If you lose job, work with lender to save your home

SMART MOVES

September 15, 1991|By ELLEN JAMES MARTIN

If the recession took your job and your ability to make house payments, you might be tempted to get an unlisted phone number so your lender can't call.

But hiding from your lender can be a serious mistake, real estate experts advise. A borrower who is forthcoming bears the best chance of keeping his home after losing his job, they insist.

Your smartest strategy is to approach the lender even before he approaches you. You'll win Brownie points from the lender by showing a responsible attitude about your unpaid debt. You're also more likely to sell him on a flexible mortgage payment program.

"We don't just throw up our hands as a result of your being unemployed and say we're going to foreclose on you," says Charles Isenhour, a senior vice president at PaineWebber Mortgage Finance, the Columbia-based lender. "We're always trying to get to the root of the problem -- to head towards some resolution for the homeowner."

Remember, most lenders are reluctant to foreclose.

Foreclosing consumes the lender's time and energy and money. It takes the lender into a legal thicket of lawyers' conferences and court papers. And, in the end, there's no guarantee the lender will get back from the house the full amount of outstanding debt. That's especially true in a sluggish real estate market.

"The last thing in the world the lender wants to do is to take your house," says Richard Peach, deputy chief economist at the Mortgage Bankers Association of America.

Foreclosure is an especially bad choice for lenders during a recession, when lots of people are having trouble meeting bills. Unemployment and other recession-related problems pushed the number of Marylanders with mortgage delinquencies to a three-year high during the April-June quarter. More than 4 percent of homeowners were at least 30 days behind on their mortgage payments, according to the Mortgage Bankers Association.

Taking away the homes of people who have lost their jobs can generate a great deal of ill will against a lending institution. And lenders -- especially those who are major players in a community -- don't like to have their reputations tarnished.

All this is not to say that lenders won't foreclose on borrowers who take a cooperative approach when they can't pay. They will. But your chances of heading off foreclosure are much greater if you try to work with a lender rather than against him.

For homeowners who have lost their jobs, mortgage experts offer these pointers:

* Take out credit lines in anticipation of losing your job, if possible.

You may have tens of thousands of dollars worth of equity in your home, but once you're unemployed, the chances of tapping that equity by refinancing your mortgage or by taking a home equity loan are almost nil. As business owners have known for decades, the time to borrow money is when you don't need it.

"Who's going to give you a new loan when you don't have a job?" asks Buddy Koolhof, Owings Mills branch manager for NVR Mortgage.

These days, when interest rates are moderate and special closing cost programs abound, a homeowner can acquire a home equity credit line at relatively low cost and in only a few weeks.

Most home equity loans are revolving credit lines that work like credit cards. You won't have to take down any debt you don't need. But if you lose your job, such a credit line could get you through an otherwise difficult transition.

* Contact your mortgage lender immediately if you have lost your job and can't meet your next mortgage payment.

Remember that if you fail to make a mortgage payment, your lender will quickly become aware of the fact through his computer. You'll do better acknowledging your problems and asking for help early, rather than keeping the lender in the dark.

The best approach is to go to the lender's office and give him whatever financial information he requests. Be optimistic. Talk about your track record in paying your bills. Talk, too, about your assets -- both financial and professional.

Emphasize that although you've lost your job, you are searching for a new one and your credentials make prospects look good.

* Get counseling to help manage your bills and to bring your budget under control.

The Consumer Credit Counseling Service, a non-profit organization with offices throughout Maryland, provides free or low-cost assistance for people who need to restructure their debts or do a better job on budgeting.

The service can't help you restructure debt secured by a home, such as a mortgage. But it can work with your creditors to stretch out payments on credit card debts and other consumer loans. For some families, such debt restructuring could make it possible to meet their house payments.

* Ask your lender to restructure your mortgage payments until you find new employment.

The magic phrase here is "forbearance plan." If you've demonstrated that you've been responsible about your debt in the past, and that your prospects for future employment are good, the lender could make your mortgage debt more manageable.

With a forbearance plan, the lender could agree to postpone or reduce payments. He could also be convinced to waive late payment charges.

The one thing he won't do is forgive the mortgage debt entirely. Someday, you'll have to make up for the payments you missed.

Stresses PaineWebber's Mr. Isenhour: "As mortgage bankers, we don't have the authority to forgive debt."

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