money-houses.jpgThe rise of subprime lending was good for homeowners that could not otherwise afford to get a house. However, the rise of interest rates and the subsequent shift of the monthly payment left many homeowners with sticker shock. Add to that a medical or job loss emergency, a weakening housing market and that may be the reason 1.2 million Americans experienced foreclosure in 2006. What can you do if you find yourself in that situation?

Due to the tremendous volumes of foreclosures, which increased a total of 42 percent between 2005 and 2006, many lenders are more than eager to help someone having difficulty meeting their payments. If you find you are consistently borrowing money from other sources, like a payday loan or a credit card, to meet your monthly mortgage expenses, you may find the lender are willing to help out too. A pay day loan should be used for emergencies like a shortage on a mortgage payment, but not on a consistent month-to-month basis. Most payday lenders ask that you limit your payday loans to three outstanding loans in any given year.

Negotiating with lenders can help you eliminate the need to borrow off other sources of credit that you may not be able to pay back on time in these situations. It keeps your lending to appropriate levels. The first thing you need to do when you see that you may be at risk of foreclosure is to talk to your mortgage lender immediately and ask if you can modify your mortgage. Most lenders today do not want another foreclosure on their books. They are sometimes willing to delay seeking payment, roll in outstanding payments into your principle and thus give you more time to get back on your feet. Some can even modify a flexible rate mortgage to a fixed rate one, giving you a smaller monthly payment, however, beware of prepayment penalties. At that point, you may be required to pay an upfront application fee. If the deal is solid, a payday loan can then fund the application fee, which you should be able to pay back with your savings from the monthly payment.

Some states are also now coming forward to help distressed homeowners. Maryland, Ohio, Massachusetts, Rhode Island, and Virginia all have or are starting programs to help homeowners refinance their homes without incurring prepayment penalties, which are often in the fine print of flexible ARM mortgages nowadays. There are maximum income levels for some of these programs, which mean that you can’t be a multimillionaire and refinance your mortgage when you have the ability to repay it. Most of the programs are for people in middle class or low income brackets who are experiencing significant trouble with ARM or subprime mortgage repayments.

If you are unsure where to go for help, don’t wait until the last minute. Begin to check the Housing and Urban Development website, your local and state agencies, and your lender for solutions. In many cases, foreclosures can be averted if a homeowner is diligent in searching for creative solutions.