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.
Whatever the situation, do not give money that you absolutely need repaid. Chances are you will never see much, if any, of it again. You have to be comfortable with that outcome -- even if you decide to offer help in the form of a loan. Give the money with no expectation of repayment.
Lisa and her husband had agreed that if they bailed out the brother, the money would be a gift. Recognizing that, she still wanted to know what conditions they could put on the cash.
"Can we put a disclaimer on the money that they must see a credit counselor?" she asked.
I think that's a perfectly reasonable request but one that is not enforceable. Once the money is handed over, you have no leverage other than perhaps guilt or nagging.
If you ask someone to use a cash gift in a certain way, such as for college tuition or catching up on a mortgage, the recipient should honor your request to the best of their ability. However, once you extend a gift, the money or item is no longer yours to control. You have to leave it to the person's conscience to do the right thing.
Before giving someone thousands of dollars to save a home, you should ask to see a written budget and the underlying documentation, such as pay stubs, bills, etc.
Yes, this is an intrusive demand.
Yes, the person or couple might balk, refuse or even cuss you out.
But if people are asking for a significant amount of money, they need to prove to you that your money won't be wasted. They need to prove their financial situation has improved. Or they need to demonstrate they are becoming better money managers. Otherwise if you bail them out, and a few months later they are behind again on their mortgage and the lender forecloses anyway, you've done what your mama told you never to do -- throw good money after bad.
If you're not equipped to help someone establish a budget, then require that the person see a qualified credit counselor. Send the person or couple to DebtAdvice.org or call 1-800-388-2227. DebtAdvice.org is a service provided by the members of the National Foundation for Credit Counseling.
Even if a friend or family member's foreclosure is looming, don't let that person's desperation result in your giving money that in the end will just postpone the inevitable. Help if you can, but in a way that means your generosity won't be in vain.
¿ On the air: Michelle Singletary discusses personal finance Tuesdays on NPR's "Day to Day" program and online athttp://www.npr.org.
¿ By mail: Readers can write to her at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.
¿ By e-mail:singletarym@washpost.com.
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