permanently or semi-permanently for about five years. On the other hand, a repayment would take the amount owed and spread it out on top of the current payments. Day says repayment plans work best for people whoâ€™ve gone into trouble because of a one-time event such as illness, job loss, death, or divorce.
â€śIf the fundamental problem is the loan itself then you need a workout plan and not a repayment plan,â€ť Day says.
Since July 2007, nearly 1.6 million homeowners have avoided foreclosure through workouts which include loan modifications and repayment plans, according to HOPE NOW, the private sector alliance of mortgage servicers, counselors, and investors working to help prevent foreclosures.
If the loan canâ€™t be worked out Hayward suggests doing a deed in lieu of foreclosure where the mortgage lender will accept ownership of the home in place of the money owed on the note, or a short sale, which requires the homeowner to sell the home for less than the outstanding balance of the loan with the mortgage lender forgiving the remaining debt owned. Either of these options will help homeowners have a more orderly and planned exit of their property, Hayward says.
If borrowers arenâ€™t getting any satisfaction from their lenderâ€™s decision, seek advice at a legal aid clinic, Day suggests. â€śIt may be that you can challenge the term that you were given,â€ť she says.
For first-time homebuyers, Hayward suggests taking a homeownership mortgage or financial counseling course where counselors would conduct a budget overview and examine potential buyersâ€™ spending patterns to ensure theyâ€™ll end up in a home they can afford. He also suggests first-timers make sure everyone involved in the process is trustworthy and reliable.
â€śThis is the most important financial decision people will make in their lifetime. You should feel good about when you do it,â€ť Hayward says.
In an effort to help lending partners and communities survive this economic climate, Fannie Mae, which has a federal charter and operates in Americaâ€™s secondary mortgage market to ensure that mortgage bankers and other lenders have enough funds to lend to home buyers at low rates, has established its Keys to Recovery Initiative and foreclosure prevention for existing and first-time homebuyers.
If Fannie Mae owns the loan, borrowers who owe more than the amount their home has been appraised will have the opportunity to refinance their property up to 120% of its appraised value, Hayward says. Another measure formed through a partnership Fannie Mae has with Durham, N.C.-based nonprofit, Self-Help Credit Union (www.self-help.org), would allow families on the brink of foreclosure the opportunity to remain in their homes on a rent-to-own basis. The 70-year-old mortgage funding giant also renewed its partnership with the National Council of State Housing Agencies to provide up to $10 billion in financing through the end of 2009 for qualified first-time homebuyers.