On the Brink of Losing the House -- and the Down Payment

By Nancy Trejos
Sunday, November 9, 2008

Rosa Chavez and her husband scrounged together $164,000 for a down payment of more than 20 percent on their four-bedroom Colonial in Fort Washington.

The money came from the profit they made off a smaller house in Woodbridge plus their savings.

They were supposed to be moving up in the real estate world. Instead, their lives have spiraled downward because of a bad mortgage, a bad economy and a bad housing market. When they bought the house in December 2006, they opted for an adjustable-rate mortgage.

That seemed like a good idea until Chavez lost her job as a receptionist. With just her husband's income as a kitchen manager, they are having trouble making the $2,658 monthly payment, and it is set to increase next year. The house, which they bought for $585,000, is now worth about $400,000.

The couple missed some payments but are back on track because they want to be in good standing with their lender. They have asked for a loan modification, which would involve changing the terms of the mortgage.

Rosa Chavez, 27, wrote to us asking how the $700 billion bailout plan approved by Congress in September will help homeowners like her. It's a question many people are asking.

But the truth is, no one knows the answer yet. None of the $700 billion has actually been targeted to struggling homeowners, even though the financial crisis started as a mortgage crisis. The Treasury and Federal Deposit Insurance Corp. were close to reaching an agreement on a plan to have the government guarantee the mortgages of as many as 3 million homeowners facing foreclosure. But they are still at odds.

On Oct. 1, federal officials started the Hope for Homeowners program to help borrowers refinance into 30-year, government-backed mortgages. But so far, banks haven't been rushing to participate in the program.

Unclear, too, is what President-elect Barack Obama will do to help homeowners, though he has indicated that he wants to do something. For instance, on the campaign trail, he proposed changing bankruptcy laws to permit judges to rewrite the terms of mortgages.

Chavez and many other homeowners don't have time to wait for the country's leaders to make all these decisions. "We're trying our best to keep the house. We don't want to let it go because we put so much down," Chavez said.

So what can Chavez and others like her do in the meantime?

George Collis, a loan officer for Capital Mortgage Finance and managing director of Primus Advisors in Arnold, Md., said that if she and her husband want to keep their home, they have to come up with a cash flow strategy. That could mean selling any newer cars they own and buying cheaper ones to eliminate or reduce car payments. Or controlling their use of utilities. Or using coupons for groceries. Or even suspending their 401(k) contributions temporarily to increase cash flow. "They should develop a budget and stick to it," he said.

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