One and one half million families in 2007 and a projected two and one half million families in 2008 are facing the problem of foreclosure because they are caught in a subprime loan that they were granted in spite of the fact that they had poor credit.

This seemed like a great way to own a home, especially when they were offered with no down payments, and seemingly attractive rates, even if they were going to be changed periodically.

But the real estate bubble burst, and home values are falling as interest rates are going up.

Rates on these mortgages could be as high as 10% when prime mortgages were available at less than 6%, frequently resulting in home loan payments of over $2,000 on even small homes. Many people can’t afford the additional $300 to $400 in mortgage payments. A further problem is that the homeowner can’t even attempt to refinance at a better rate because his credit hasn’t changed and his home value has gone down. (The home loan balance is higher than the value of the home.)

Can these homeowners find a solution? The government is at this moment looking at a number of rescue packages, but a homeowner can do something to help himself to avoid problems by taking some aggressive steps of his own.

The most important advice you can receive is not to ignore the issue. As soon as a homeowner realizes he will have a problem with this month’s mortgage, he should contact his bank. If there has been some changed circumstance, such as illness or job loss, the lender will work with the borrower; it may be a different story if the borrower has not been careful with his money.

Get in touch with a counselor. HUD (the Department of Housing and Urban Development) has a list of counselors they endorse who can assist homeowners to find answers to this problem.

Lower your expenses, most especially high interest rate ones. Certain expenses may be fairly fixed, like energy or food expenses, but any extraneous costs, such as expensive cell phones or TV plans, should be eliminated, at least until the crisis has passed. Use the savings to lower interest credit card balances and save even more.

Discover if you are a candidate for assistance. There is a new program for low income families that will allowthem to switch to a 30 year fixed rate home loan (as long as they were current on their original mortgage before the ARM rate increased.)

There are some more dramatic solutions, but if all else fails, you may not have a choice.

Sell your home. Selling your home in today’s market may mean a loss, but working with the lender may also mean that they will accept the sales price in settlement of the ourstanding balance. It is better for them rather than endure the long foreclosure process.

Go into bankruptcy. This is a last ditch resolution since you will be hampered in terms of your long term financial plans. Your credit, already poor, will be worsened further, but if it is the only answer, you may be able to consolidate debt and even have some of it forgiven in some cases.

Answers do exist, but not if the homeowner waits for them to come to him; aggressively addressing the issue may be the only way to avoid losing your home to foreclosure.

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categories: mortgages,insurance,mortgage rates,mortgane loans