If You Lend, Be Prepared to Lose

By Michelle Singletary
Thursday, March 13, 2008

The Mortgage Bankers Association has delivered more bad news about the housing market.

Mortgage delinquencies in the fourth quarter of 2007 were the highest in the history of the association's survey. The rate of foreclosure starts and the percentage of loans in the process of foreclosure were at the highest levels ever.

Despite this dismal report, financial institutions are trying to work with homeowners to keep them from losing their homes. To stave off foreclosure, many borrowers have to come up with some money. Where they get it varies. Some have drastically cut expenses. Others are selling belongings. And some are turning to friends and relatives for financial assistance.

That last option is putting a lot of pressure on people who aren't so sure they should pony up the money.

Lisa, whose last name I'm withholding to maintain her privacy, says her husband's brother and his brother's wife are facing foreclosure on their townhouse.

"Should we bail them out when we know that they are not able to handle their finances well?" Lisa asked. "My husband and his mother both think that we should do this."

Part of the reason the couple is facing foreclosure is that they live beyond their means, Lisa wrote.

"They accumulate debt and then refinance, rolling the debt into their mortgage," she said. "They have done this several times. However this time, the banks said no to a refinance and now they are faced with a debt they cannot handle."

Lisa is right to be concerned, and she shouldn't feel guilty about pausing before bailing out the in-laws.

If you've been asked for financial help from someone who is at risk of losing a home, assess the situation carefully. In many cases, people facing foreclosure need to let the house go -- by selling it if they can.

Many people caught in the current mortgage mess can't afford to stay in their homes even if their lenders modify their loan terms and set up repayment plans, said Ken Wade, chief executive officer of NeighborWorks America, a national nonprofit organization created by Congress to provide financial support, technical assistance and training for community-based revitalization efforts.

Either people don't have enough income to support the mortgage or their expenses are still too high or both, Wade said.

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