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Act fast to avert foreclosure

The Baltimore Sun

Today's souring economy has led to a double-digit decline in the stock market, higher unemployment and chain retailers going bankrupt.

But the biggest fallout may be the thousands of homeowners who, unable to afford their mortgage payments, have had to walk away from their homes.

In March, the number of foreclosure filings climbed 57 percent year over year, according to data released this month from RealtyTrac, which lists foreclosure properties for sale. One in every 538 U.S. households received a foreclosure filing during the month.

It's no wonder. Home values fell 8.9 percent in 2007, and since then have continued to drop in many parts of the country, according to the Standard & Poor's/Case-Shiller U.S. National Home Price Index.

Meanwhile, though the Federal Reserve has cut short-term interest rates 3 percentage points since last year, homeowners still are grappling with adjustable-rate mortgages that, when reset, can lead to significantly higher monthly payments.

Even with a fixed-rate mortgage, if you have to sell suddenly - say you no longer can afford the mortgage because of job loss, medical expenses or a divorce - the weak housing market may land you in trouble.

If you find yourself in such a circumstance, consider these steps to avoid foreclosure:

*Call your lender, pronto

Typically, a foreclosure occurs after you are 90 days past due on your mortgage payments. The mortgage servicer, the firm that collects your check, files notice with you to begin the process of repossession.

The foreclosure itself can take as little as 45 days to as long as nine months, depending on state foreclosure laws. In the meantime, you are not evicted from your home, and it is possible to stop a foreclosure even after a notice has been filed.

But your chances of keeping your property are far better if you take action before those first 90 days have passed.

"It's a lot easier to make [lenders] help solve the problem if you're not behind or only a little behind," said Ira Rheingold, executive director of the National Association of Consumer Advocates.

Plus, there are mounting late fees and attorney fees that you will owe, in addition to your past-due monthly payments.

And your credit score takes a huge hit. Lenders report to credit bureaus when a foreclosure process has been initiated, and it's an account status that is viewed as a "major derogatory item." Comparatively, a 30-day late payment is considered a minor infraction, though both red flags stay on your report for up to seven years.

"A foreclosure is a serious late item," said Barry Paperno, manager of consumer operations at Fair Isaac Corp., which calculates the widely used FICO credit score.

*Work with a housing counselor

No matter when you decide to contact your lender, it's a good idea to obtain help from a government-approved, nonprofit housing counseling agency. You can find one in your area at The services are free. (You may want to bypass the federal government's Hope Now hot line, which has been criticized for doing too little to connect homeowners to assistance.)

"It's really important to get an advocate on your side," said Regan Brewer, a Chicago-based homeowner-services coordinator for Acorn Housing Corp., a nonprofit counseling agency.

That's because foreclosure laws can be complicated. And with the number of homeowners struggling to stay current on their mortgage, it can be difficult to get in touch with the right person at your lender.

A housing counselor often has a direct line and can reach out on your behalf.

*Push for a modified loan

A counselor will make sure that you are aware of all your options, from budgeting tactics to modifying the terms of your existing loan.

If you are past due, many lenders will first suggest a repayment plan, in which what you owe is divvied up and added to your monthly payment over a period as long as 12 months.

Success is not guaranteed, even with a housing counselor.

"We're still finding that lenders are resistant to modifications," Brewer said.

Hopeless? Not entirely. At Brothers Redevelopment Inc., a housing counseling agency in Denver, the number of loan modifications more than doubled in the first two months of the year from the last quarter of 2007, jumping to more than 40 from 13.

But it will take persistence. Don't delay.

Carolyn Bigda writes for Tribune Media Services.

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