Truth is, it's been a great ride! Many people have followed the formula and made
a ton of money. But like musical chairs, you just know that a bunch of people
will be caught in the wrong place at the wrong time.
"Those low-payment loans that looked so good a few years ago are going into
their second phase," says James Saccacio, chief executive officer at RealtyTrac.
"Each day more and more borrowers are finding that the low 'start' payment is
gone and that steeper, fully-amortizing payments have now kicked in. At the same
time, homes that were once easy to sell are now harder to market. It's a brutal
combination and what we're seeing in the Fall of 2006 is likely to get worse."
The instant solution to high monthly costs is to sell the property. During the
past five years many areas have seen huge price increases. The odds are good in
most markets that a seller with several years of ownership can readily sell the
property, often at a significant profit.
But as the market evolves the odds may become less attractive. Not all markets
have seen double-digit growth. In such areas price stagnation or actual declines
can lead to huge inventory increases. To sell in down markets homeowners are
forced to offer not only price discounts, but also other incentives such as
"seller contributions" to help buyers at closing, new carpets, new kitchens,
moving allowances, etc.
However, selling may not be an option for some people. Not only can a sale in a
down market produce a bankrupting loss, but losses on the sale of a personal
residence are not tax deductible.
So what can you do to avoid being a foreclosure statistic? To not get caught in
the impossible position of loan costs that are too high and market values that
are too low?
"Act now," says Saccacio. "Don't wait for the hammer to fall. If you see a
mortgage problem looming in the next year or so, refinance to a long-term,
fixed-rate loan before your credit report shows any late or missed payments.
Take a careful look at traditional loans with liberal qualification standards
such as FHA or VA financing. Speak with your lender about a loan modification
and see if your adjustable-rate mortgage has a conversion feature, a right to
switch to a fixed-rate within the first few years of the loan term. Because a
conversion is a loan modification and not new financing, conversion can be quick
If you find a situation where the property cannot be reasonably refinanced, if
unaffordable monthly costs are certain, then it makes sense to sell now and move
to a less-expensive home with reduced debt, lower monthly costs and fixed-rate
Moving is a way to avoid foreclosure and dodge
bankruptcy — two events no
property owner should have to experience.
Visit Foreclosure Center
Visit our Foreclosure Center to read more detailed information about foreclosures.