Talking to lenders can head off foreclosures.

With 2008 offering a new start, it’s time to give your finances a quick checkup, especially with the current crisis in the mortgage business. To many people, the new year brought a higher house payment, the result of adjustable rate and sub-prime mortgage that sounded good at first but are turning out to be a disaster. Everyone hears the wolf at the door, but they don’t realize is that there are things they can do to prevent losing the homes they worked so hard to get.

“People don’t know what to do if they’re get behind in their payments,” Mary Funk, incoming president of the Southland Regional Association of Realtors told KHTS. “We need to let them know there are things they can do; before they skip a payment, talk to their lenders and make sure they’re talking to the right person. There are things that can be worked out, maybe they will reduce what they will take. It’s a complex situation, but people shouldn’t ignore it.”

Educating homeowners about their loans and what to do when trouble strikes is one of the problems in the industry, Fred Arnold, incoming president of the California Association of Mortgage Brokers told KHTS.

“Lenders don’t know what to do if you don’t communicate with them. They don’t want your house; they’re not in the business to fix up and sell homes. The reality is that there are a lot more defaults than foreclosures. Things can and do get better: people who miss a payment can become current; they take money out of their 401K; if they lost jobs they  get reemployed, if they were sick, they get healthy or family members can loan them money to get them through a tough time. Or, they can work out a modification with the lender.”

While no one wants to say it out loud, in some cases, for some foreclosure is a reality. The process takes about six or seven months to complete, but it doesn’t automatically start when a homeowner is 30 days late.

            Compared to other parts of the state, Arnold said Southern California is doing fairly well, especially in Santa Clarita, where unemployment is low and there are good paying jobs. Even though new construction continues in the area, these homes should not contribute to the crisis because of the stringent requirements to buy them.

“Sources of money have dried up tremendously and the pendulum has swung other way,” Arnold said. “Now you have to qualify and meet all the requirements to buy a house; in the past if you had a little bit of bad credit, they would still give you the loan, but now they will only take minor problems into consideration.”

Homeowners who are “upside down” or have run out of equity in their home are in the most trouble. Arnold said they are the ones who need to negotiate. Arnold said the biggest challenge is educating people on the process and getting them to communicate with their lenders; in addition, several lenders contribute to the problem by requiring borrowers to be delinquent before they will negotiate.

The best defense is a good offense; do your homework and be proactive. Be equipped with information when you call your lender and make sure you talk to the right person. Know the value of your home; if you owe more, the lender is going to want to work with you. Remember they don’t want to take your home but will if they have to. Check your credit ahead of time and ask the lender if they can refinance you out of the challenging loan.

A “Mortgage Tune Up” seminar is being planned for February to be held at Santa Clarita City Hall and will offer homeowners the opportunity to talk with mortgage brokers and ask the hard questions in an unbiased setting.  Watch hometownstation.com for details on the date and time of this useful tool in making 2008 one of your best financial years yet.