Foreclosure Prevention - Tips To Keep Your Home!

Behind in your mortgage payments? Afraid of foreclosure? It may not be too late to save your home from the sheriff's sale. Contacting your lender is your first step. If you're only 1 or 2 months behind, there may several different options available to you. If you're 3 or more, the options are less, but there are still ways to save your homestead.

The first thing you'll need to know is if your loan is a fixed rate mortgage or an adjustable, sometimes called a variable rate. If you have a fixed rate loan but you've had some type of unforeseen crisis; illness, layoff, death of a family member, lenders may offer you different options than people who have an adjustable rate, or ARM, loan.

There are basically 3 options that lenders can offer to help you with a defaulting mortgage.

1. Loan Modification-with this option, the lender does an 'internal' refinance of the mortgage. They create a new mortgage, with new terms, usually from an ARM loan to a fixed rate, and roll the past due payments into the new mortgage. The lender will typically ask you to pay a percentage of the past due amount up front as a show of good faith. They must be able to see that the mortgage is sustainable by you, usually by giving them a thorough budget showing some discretionary income each month, before they will entertain this option. There are many budget worksheets available online or you can call a credit & counseling service to do this. I recommend a non-profit organization, such as: Consumer Credit Counseling Services, http://www.cccsatl.org/ . Your mortgage may be for a higher loan amount with your past due balance rolled in, but if the interest rate is lower and fixed, it may not require a higher payment each month like some ARMs will.

2. Forebearance-this option allows the lender to take the past due amount and defer it to the end of the loan term. Let's say you owe $3,000 in past due payments. The lender may require you to pay, perhaps, $1,000 up front as good faith, produce a sustainable budget and then they take the remaining amount and put it at the end. If your payment is $500/mo, this would equate to an extra 4 months added to your term. If you have a 30 year term and have only 21 years left, now you would have 21 years and 4 months before your loan is paid in full. ($3,000-1,000 good faith = $2,000/500 = 4 months)

3. Repayment Plan-this is the most likely option that lenders offer if you show that you can support it. The lender takes the total amount due in late payments, sometimes late fees as well, and after you pay a good faith amount, they spread the remaining amount over a specific number of months to get you caught up. For example: you owe $3,000 but your budget shows you have $600/mo in discretionary income each month. The lender may want half of that discretionary income added to your regular payment over the course of the next 6 months. ($3,000 -1,200 good faith = $1,800 / 300 = 6 months.) If your normal house payment was $500, now it will be $800 for the next 6 months, then it will drop back to the normal amount of $500/mo. Frequently people agree to terms that are not manageable and they will then 'break' the plan. Once the plan is broken, the lender is less willing to create a new one. Make sure that if you agree to a plan, that it is one that actually can work for you, based on your budget. Giving the lender an unrealistic budget will create an unrealistic plan, one which you won't be able to meet and then you'll find yourself in an even worse situation.

4. Bankruptcy-filing for bankruptcy will stop foreclosure immediately. Bankruptcy laws have changed in the last few years so you should seek advice form a bankruptcy attorney before deciding on this option and should most likely be used only as a last resort.

Lenders don't want your house. They want their money. If you contact them early during your crisis, they will be more willing to help you keep your house. If you create a budget and discover that the new job simply doesn't pay enough or your spouse's injuries won't allow him/her to return to work for longer than expected, you have no savings and no family support, you may have to face other, more drastic measures.

1. Short sale- contact your lender and tell them that you have decided that you need to sell your house but that your neighborhood doesn't support your ideal sales price, maybe not even enough to pay off what you owe. The lender will usually order an appraisal to determine what your house should be worth in your area. They then may agree to accept the price that the appraiser indicates as its worth, which may be far less than what you owe them. Then if you get a buyer for that price, your mortgage company will accept it. If the price is much lower than what you owe, you should be prepared for a 1099 at the end of the year showing the difference between what you owed and what you sold for as income. Please see your tax advisor to discuss this possibility. Your credit report will be spared a foreclosure and will most likely show "settled for less than owed" type comment.

2. Deed-in-lieu-of-foreclosure- if you decide that there is no other option available to you, you may offer the lender a deed-in-lieu-of-foreclosure. You would sign over the deed to your house to the lender. Now your lender owns your house. This saves the lender the time and expense of foreclosing on you and they know that you plan to leave. They also know that they won't have to evict you, which can also be expensive. Some lenders have a program called 'cash for keys' as well where they pay you a small percentage to live in the house until shortly before the foreclosure auction or sale and maintain the house so the new buyer doesn't have excessive repairs to make. This cash is for your moving expenses, rent and or security for a new place to live. For this, you agree to keep the house 'broom-clean' when you leave. The lender does this so you have less incentive to destroy the house which may create a hardship for the lender to re-sell it.

3. Foreclosure- this is the last option, where the lender sends you a foreclosure notice and and eviction date. Each state has a different timeline for foreclosure and you should check in your state for the average time. Some states allow foreclosure very quickly, in as little as 3 months, you could be out of your house. Others take as long as 12-15 months to actually foreclose and evict. If you have decided that there are no other options available to you, start saving your money for the move but STAY in the house until you are forced to leave. There are almost NO lenders that will evict you during the winter months if you have no where to go. They would rather have you stay in the house with heat on and water running than have an empty house that the pipes could burst in before they're ready to sell it. Yes, they don't care as much about you as they do about the house at this point, so their generosity is not about you being out in the cold as the house having maintenance issues as a result of the cold weather and being in the off-season for selling it. So don't abandon the house just because you have decided there's no way to save it. Start making plans as to where you can go when the inevitable happens but stay there and save as much money as you can before that occurs. Be cooperative with your lender, it may buy you more time as well.

There are other options not outlined here such as: lease with option, renting the house for most of the payment if you can keep up with the rest so you can have it back when finances allow, taking in a roommate, or renting an extra room out, taking on a part time job, etc. to make ends meet. Check with your local resources, such as the Salvation Army, Red Cross, Angel Food Ministries, etc. to get help with utilities, food items, if your situation is temporary and to free up some funds for the mortgage until things stabilize. Check the Internet for assistance in your neighborhood or state initiatives. Ohio, for example has some of the best, including rescue loans, rescue funds, budgeting help, and more. Contact a non-profit counseling service for help also, such as 1-800-995-HOPE. While they don't have funds available, they can go through your budget and offer assistance in many ways.

Whatever you decide, there are ways to make the situation better, more acceptable and possibly save your house from foreclosure.

Foreclosure Law 101 For Homeowners

Foreclosure laws vary from state to state but here is some general tips about foreclosure laws. When a person falls behind on their mortgage payments and they have defaulted on their debt, the bank may foreclose on their property.

The bank does this by filing a lawsuit in order to get a court order to foreclose. Once the court declares foreclosure on the property, they auction it off, with the highest bidder buying the property. There is a waiting period between the date of the lawsuit and the foreclosure sale, which is often between three and twelve months based on the foreclosure law in the destination. They publish a foreclosure ad according to foreclosure law at least thirty days before the auction, once a week for up to three weeks. Before they position the first ad, the homeowner must acquire a sheriffs notice of foreclosure sale. Immediately after the sale, the sheriff gives the title/deed to the new owner.

If you have fallen on hard times and missed some mortgage payments, there is still a possibility to save your home especially if you have not received a foreclosure notice yet. Return all phone calls and answer any letters regarding your home. Go in and talk to the lender or bank. Often they would much rather work with you instead of foreclosing on your house.

Bringing in an attorney familiar with foreclosure law is often a wise move as they can not only act as intermediary at this very stressful time and cover your rights but also work with you on saving your home from foreclosure.

You may be able to pay some of the missed payments and/or set up new monthly payments. At times, the bank will even allow you to refinance to reduce your monthly payments. As stated earlier, banks really do not want to foreclose on a home if they do not have to. Ask queries, seek help on foreclosure law and be aggressive about keeping your home.

Learn more about fundamental foreclosure law basics and other advice if you or someone you know is in a potential foreclosure situation.

Stop Foreclosure Proceedings - How To Stop Foreclosure On Your Home Now

Are you or someone you know trying to stop foreclosure? If you own you property or properties and you're headed down the foreclosure route, you need to stop foreclosure on the property that you own before it becomes a real problem that could affect many other parts of your life. It's not uncommon for people in this situation to ask themselves what is happening, and why is it happening to me?. This is a natural reaction. Foreclosure generally tends to happen if you fall behind on your payments, your mortgage to the bank or payments to a lender that you have borrowed from.

Foreclosure Debt vs Credit Card Debt

This kind of debt is quite different to credit card debt or default on other personal loans. In the case of foreclosure, once you fall just one to two payments behind on your mortgage for instance, you rapidly begin to enter into foreclosure proceedings. You’ll still have some time before the organization you owe completely takes your home from you (if it goes that far); however, if you don’t stop foreclosure you will lose your home and damage your credit record.

What’s The Best Solution For Me?

If there’s a guaranteed way to stop foreclosure it’s to pay the amount you owe on your mortgage or other debt, e.g. tax lien. If for instance you’re behind on a couple of payments, it’ll take those two outstanding payments plus any applicable late fees and other charges to get you back to square one and stop foreclosure from happening on your home. While this may appear as common-sense, it’s often difficult for people behind on payments due to a lack of funds. The situation can be even worse when you have no way of getting extra money to pay down your own other debts.

What If I Approach The Bank?

You can certainly try, but you need to understand this hard truth.

The bank is really only interested in stopping foreclosure if you either pay off the entire debt that you owe (and this is the entire mortgage most of the time) or if you bring yourself up-to-date on your monthly payments.

What's My Worst Case Scenario?

If you’re unable to make your monthly payments, selling you home may be the only solution you have to stop foreclosure on your home. Do you have other assets that you might be able to sell to make payments on your mortgage? While you may not want to do this, it may be an option to consider.

A lot of banks and financial gurus warn against people in the situation where they want to stop foreclosure from borrowing money either from family and friends. Borrowing against credit cards to settle your debt if you want to stop foreclosure is also not advised because you may simply end up with even bigger financial problems.

If you simply don’t have the money required to pay off your debt, you’ll be wise to sell your home to someone that’s willing to buy it off you quickly. The benefit from this is that you’ll be able to save your credit and avoid legal proceedings against you.

If things do get to this stage, selling your home may understandably be quite a difficult decision – but something you might have to do. If there’s any way that you can get current on your mortgage, any way at all, it should become a priority so you keep your home and stop foreclosure. If you fail to take the necessary steps, the chances are that you won’t be able to stop foreclosure on your home.

Foreclosure is a terrifying thing and is hard to deal with. These tips and those you'll find in the Ultimate debt Guide will help you stop foreclosure on your home in the quickest and most efficient way. But you must take action -- No matter how small.

How To Avoid Foreclosure

Unfortunately, everyone runs into a time of life when money is tight and juggling finances is a serious challenge.
For individuals owning a home, they could be in a position of having the home foreclosed for lack of payment. If you have found yourself in a compromising position but desperately want to do what you can to save your home, the good news is that avoiding a foreclosure is possible if you know how.

A foreclosure means that the mortgage company or lending institution for your home can take it back to resell if you fall behind on payments. When this occurs, you have several options. First, you can go through a process to keep your home. Second, you can sell the home on your own and then pay off the loan plus any fees. Third, you can allow the home to go through foreclosure where they sell the home and you are responsible for any difference between the price the house sold for and the payoff balance.

If you fall behind on payments and begin to receive letters from your mortgage company, most importantly, NEVER ignore them. Instead, call the number provided on the letter and talk to a representative, explaining the reason why you fell behind. Just as with you, the mortgage company wants you to keep your home. After all, foreclosure is a hassle for them, expensive for them, and not something they want to do. Therefore, they will usually work closely with you to provide all possible options.

A Special Forbearance involves the mortgage company providing you with a temporary reduction or even a suspension of your monthly mortgage payments. If you have recently lost your job, had a reduction in income, or your living expenses have increased unrepentantly, this option may be ideal.

Another option is a Mortgage Modification. With this option, your mortgage is refinanced or the term of your loan extended. The way this program is designed, you have an opportunity to become caught up on payments. A Partial Claim is another possibility whereby your mortgage company would help you secure an interest free loan from HUD, which helps you bring your mortgage to a current payment status.

Remember, if you fall behind, rather than worry about foreclosure, talk to your mortgage company to see what programs you would qualify for so you can stay in your home. Never ignore the problem, because you likely have several viable options to fix your foreclosure problem.

Finding a New Way to Sell

From Arizona.

A growing number of homeowners behind on their mortgage and facing foreclosure are finding a way to sell despite the glut of Valley homes for sale.

They are turning to "short sales," which are similar to regular home sales except a deal is worked out in which the lender accepts what the house is appraised for or what it will currently sell for instead of what is owed on it.

So a homeowner would sell the house to a buyer willing to pay the current market value of the home, and the lender takes a loss on the rest.

Short sales are the latest trend for metro Phoenix's slowing real estate market, and housing advocates are advising struggling homeowners to contact their lender about a sale before falling into foreclosure.

As foreclosures rise, lenders are more motivated to do the sales because they at least get most of what they are owed.

Homeowners don't get any equity from the sale, but they also don't get a nasty foreclosure mark on their credit record. And although lenders lose out on money they're owed, a short sale lets them avoid a costly foreclosure on the home.

"Short sales are the buzz in the market now," said Tom Ruff of Information Market, a research data firm based in Glendale. "With foreclosures climbing and homes prices falling, short sales are bound to climb."

There is no way to track the exact number of short sales closing in the Valley because they show up on public records as a regular sale between a buyer and a seller. But real estate market watchers say they are seeing an uptick.

For the Valley's housing market, a short sale means one less foreclosure at a time when the number of people defaulting on their mortgages has tripled from a year ago.

It also is one fewer hit to Valley neighborhoods, where foreclosures are pulling down housing values.

Short sales lower an area's "comps," or comparable sales prices, too, but not as badly.

For some homeowners, they are the best option.

A brother and sister from California recently approached Phoenix real estate agent Brett Barry about their house here in the Valley. The pair paid $597,000 for the investment home in Tatum Ranch at the height of the housing market in 2005. Now, they can no longer afford to keep it. And with a record number of Valley homes for sale, their chances of selling the home for what they paid are slim.

"I ran the numbers, and the house won't sell for more than $495,000 now," said Barry, of Realty Executives. "They didn't put any money into it. They have an interest-only loan. They could only rent it for about $1,800 and month, but their payment is $3,500."

He told them they could do one of two things: Work out a short sale or call the lender and hand over their keys.

Lenders can benefit

Most lenders prefer short sales because foreclosures cost them time and anywhere from $30,000 to $50,000 per house in legal, appraisal, marketing and servings fees. A short sale gets a home off their books and typically costs a lender less than a foreclosure.

At a recent foreclosure-prevention town hall meeting in Phoenix, the director of National Initiatives for mortgage giant Freddie Mac encouraged housing advocacy groups and lenders to steer people toward short sales if their only other option is foreclosure.

"We have an investment to protect as well as a moral responsibility to help people avoid foreclosure," Christina Diaz-Malones said.

A few years ago, most Valley homes to go to the foreclosure auction block enticed multiple bids from investors. But now, lenders are taking back 80 percent of the homes they are foreclosing on. Investors have stopped bidding on many houses because they can't make money on a resale.

To be eligible for a short sale, homeowners must prove they can't pay their mortgage because of some type of hardship such as a job loss, medical expenses, death of a spouse or, sometimes, too much debt.

But homeowners should be careful about confusing a short-sale plan with a foreclosure rescue scheme.

Once a homeowner misses a payment or two, a lender files a notice with the Maricopa County Recorder's Office to start foreclosing.

Many groups track those filings to try to buy foreclosure properties. But recently, some groups have begun preying on people about to lose their homes.

Many of the offers of help are thinly veiled schemes to get homeowners to sign over their house to groups that strip away any equity. Often, the homeowners then are required to pay rent until they can refinance and get their house back. But the rent is usually more than their old mortgage payment, and they wind up getting evicted.

Joann Hauger of Community Housing Resources of Arizona said groups that really want to help homeowners don't typically solicit them. More housing advocates such as Hauger are advising people to seek a short sale now instead of losing their home to foreclosure.

"Almost everyone we are seeing now for default counseling owe more than their house is worth," she said.

The hit homeowners take on their credit score is much less on a short sale than on a foreclosure.

A homeowner involved in a short sale will see an 80- to 100-point drop on his or her credit score. A foreclosure is a 250- to 280-point hit, said Randy Kutz of Phoenix Heritage Real Estate Group, HomeSmart. About 70 percent of his business now is short sales.

"Banks don't advertise they are open to short sales, but banks don't want to take the homes back," he said.

People who are able to do short sales will have a tax hit.

The difference between what a homeowner owes and what the bank gets for the house is typically treated as income for the seller. That's taxable income for the homeowner that will show up on a 1099 form from the lender.

The lower sales price from a short sale won't please too many of the homeowner's neighbors. It will show up like any sale and often will be a considered a comp for the area that other buyers and sellers use as a benchmark for home prices.

But housing market watchers say a lower comp or short sale is much better for a neighborhood than a home repossessed by the bank at a foreclosure auction.

"Foreclosed homes can quickly turn into empty eyesores with green pools, yards full of weeds and debris when lenders take them over," Barry said. "A short sale means a new owner for the home and one less foreclosure black mark for the neighborhood."

Free Foreclosure Workshop

Foreclosures often lock out renters

Foreclosure doesn't always hurt only the person whose name is on the mortgage. More renters are turning to support agencies for help.

Kimberly Edwards found out the duplex she was renting was in foreclosure only when a notice written in legalese was taped to her door. But its meaning was crystal clear: She and her two sons had to vacate the premises the next day or go to court.

As it happened, the property had been in foreclosure when she moved in and the six-month grace period was up. Edwards, a 29-year-old single mother in school with plans to become a paralegal, was paying her portion of her subsidized rent to a man who wasn't making mortgage payments.

Edwards is one of a growing number of renters being displaced because their landlords are losing their investment properties to foreclosure.

While there is no estimate of the number of renters being forced to move because their buildings are in foreclosure, workers on the front lines -- from foreclosure prevention counselors to tenants organizations -- say that starting last year, they began hearing from significantly more people caught in the foreclosure crossfire. The problem has been getting worse.

The number of investment properties entering foreclosure suggests the problem is widespread, although it is unclear how many of those were vacant. Hennepin County estimates that in the first quarter, about 45 percent of foreclosed properties could have been rentals, up from about 33 percent in 2006. Ramsey County estimates 43 percent in the first quarter.

Beth Kodluboy, executive director of the Minneapolis tenant advocacy group Home Line, has seen a steady increase in foreclosure-related calls. Through early June, the group took 77 calls -- as many as it did in all of 2006.

Cheryl Peterson, senior mortgage foreclosure prevention counselor for Twin Cities Habitat for Humanity, said she's been getting more and more calls from renters in the past year. "They don't know what to do," she said. Neither does Peterson, who is set up to work with homeowners, not tenants.

When displaced renters call, she explains the complicated and lengthy foreclosure process. She does what she can to refer renters to organizations that may be able to help with legal matters or with new housing, such as Legal Aid or tenant advocacy groups. Peterson also gets "a lot of calls from people who own several properties in north and south Minneapolis." she said. "Juggling the financing of multiple mortgages ... is beyond the foreclosure counseling programs's area of expertise because it's a business venture."

She blames the increase of investment property delinquencies on a mixture of subprime lending and small-time landlords who "couldn't afford the properties to begin with," and were dreaming of making it rich in real estate. But many took on more debt than they could afford, their adjustable mortgage rates spiked, or they couldn't find renters. They stopped making repairs. Then utilities got shut off.

Some landlords continue to pocket rent long after they stop paying the mortgage, allowing a tenant to learn of the foreclosure only when a deputy knocks on the door to hand them a foreclosure notice.

Telltale signs

Tenants advocates say that clues of foreclosure typically show up long before that.

For Edwards, the first sign that something wasn't right at the duplex at 36th Avenue and Washburn Avenue N. came in August, when the water was shut off for a couple of days. Her landlord, who lives in Colorado, also was slow to have a handyman come and fix the radiators, which were blazing hot in summer.

There were other signs. "He couldn't rent the other half of the duplex and the house was on the market, too, the entire time," Edwards said.

The court granted her 30 days to vacate, which gave her until just before Christmas to leave. "My kids didn't have a Christmas," she said.

Happy with the neighborhood, where she said "it was OK for my kids to ride bikes up and down the street," and lacking money to move, she tried to convince the bank holding the mortgage to let her pay rent directly to it and stay. But she recalls being told "absolutely not, because they didn't want to be a landlord."

Foreclosure - What Can We Expect

With the wealth of information and statistics flooding the market it's surprising to see that homeowners are not preparing themselves a little better. A study recently conducted by the Center for Responsible Lending predicts that 1 in 5 subprime loans issued in the past two years will enter some stage of foreclosure. This will be an estimated $164 billion cost to homeowners.

In addition to subprime loans, another driving force is the housing market, appreciation has come to a complete standstill in some states and some states are entering the negative zone. This is going to have a bad effect on the housing market as a whole and is only going to increase the quantity of foreclosures in the coming year.

With homeowners doing their homework on the foreclosure rates and different loan types contributing to this increase, they are less willing to try these creative loans methods that were common in 2005. Lenders are being warned to be more selective when reviewing the initial loan application to ensure that the homeowner can afford the loan 2 years from now. This foreclosure epidemic is having a negative impact on the mortgage industry as well as all other real estate professionals that are not working in the foreclosure arena.

Looking ahead and 2007 the foreclosure rate is expected to double from 2006. With 1.4 million homes entering some stage of foreclosure in 2006 that means that almost 3 million foreclosures are expected.

These predictions are grim to say the least. Not only for American homeowners grasping to their "American Dream" but also for those real estate and mortgage professionals not offering foreclosure prevention type alternatives. On the other hand there are some real estate agents and mortgage brokers that have realized that adding foreclosure prevention type services is not only going to increase their bottom line but insure that these clients of theirs come back themselves and refer others as well. Diversity in the real estate and mortgage industry is a must coming into 2007. Without the ability and foresight to diversify, incomes for these professionals are going to feel a strong pinch in the coming years.

There are companies that offer partnership and/or training on foreclosure prevention alternatives and they are seeing a flood of brokers and agents stepping up to the plate. In a recent interview with the president of Freedom Foreclosure Prevention Services, LLC, Jeff Segal, he stated "It's not only imperative for mortgage and real estate professionals to add to their current services, come 2007 it will be absolutely necessary if they want to survive this injured market. In the past six months our company has developed a unique partnership program that works well for these professionals to offer services and actually experience relief in this economical whirlwind we have all been experiencing. If they have clients coming to their front door that are facing foreclosure and they can't offer a solution, they send these clients away and will never lay eyes on them again or their business. If they are able to offer a viable and ethical solution, even if they are just referring them to someone, they are securing that client's rapport, business and the most powerful advertiser still today - word of mouth referrals. Its time they realized that diversification is going to be the life raft of 2007 for most of these folks."

He has created a unique opportunity for real estate and non real estate professionals so they can expand their current services and offer foreclosure prevention assistance.

It is refreshing to know that there are still people out there looking out for the homeowners. Hopefully, in 2007, we will see more Americans helping Americans. It's the only way to survive the market that lies ahead without losing sleep over possible unethical practices just to stay afloat. As a nation it is important to stand together through this foreclosure epidemic and fight back for our fellow Americans.

For more information on Foreclosure Prevention Service, you can click here.

Foreclosure Stopping

You’ve just received a terrifying telephone call from your lender. He or she has threatened foreclosure on your beloved property and says there’s nothing you can do to stop the proceedings. But before you start to pack up your belongings, rest assured that there are several ways of foreclosure prevention, including those below. Some cost money and some are free.

1. Foreclosure Mediation - Probably the most popular and common with people who can't pay all the past due mortgage payments at once. This service negotiates with the lender to move those payments to the back of the loan (pending you have the proven income to make the current payments). It is essentially like getting a grace period.

2. Negotiate a Repayment Structure Yourself - This is definitely the cheapest way, but can be frustrating if your lender doesn't have a helpful "loss mitigation department" or a "hardship" program. It can be viewed the same as if you were going to fix your own car. First you have to learn about the car, then fix the car. As with car repair, most people would rather hire a specialist to handle their financial affairs.

3. Deed in lieu of foreclosure - This is where you realize that you can't pay for the house and you voluntarily give the house back to the lender. This still is subject to a deficiency judgment yet counts as a "less serious" foreclosure on your credit.

4. Sell your house - This is a great way if you feel you can get what you owe out of your house. Remember to include the standard 6% realtor fees when calculating your take home. You can negotiate the buyer to pay some of the realtor fees, but it is rare.

For assistance on stopping foreclosure with the mediation services mentioned above, click here.

Mortgage Industry Working on Foreclosure-Prevention Fixes

Congress and private lenders are looking to create new tools to help prevent mass foreclosures in the ailing subprime sector nationwide. Tomorrow on Capitol Hill, a House financial services subcommittee will discuss alternative programs to assist home owners who bought more than they could afford at the height of the housing boom, and who are now facing sharp payment increases they cannot afford.

Last week in the Senate, the Joint Economic Committee issued a report suggesting that the Federal Housing Administration (FHA) might play an important role in transitioning subprime borrowers out of high-cost, adjustable rate loans and into fixed rate government insured mortgages.

Private mortgage firms are also ratcheting up their own "loss-mitigation" efforts, reaching out to borrowers heading for-but not yet in-serious delinquency. EMC Mortgage Corp., a subsidiary of Wall Street bank Bear Stearns, announced creation of a roving 50-person "Mod Squad" team of loss-mitigation and workout specialists. Named after a popular TV program from the late 1960s-early 1970s, EMC's Mod Squad plans to work in dozens of cities with borrowers individually, and to reach out through community and credit counseling groups.

The squad's goal will be to modify the terms of mortgages to better fit borrowers' actual economic situations today. Among the optional forms of modification will be lowering interest rates, switching from floating-rate to fixed rate, restructuring payment schedules and deferring repayment of arrears. EMC is not offering the program solely out of the goodness of its heart, however. Foreclosures cost bond investors around $80,000 per case, whereas a loan modification may cost just a small fraction of that.

Tom Morano, global head of mortgages for Bear Stearns, said "proactively avoiding foreclosures can reduce the severity of losses, benefiting both homeowners and bondholders. (It's) a win-win proposition."

Meanwhile, attention is being focused on new foreclosure prevention concepts that go beyond loan modifications and do not require "short sales" of properties or deeds in lieu of foreclosure to satisfy the owner's debt. One idea is being discussed on Capitol Hill was proposed by a Virginia-based loss-mitigation firm, Lyons McCloskey LLC. The program is a variation of FHA's "partial claim" option, where money is advanced to bring a borrower's loan account current. The advance is structured as a second lien against the property, but carries no interest rate and must be paid from the proceeds of any future sale of the house.

In the Lyons McCloskey plan, seriously delinquent borrowers would be refinanced into fixed-rate mortgages insured or provided by FHA, the VA, Freddie Mac or Fannie Mae. The refi costs and any arrears on the previous mortgage would be treated as a "soft second" lien with no interest payments due. FHA would partially guarantee the second lien, and the bondholders or investors would assume the risks on the uninsured portion.

Full payment of the lien would not be due until the house sold or the homeowners had the financial wherewithal to pay off the debt.

The key to this program, according to Bob Lyons and Joe McCloskey of the loss-mitigation firm, is that it has the capacity to handle situations where borrowers are able to make mortgage payments at a lower interest rate, but are shackled with arrears that they can't afford to repay and mortgage balances in excess of the current home value.

Some legislation would likely be required for any FHA role in this or other new programs, but housing leaders in both the House and Senate appear ready to consider foreclosure-prevention remedies as part of pending FHA reform legislation.