As the Congressional Oversight Panel for the Troubled Asset Relief Program (TARP) held a hearing on Wednesday to inform the panel’s upcoming November oversight report evaluating the progress of Treasury’s foreclosure mitigation programs, the president of bills.com was warning homeowners concerned about a potential foreclosure that they should not consider the recent confusion around foreclosures as temporary relief. Instead, says bills.com President Ethan Ewing, homeowners should reach out to their lender or a reputable third party to open the lines of communication. Ewing suggest homeowners also consider six potential alternatives before resorting to foreclosure.
“Homeowners facing foreclosure are being bombarded with confusing and often opposing messages right now, but the meter has not stopped running," said Ewing in a statement. “It is imperative that that these individuals [facing a potential foreclosure] reach out to their lender now to avoid an unwelcome outcome later. The most dangerous thing a homeowner can do is nothing.”
Bills.com lays out six alternatives to foreclosure that homeowners can discuss with their lender or chosen representative. They include:
Forbearance: A temporary agreement with your lender that delays mortgage payments for a short time. Lenders are generally only willing to allow this avenue if the homeowner can prove that they will be able to restart their payments and bring their mortgage up to date. Terms can vary greatly by lender, so be sure to clearly understand the terms of the specific agreement.
Reinstatement: This occurs when a homeowner is behind on their mortgage payments and agrees to a lump sum payment by a specific date that brings them current on their loan status. This is normally part of a forbearance agreement.
Repayment: This is a negotiated plan that allows the homeowner to become current on their mortgage by making catch up payments over a fixed amount of time or by combining a portion of the overdue amount with the regular payments until the mortgage is current.
Loan Modification: This option has gained the most notoriety over the last few years because of government and non-profit programs that incorporate loan modification. In this course of action, the terms of your loan are adjusted–normally the amortization table or a lower interest rate–to sizably affect the amount of your regular payments. In this way, the bank avoids foreclosure while you retain your home through a more affordable monthly bill.
Short Sale: A short sale can help avoid an actual foreclosure. In a short sale, your lender agrees to let you sell the property for less than it’s worth and they will absorb the loss. As with other arrangements, terms can be radically different with each lender so be sure to understand the terms of your specific agreement.
Deed-in-Lieu of Foreclosure: This is a last resort option that essentially allows you to give your property back to the lender in return for canceling the mortgage. While this will hurt your credit score, the damage is less severe than a foreclosure.