Mar
14
Don’t Walk Away – You Have Foreclosure Options
Filed Under Loans, Personal Finance | Leave a Comment
Recently someone reached my blog via a term related to foreclosure. I don’t really have anything about that specific topic, so I thought I should add something. If you’re facing foreclosure, the most important thing to know is that you do have options. I don’t think people should just walk away from their mortgages - I’m a firm believer in personal responsibility and honoring contracts. Nevertheless, all the news about the mortgage meltdown has made some people decide that walking away is the only solution. Here are the other options:
Mortgage Refinance
I know not everyone is able to refinance, especially if their homes are underwater (the value is lower than the loan balance), but it should be everyone’s first attempt to resolve the situation. Although I’m opposed to the new mortgage bailout programs being proposed, you should look into it if they become law.
Forbearance
If you’re behind on a couple of payments, but can catch up, contact the lender for a forbearance. They’ll typically add the payments to the end of the mortgage. You may more in the end, but it’s better than losing your home and having to start over.
Loan Restructuring and Other Options
Some people have reported that their lenders don’t want to talk to them about restructuring or modifying their loans. If you can’t refinance and a forbearance isn’t enough, you may want to contact a reputable company to review your foreclosure options and negotiate with your lender. Lenders that won’t bargain with homeowners may be more willing to bargain with a professional whose emotions aren’t involved and who knows what to ask for.
Finding a Reputable Foreclosure Service
Once your notice of default is published, you’ll start getting phone calls, letters, and even knocks on the door from people offering to “rescue” you. Sometimes these are scams. Instead, you should be proactive and search for a foreclosure company on your own. I would start with a simple web search for “foreclosure services” or “foreclosure help.” Then I would investigate them with the Better Business Bureau and HUD. If you have an FHA mortgage, contact them to discuss your options.
Scams to Watch Out For
A scammer’s main goal is to steal whatever equity may be left in your home, or to find some way to profit from your loss. When dealing with a foreclosure service, look-out for the following things:
Signing over your deed. Never sign your deed over to anyone. Often the scammer will offer to pay off the property if you sign over the deed temporarily. In some cases, they suggest a lease-buyback scheme, but the amount you’d need to pay to buy it back is more than the original loan. In another situation, they collect your rent checks without paying off your mortgage, leaving you with both expenses. In a third situation, they’ll sell your house out from under you and take whatever equity existed.
Excessive fees. Some services charge very high fees for even the simplest of paperwork. If it’s something you could do on your own, don’t pay someone else to do it.
Pressure to sign now. Although you may have to act quickly, you should have at least a couple of days to think over the offered solution. If you’re told that the offer will be withdrawn if you don’t sign now, just walk away.
Repeated refinancing. Each scam refinance includes padded fees for everyone in on the scam, leaving you with a bloated mortgage balance and nothing left to pay it with.
Despite the scammers, you can still find reputable help. You can also go it alone. With mortgage defaults on the rise, more lenders and government agencies are willing to help you keep your home.
Feb
11
There are two kinds of personal loans - the loans you receive from banks and the loans you receive from individuals. For most people, personal loans from individuals take the form of family loans, but they can also be fraught with tension. Now, you can also give or receive personal loans to people you don’t know. Prosper and the Lending Club are two of the top sources for personal loans. Virgin Money is the leader in the field of family loans.
Prosper Personal Loans
Prosper is a loan servicer that facilitates personal and small business loans between strangers. Borrowers receive a lower interest rate than you would from a bank or credit card company. You can borrow up to $25,000 for debt consolidation, a car, a business, or almost any other purpose. You create a loan proposal and then individuals bid to fund it. You make the payments to Prosper, which then distributes the proceeds. According to Prosper, they have an average annual rate of return of 6.18% to 8.52% and a default rate of 1.44%. They have been in operation since February 2006 and have issued 5,427 loans.
Borrowers undergo thorough credit checks and must adhere to lending standards. Prosper then rates the loans from AA to HR. The lower the rating, the higher the interest rate and rate of return.
For investors, the upside is the chance to help someone while also receiving a high return on their money. You can spread your risk by loaning small amounts to a variety of people rather than a large amount to one person. The downside is that there is no guarantee the loan will be repaid. The same could be said of a stock market investment, though.
For borrowers, the upside is the lower interest rate you pay. You also receive the loan anonymously, so your friends and relatives don’t have to know about your debt. The downside is that you only have up to three years to pay it back. With credit cards, you could probably spend forever paying it off and your creditor would be happy to let you do just that.
Lending Club Personal Loans
The Lending Club is very similar to Prosper. The risks are the same. They claim an average rate of return of 12.38%. Their default rate is 0.0%. However, they have only been making loans since May 2007 and have only issued 928 loans.
Lending Club requires borrowers to have a minimum credit score of 640. Based on the borrower’s credit history, the loan is rated A through G, with A loans receiving lower interest rates and having less risk.
The upsides and downsides are the same as they are for Prosper.
Virgin Money Family Loans
Virgin Money is owned by Virgin, but was formally an independent company known as CircleLending. Rather than manage loans between strangers, they facilitate loans between friends and family members. In addition to personal loans, they also manage mortgage loans and student loans. These are true family loans, which means everyone knows everyone.
The old adage says that you shouldn’t lend money to friends and family members, yet thousands of people do every year. Parents loan to children, uncles loan to nieces and nephews, friends loan to friends. Many of those loans lead to strife because the lender sees the borrower spending money and wonders why their loan wasn’t repaid instead.
Virgin Money’s goal is to take the stress out of family loans. You choose the interest rate and the payment schedule, and they complete the paperwork and tax documents. They can also service the loan for an additional fee. They do recommend adhering to the Applicable Federal Rate (currently 3.18%) for loans over $10,000 in order to avoid having the funds classified as a gift by the IRS, but you can choose a rate of 0%.
The downside is that you’re introducing a third party into a family or friendship. For business investments between friends and family members, this is probably a great idea because it confirms the business relationship. I don’t know if my parents would have wanted to use a service like this to loan me college funds (which they later forgave.) They’ve also said they’ll help my husband and me with our down payment, but we don’t want to have strict repayment terms governing those funds. We expect to pay it back, but we don’t know when and we don’t know how quickly.
The other downside is the loan fee. Virgin Money charges fees ranging from $99 to $2499 depending on the type of loan and level of servicing. Depending on the size of the loan, that could be a substantial cost.
Personally, I might consider Prosper or Lending Club for investment purposes, but my relationship with my parents is good enough that I wouldn’t want to involve Virgin Money in the family loan process.
