The last couple decades has seen an ever increasing rise of reliance on credit in this nation. From the huge and grotesque government twin deficit to the consumer’s ever increasing desire to buy, there has been no shortage of spending.

Up until the earlier part of this year, the credit spigot has been open wide. If you could fog a mirror, you could get a mortgage. If you had a job or even no job, you could get a credit card.

This past month of August, typically the hottest month of the year for temperatures in the US credit markets, especially in mortgage lending, were hit by a sudden arctic blast. Suddenly, the lending spigot and the trough it poured into were frozen.

Credit availability and the terms for which it can be had have tightened and risk aversion has accelerated over the last month. This will continue. Lending standards are reverting to pre-real estate bubble levels. LTV on many mortgages will hit 80/20 again which will require large cash down on home purchases. These conditions are going to lock many people out of buying or even refinancing. A consumer’s debt to income and credit history is going to come into play more and more. I spoke with a realtor in Arizona a few weeks ago that had 9 escrows in the pipeline that all came back unfunded due to the recent tightening.

Foreclosures are at all time highs as adjustable/teaser rate mortgages reset. This means that people got into a loan agreement to purchase a house where the initial payment was low and, thereby, affordable. Once the mortgage payment reset to a higher rate (usually within the first 2 years of the loan), the home was no longer affordable. Due to the recent downturn in real estate prices and slow home sales in nearly every city, many people that could no longer afford their mortgage payment due to the loan reset, may be locked out of a refinance. People either took out bad loans that they did not understand or they got into a home that they could not afford.

What should borrowers do if they're about to go into default? Can you put it off?

If someone's got a bad loan and is trying to find a way to refinance, as noted above, this is the worst time; banks don't want to see you. If you're struggling, try to hold on for a while. But be realistic; if you're in a mortgage and you're not close to being able to afford it, think about selling your home. The situation won't be better in six months. If the numbers don't add up, you're not doing yourself a favor by dragging this out.

What if the home does not sell?

You may end up just sending the keys in an envelope instead of the payment. Depending on where you live, home prices are actually dropping, not rising. You may find that you are upside down on your home, meaning, you owe more on it then you could sell it for. If home values continue to decrease, one has to stop and consider whether they want to continue to hold on to a depreciating asset, if they are already struggling.

At this point, you might be thinking, “Thanks Mr. Gloomy Dude, any good news”?

Well, the options available to avoid foreclosure are expanding.

There are plans, once fully developed and deployed by federal and state government, that could help you keep your home, if you are behind in payments. There will likely be criteria that has to be met in order to qualify. These qualifications you may or may not meet. Even if you meet said qualifications, do the math. Be sure it is in your best financial interest and in line with your future income goals and opportunities to keep the home.

Lenders and loan servicing departments have beefed up their loss mitigation staff in order to respond to the current issues. If you have decided to keep your home, then Loan Modification or a Repayment Plan is usually the best option. You will need to contact the bank. In most cases, this will be the bank or institution you are, or were, sending your payments to. You will need to speak to the loss mitigation department. Speaking to anyone else will only delay the process and may create additional fees and costs that you will be asked to pay for in the end. You can obtain the number for the loss mitigation department by calling the contact number on your statement or the letters you have received from the bank. You will need to keep this number handy, as there will be numerous calls to them.

Often, consumers can struggle unnecessarily. By this I mean, days and nights on end spent worrying and stressing when a good amount of confidence can be gathered when you start to get informed on all the options available to you. Consumer Recovery Network is first and foremost about educating consumers. If you or someone you know is struggling with debt, don’t wait, call us today for a free consultation. 1-800-939-8357.