In the mortgage industry, 2008 may go as the year of the ARM reset. If you have no idea what I’m talking about, that’s probably a good thing. But for many, a letter from you lender has recently greeted you with the news that your mortgage payments are going to go up, way up.
Lenders didn’t just decide to do this on a whim. You agreed to this possibility when you closed on that super low rate loan a couple years ago. Unfortunately, lots of folks never understood that this could happen. Now, you are ultimately responsible for every commitment you signed on the day of your closing. But I doubt anyone has ever read every word of every page they signed. Instead, many trusted the advice of their loan officer and real estate agent. If you just got a reset letter in the mail that was completely unexpected, I wouldn’t ever bank on that “advice” in the future.
So now what? Well, foreclosures are through the roof, lenders are dropping like flies, and best of all congress is threatening to get involved in this debacle. Trust me, the last thing in the world your lender wants to do is foreclose on your home. They’ll end up loosing more money than you, and feed the press with more bad news to report. Because of this, many lenders have set up unpublicized action plans that involve doing what they can to smooth over the situation. Whether you believe it or not, YOU have some leverage here. Here’s what to do:
- Call your lender. Be very polite. Do not accuse them of being crooks. Tell them you need help. Act a little bit confused.
- Raise the specter of foreclosure. Don’t proclaim it, suggest it. “Sir, I don’t know what to do. I guess I didn’t really understand what I was signing, or that the rate could go up like this. With my income, it will be nearly impossible for me to make the new payment and I’m very worried that I’m going to loose the house.”
- If you are old, take advantage of this. Have your son or daughter call for you. You’ll need to be there when they call to give the lender permission to talk to them. Have them say, “I have no idea why my parents signed this without talking to me, they don’t understand all of this modern financing. Now I’m afraid they are going to loose their house and need to find out what you can do for them”.
- Hopefully, they will offer to extend the low rate period for another year. Maybe they will only offer six months. In some cases, they’ll tell you tough luck. But hey, it’s just a 20 minute phone call. It can’t hurt to ask.
- They may also offer to refinance you into a fixed rate loan. I recommend that you look at their offer, then go out and see what a few other mortgage companies can do for you as well. The key, as always, is to shop around.
