Owning your home and managing your debt

It seems everywhere we turn we are bombarded with the painful effects of “subprime” lending, also referred to as “second chance” lending. It is the practice of making loans to borrowers who do not qualify for the best market interest rates because of a limited or blemished credit history. Although there is no official credit profile that describes “subprime borrowers,” generally they:

• have a credit score below 620
• made two or more loan payments 60 days late in the past year
• made one or more loan payments 90 days late in the past three years
• had a “charge-off,” foreclosure or repossession in the past four years
• filed bankruptcy in the last seven years
• have more than half of their income in debt

Statistically, “subprime” borrowers make up about 25 percent of the U.S. population. Some foreclosures are due to consumers buying “too much house” for their income. Low adjustable mortgage rates are enticing, but the monthly payment can almost double as the loan “resets” to a higher adjustable or fixed rate. Unfortunately, the low interest rate and “anything goes” lending practices were good for the economy—and investors—but millions of average Americans now stand to lose their “American dream.”

What can you do if you if you fear you may be one of the estimated 2.2 million Americans who may end up in foreclosure?

1. First, if you are having difficulty making your payments, contact your loan officer to discuss your options as early as you can—if possible, before any of your payments are in default. Loan officers are usually willing to work with customers who they believe are acting in good faith. Read the Federal Trade Commission’s June 2007 publication, “Facts for Consumers” found at www.ftc.gov/bcp/edu/pubs/consumer/homes/rea04.shtm for details.
2. Contact your lender and negotiate with a loan officer by explaining your past and current situation. Explain your credit history and extenuating circumstances that may have affected your inability to pay your bills. If you are in a better financial position now than you were in the past, use it to negotiate a lower rate with your loan officer. However, be sure your mortgage lender is not decreasing your interest rate while increasing other loan costs to make up for it! If you think your lender has violated the law, you should first contact the lender to register your concerns. You can also contact the Missouri Attorney General office or call the Federal Trade Commission toll-free, 877–FTC–HELP.
3. Finally, remember you might not be able to erase the mistakes of your past, but you can show that you no longer pose a risk by working to create a present credit history that will overshadow your mistakes from the past. If you need to repair your credit, visit the Federal Trade Commission Web site at www.ftc.gov/bcp/conline/pubs/credit/repair.shtm where you will find instructions on the process available to you under the Fair Credit Reporting Act. Remember, no one can legally remove anything from your credit file. Advertisers for credit repair can do nothing more than you can do for yourself.

by Laverne Copeland
MNEA manager of Member Benefits

sb, winter '07