Real Estate Matters
Few homeowners helped by Obama's loan program
I've talked to a credit counseling service and have found out that I have too much debt to use their service, make too much money to obtain a loan modification under the Obama plan and make too little to allow me to refinance my mortgage. My debt-to-income level is too high. I'm trying to avoid bankruptcy and need to know what to do.
We hear frequently from homeowners who are trying to get loan modifications and are unable to obtain them from their lenders.
The whole loan-modification process has been wildly ineffective. Only a small percentage of people who applied for loan modifications actually received a permanent loan modification.
The Obama administration's original description of the process gave homeowners the impression that they would be able to get their loans modified if they made three on-time payments. But many homeowners worked through the process only to find out that there was no help. Many of the biggest lenders in the country have been unwilling or unable to provide any sort of meaningful assistance when it comes to loan modifications.
In your situation, you have to determine what you can do to help yourself. You seem to have at least some income, so the question is whether your debts have simply gotten out of hand. If your debt levels have been constant but your income has dropped, you may find yourself treading water and looking for a lifeline.
If you have taken on too much credit card debt, student loan debt or home mortgage debt, are you still able to pay at least the minimum due on all of these debts?
If your principal problem is trying to pay your mortgage, you should think about selling your home. For some troubled homeowners, getting rid of the debt relating to their home can solve major financial issues in their lives.
If you have equity in your property, you can list your home for sale and try to unload it quickly. If you don't have equity, you'll have to do a short sale and work with your lender. You may not want to sell your home, but if it allows you to have a fresh start and avoid bankruptcy, it's the right choice.
If your current situation has gotten so far out of hand that you can't pay any of your bills, you'll have to evaluate your options and determine which bills you can pay and which bills you can't.
If you don't pay your mortgage, you can expect your lender to file a foreclosure notice in a matter of months. If you can't pay your credit card bills, your creditors will soon begin legal action.
While you're current on your debt payments, most creditors won't help you. If the nonprofit credit counseling agency has told you that you don't qualify for a debt-management program, it probably means that your debt (excluding your mortgage) is more than your annual income. That's a commonly used threshold for suggesting that someone file for bankruptcy rather than enter a debt-management plan.
If you file for bankruptcy, you'll be able to restructure your obligations or get rid of them entirely and have a fresh start. In three to five years, your credit history will be more or less rebuilt, and in the meantime, you can work on establishing financial stability.