"Save My Home" book preview

Excerpted from "Save My Home: 10 Steps to Fight Foreclosure", published by Kaplan Publishing, Copyright (c) 2008 by Tom Geller.

Chapter 1: Understand the Current Foreclosure Boom

The phone rings, but you know who it is. It's the same script as yesterday, and the day before, and the day before that. You know it as well as the dude at the other end of the line: "Is this ______________? How are you today? I'm calling for Little Apple Bank. This call is from a debt collector; any and all information obtained may be used to collect this debt. I'm calling about your home loan, which has a past due balance of ________. I need to know what your intentions are to pay this balance in full."

A table near the phone is full of bills--first notice, second notice, last notice. You've balanced one against the other in a desperate attempt to keep the wolves at bay. You face questions you never expected to have to ask: Which do you need more, the Internet connection or the cable TV? Health insurance or car insurance? New clothes or new glasses?

Among the bills are credit card checks, promises of relief. But you've already gone as far down that road as you can, and now you have $10,000, $20,000, $30,000 of consumer debt on top of your car loan and home mortgage. Just making the minimum payments is a stretch.

But above it all is your home. The world was full of so much promise when you bought it! You would grow with it, and it with you; its creaks and quirks worked their way into your subconscious, as your caring touches changed its "personality." To lose it now would be like losing a part of yourself. But the stack of bills bears witness: you have to do something, or you'll lose the home to foreclosure.

You Are Not Alone

Maybe your scenario isn't as bad as the one described above. Maybe you just lost your job, and the phone calls haven't started. Maybe you're waiting for a big payment and only need to hold off the lenders for a few months. Maybe you had an unexpected medical expense or someone defrauded you, and you suddenly find yourself $100,000 in debt. Or maybe you have a variable-interest loan, and the rates just went up and increased your monthly payments beyond your ability to pay.

Whatever the case, you're not alone. The tremendous increase in real estate values from 1997 to 2006--coupled with historically low interest rates--encouraged many, many people to buy more home than they could afford. After all, why not? You saw people around you gaining $20,000, $50,000, even $100,000 in home value every year without lifting a finger. If you're like many people currently experiencing foreclosure, you waited a few years before buying ... and when prices kept rising, you finally felt you couldn't just stand back and watch. You needed a piece of the action.

Rising values--and a newly active mortgage market--also enabled people who already had homes to do cash-out refinances to convert their increase in equity into cash in their pockets. Some did so strategically, figuring that they could increase their home's value by $50,000 with a $30,000 kitchen remodel. Others did so out of necessity due to life crises such as illness or job loss. Others did so for frivolous purchases. Whatever the case, there's no denying that the new availability of money was a great temptation--one that discouraged consideration of a possible downside.

The rush to buy or refinance led to "irrational exuberance," where borrowers scrambled to get any kinds of home loans they could. Three types of loans that were previously considered risky became commonplace.

[Here the book contains a thorough description of adjustable-rate loans, interest-only loans, and the subprime market.]

Rising home values allowed people who purchased with risky loans before 2003 or 2004 to (mostly) escape bad consequences. To be sure, some were forced out of homes that were simply too expensive for them when adversity struck or their adjustable-rate loans reset. But they, unlike people who bought more recently, had options by the grace of their homes' increase in value. So what if Mr. and Mrs. Ramirez can't afford payments on the big home they bought for $400,000? It's now worth $500,000; they can sell it, take the money, and buy something a little smaller. Or they can put the money in the bank and rent a place for a few years until they're ready to buy again. Money might not buy happiness, but it can sure remove barriers to it. Recent increases in home values protected people from the deepest pains of foreclosure.

Then values stopped rising and even sagged a little. The Office of Federal Housing Enterprise Oversight's statistics showed an annual increase of only 1.8 percent in in the annual period ending September 2007, far below the 13.0 percent increase of 2005, and falling. Homebuyers whose optimism was fueled by previously increasing values started facing foreclosure. It's no surprise that three of the states with the greatest increase in home values--Nevada, California, and Florida--now top the foreclosure list. As I write this in December 2007, foreclosures across the United States have literally doubled from a year ago: according to the NeighborWorks Center for Foreclosure Solutions, over 50,000 families per month now enter foreclosure.

So whatever your situation, don't feel bad. If you made a mistake, it was at least an understandable one, given the information you had at the time. The point now is to accept things as they are and move forward in the best way possible. Your best chance at beating this thing comes from facing it. Don't panic, ignore the problem, or indulge in fantasy. Instead be truthful, make an intelligent plan, and execute it.

Excerpted from "Save My Home: 10 Steps to Fight Foreclosure", published by Kaplan Publishing, Copyright (c) 2008 by Tom Geller.