t he Case-Shiller housing index. Some 11 million out for 30 more years. Over the long run you
h omeowners are underwater—owing more could owe a lot more interest, and you would
t han their homes are worth. need to buy private mortgage insurance (PMI)
T he news isn’t all bad. Economists expect if you have less than 20 percent equity in your
h ome values to recover, though in some places home—but you’ll address immediate cash flow
i t may take 15 years or more. In the meantime, problems. The Home Affordable Refinance
“help is available and there are ways to Program (HARP)—one component of the gov-try to make it work,” says Bill Druliner, ernment’s mortgage-rescue program—will let
a housing counselor at GreenPath Debt you refinance with negative equity. (If you have
S olutions in Milwaukee. Read on to learn about PMI now, you’d still need PMI with your HARP
t hree common scenarios facing older homeown- loan.) To qualify for HARP, however, you must
e rs—and a range of creative solutions. not be in default.
If your credit rating is below 700 or you’ve
T HE CHALLENGE missed a payment, your options are more limited.
Y ou”re struggling to make payments You can pursue a loan modification—when the
S tep one: Make sure to pay your mortgage bill lender changes the terms of your existing loan
before all the others. Missing even one payment so it’s easier for you to pay—but there’s a lot of
w ill hurt your credit rating and could make you paperwork involved and no guarantee a lender
i neligibleforrefinancing. will provide a modification. “Be persistent,”
S tep two: Think carefully before informing says Odette Williamson, astaffattorney withthe
your bank that you’re struggling, advises South National Consumer Law Center. Keep a record
F lorida consumer attorney Margery Golant. of everyone you talk with and every document
“ The things [banks] tell people are wrong or mis- you send. The Home Affordable Modification
l eading,” she says. Many banks, for instance, have Program (HAMP)—another component of the
told homeowners they must be in default to get government’s mortgage-rescue plan—can re-
h elp, even though that’s not true. Instead of call- duce your payments to 31 percent of your month-
i ng your bank, contact a government-approved, ly pretax income. Most home-loan-modification
n onprofit housing counselor at MakingHome programs offer a trial period: several months in
Affordable.gov or by calling 888-995-HOPE; which you make reduced payments. Generally,
u sing this service is free. if you don’t miss a payment during this time, you
D eals to modify loan terms get a lot of atten- will receive a permanent loan modification.
t ion, but a counselor is likely to start with some- Even among those whose loans are modified,
t hing a lot less flashy: your budget. Absolutely though, about half fall back into delinquency,
e verything in your budget is negotiable, Druliner studies have shown. (Those with HAMP modifi-
s ays. You might cut back on food, cable, or enter- cations fare a little better.) That’s usually because
t ainment. Or you might increase your income underlyingbudgetproblemsremain, says Wallis.
by taking in a roommate or getting a part-time “A mortgage delinquency is the symptom of a
job. Jennifer Wallis, vice president of Consumer problem. It’s not typically the problem.”
C redit Counseling Service of Central Oklahoma,
r ecalls one family who kept their home by mov- THE CHALLENGE
i ng out. Rental houses were in demand in their You’re facing foreclosure
n eighborhood, so they became landlords and If you’re two or more payments behind, your
f ound a cheaper place to rent for two years. lender will likely send you a foreclosure notice.
I f your credit is still good—generally a FICO The lender will also notify you of the steps it
c redit score of 740 or above—you may get relief must take before it can put your home up for auc-
by simply refinancing and stretching payments tion. The rules vary by state. (CONTINUED ON PAGE 90)
Illustration by David Cowles
AARP.ORG/MAGAZINE
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