you is to figure out who your lender actually is. So many loans have been sold and resold to secondary institutions, that sometimes it's hard to know who you're supposed to be negotiating with.
Notice I said to get help from a NONPROFIT counselor. The country is crawling with for-profit con artists who say they can help you negotiate a new deal with your lender. Some advise you to declare bankruptcy.
But that's bad advice because under current bankruptcy law, judges don't have the authority to modify mortgages, so you will still be stuck with payments you can't afford. Often, these "foreclosure rescue" schemers charge a big fee up front (hundreds or even thousands of dollars), then do nothing for you and disappear. It's called "Foreclosure Fraud."
In another version, the people at the company have you sign your house over to them and promise you can buy it back in a year. But the rent they charge you in the meantime is so high that you can't possibly afford it. Eventually, they evict you and take possession of your home.
One key way to guard against these crooks is simple: Don't do business with anybody who approaches YOU offering help. Fast-talking thieves look up lists of people facing foreclosure and target them. Instead, only do business with companies and counselors that YOU seek out. My term for this advice is, "Be the hunter, not the hunted."
If you are unable to persuade your lender to let you pay less, maybe there's a way for you to make more. Have you thought about renting out an extra room to a college student? Can your family make do with just one car? (If you want to go green, selling one vehicle and taking public transit is a big start.)
Perhaps the thought of working six days a week in your current job is nightmarish. But could you take on a second job that is so different from your first that it doesn't stress you out? A friend of mine is an HIV counselor during the week, but works at a home and garden store on Saturdays. For her, the retail work is light and easy and she brings in some extra income.
You should also take a hard look at whether you really belong in your house. Did you buy over your head because the no-questions-asked loans of the past decade made it possible for you?
Perhaps you would be less stressed out in more modest digs. If so, sometimes you can sell your home for less than you owe and your lender will agree to take the loss instead of foreclosing. Ultimately, that is less expensive for them. And families are often pleasantly surprised at how they reconnect with each other in closer quarters.