Advice for homeowners: Call lenders quickly when trouble arrives

“Those who communicate early in delinquency are more successful at keeping their homes,” Bill Merrill, director of nonperforming loans for Freddie Mac, said. “There’s still a large percentage of borrowers who don’t contact their (loan) servicer early enough. The longer they wait, the further behind they get.”

Merrill said several factors are contributing to rising delinquencies, including a cooling off in home appreciation values and the resetting of short-term adjustable rate mortgages.

Foreclosures are outnumbering home sales in parts of California, such as San Bernardino and Riverside counties, and the phenomenon is making its way up Interstate 15 to Clark County, an occasional leader in preforeclosure filings per household.

Most foreclosure activity is clustered in the old Rust Belt and new Sun Belt areas of the country, according to a report from CNNMoney.com. More than one-fourth of all leading foreclosure ZIP codes are in California, but many of the worst-hit areas are in the Midwest.

Detroit and Cleveland had half of the top 20 ZIP codes with the most foreclosure filings this year, led by Cleveland (44105) with 783 filings. North Las Vegas (89031) was No. 8 on the list with 575 filings and Las Vegas (89131) was No. 18 with 488 filings.

The quickest and most common way to get out from under a delinquent mortgage is to sell the house, but that becomes more difficult as property values drop and inventory increases, Merrill said.

Other nonretention options include a short sale in which the property is sold for less than the remaining balance and deed in lieu in which the buyer deeds the property back to the lender in exchange for extinguishing the mortgage, he said.

“We’re very much motivated by retention. The foreclosure process is expensive and banks don’t want to own the home,” Merrill said.

Some people refinance their loans. While 30-year, fixed-rate mortgages were recently at historical lows, they’ve climbed a little in the last two years.

Long-term, fixed-rate mortgages are ideal for those planning to stay in their homes for a while, said Jackie Pindel, loan officer for First National Bank of Nevada. The 30-year rate is now hovering around 6 percent, “very attractive,” she said.

Merrill said Freddie Mac puts a lot of effort into educating mortgage borrowers on how to avoid foreclosure, particularly in the Midwest where cooling prices, rising interest rates and economic conditions have resulted in higher foreclosure counts.

Circumstances such as disruption in employment, family medical emergency or divorce could leave someone behind on their mortgage payments and there are ways to deal with that, too, Merrill said.

His advice: Set up a repayment plan. Take the amount in arrears and spread it out over a period of time. For example, $1,000 could be repaid at $250 a month over the next four months.

“That’s the most common way to catch up. It’s easy to structure and resolve in a short-term situation,” Merrill said.

For larger mortgage delinquencies, loan modification takes the amount of money that is owed and puts it back into the unpaid principal balance, where it is reamortized over the remaining years in the loan — for example, 25 years.

“It’s slightly higher than the old payment but much less than repayment,” Merrill said.

Homeowners should seek a reputable lender that can help them select a loan product that best meets their needs, Pindel said.

Adjustable-rate mortgages are fine for those planning to move into a larger home or take another job before the loan converts to a floating rate, she said.

Brooke Coleman took out an ARM to purchase a home during the boom in Las Vegas and would have struggled to afford payments when the rate reset at 11 percent. Pindel refinanced her into a five-year ARM at 5.87 percent with one origination point, dropping her payment by $348 a month.

“Because we’re a family-owned bank, we are flexible,” Pindel said. “The product we were able to put together fit her immediate need of not having the house payment increase dramatically as well as her longer-term goal of only living in the house two years at most.” Merrill said some banks will allow a forbearance, which is not a forgiveness of debt but a deferral of payment to a later date.

“Let’s say I have a medical problem in the family and leave my job in January. I need a couple months to deal with the problem, and I’ll start working again in March. So I get a forbearance for January and February and do a repayment or modification of the loan in March,” Merrill said.

Merrill also warned that homeowners behind in their payments need to watch out for fraud artists looking to take advantage of troubled borrowers and strip them of any equity in their home.