New Rules Mandate Banks Must Do More to Help Troubled Homeowners Avoid Foreclosure
Homeowners struggling to stay current on mortgage payments may soon have an unlikely ally: big banks.
Last week, the Consumer Financial Protection Bureau debuted a new set of rules requiring U.S. banks to start evaluating defaulting borrowers for all possible loan assistance options, from programs available via mortgage giants Freddie Mac and Fannie Mae to help from private investors.
Additionally, lenders would be forced to hold off on beginning the foreclosure process until a homeowner has fallen behind on at least four months of payments, giving borrowers much-needed time to seek loan assistance or file for bankruptcy.
If an application for help is submitted at least 37 days before a scheduled repossession, homeowners will be protected from foreclosure while they attempt to receive help.
The only bad news? The new rules don't go into effect for a year. And, of course, there's the reality that loan assistance will not be available - or effective enough - for every homeowner.
In the last five years, American borrowers have defaulted on a staggering $585 million in debt. Today's debts are three times what they were in 1998, just 15 years earlier.
While some of that amount includes mortgages and personal loans, the vast majority is made up of credit card debt.
Options like mortgage modification and refinancing may be able to lower mortgages slightly, but they have their limitations - especially for borrowers who are saddled with large debts.
If you've been drowning in debt, you may not qualify for rates low enough to make a significant change in your mortgage payments, especially not when you factor in the fees associated with refinancing or modifying a mortgage.
In some cases, applying for loan assistance only puts off the inevitable. Many homeowners who apply for help end up in foreclosure in the long run, whether it's because they failed to qualify for assistance or their new mortgage terms didn't address the underlying cause of their late payments - more often than not, overwhelming debt.
There's no doubt that banks should be doing more to help borrowers stay in their homes. But many homeowners don't realize there's already a program that's helped millions of families stop foreclosure and dig their way out of debt: Chapter 13 bankruptcy.
While loan assistance addresses a mortgage, bankruptcy addresses a wide variety of debts - including credit card debt, medical bills and personal loans - that are often the underlying source of mortgage default.
Like the new rules, Chapter 13 bankruptcy puts foreclosure on hold. But bankruptcy goes even further by reorganizing debt into manageable payments and, in some cases, eliminating certain debts altogether.
Why spend time and money to lower your mortgage payment by a fraction, only to have credit card debt continue to get in the way of payments? For many, bankruptcy has the power to solve all debt problems - once and for all.
If you would like to learn whether bankruptcy applies to your personal debt situation, contact DebtStoppers at 800-440-7235. Call or visit us online today to sign up for your complimentary debt analysis with an expert bankruptcy attorney.
More Blog Entries:
Homeowners Rushing to Refinance Mortgages Often Overlook Drawbacks: January 11, 2013
New Rules to Aid Struggling Home Owners, Alan Zibel, The Wall Street Journal