Odes to the Home Equity Loans: Homeowners are Asking What They Should Do

The rush to help homeowners pull out the equity out of their homes is long gone. Bank lenders are becoming more and more conservative.

The market for such credit lines, which practically shut down as home prices tumbled, remains tight as a drum despite signs of life in the rest of the home loan market. And offers that let you pay only the prime rate or just above that benchmark are long gone.

According to various reports including the following from LAtimes, one can start seeing the impact on families all over the country:

"The days of lenders falling all over themselves to help you empty the equity out of your home aren't coming back any time soon," said Keith Gumbinger, vice president at loan data tracker HSH Associates.

Even for homeowners with plenty of home equity still available, "access to it is harder to come by," Gumbinger said. "You need to be a much higher-quality borrower now. And if you can get it, the terms are going to be a lot less attractive."

Before the housing boom, home equity credit lines were a cheap way for homeowners to renovate their property, pay college tuition or buy a car. During the boom, they also were often used to make a down payment on a home or to finance a vacation or other indulgences.

CreditCrunch Back-to-Basics Lending: Lenders Say No Mas to Mortgages with Zero-down Payment

CreditCrunch Back-to-Basics Lending: Lenders Say No Mas to Mortgages with Zero-down Payment

First-time buyers are in it for a rude awakening. They will be required to put down up to 3 % down on their mortgage deal. The percentage may be different if it has to do with a jumbo loan of more than $417,000. It is the time to go back to the basics of lending championed by Fannie Mae and Freddie Mac in the mid-1980s. Lenders are taking measures to eliminate zero down-payments these days. It is a clear sign of the credit crunch this country is going through. Lenders are not willing to take risks any longer. Most buyers or consumers will have to have a credit score of 700 to even consider negotiating. Remember that the score of 850 is considered optimal. If borrowers are in the 300 credit score, they do not even need to show up these days. Lenders will examine the borrowers' credit history which usually has some inaccuracies. Borrowers should be ready to fix, dispute and correcting any errors found in the reports issued by the credit bureaus. Only after doing all of that, will borrowers have a chance to see their scores boosted and secure better loans. For some time to come, jumbo loans or mortgages of more than $417,000 will be out of the question for many borrowers.

As long as the credit squeeze continues, lenders will continue to minimize their loss. Due to foreclosures and the depreciation in home values, many homeowners who used to pay their bills are finding themselves in a tight impasse. They figure it is easier to just walk out of their loans.

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What You Can Do to Avoid Foreclosures: Foreclosures Prevention Tools and Other Ways to Get out of Financial Funk

Questions on Foreclosures Answered Here:

What You Can Do to Avoid Foreclosures: Foreclosures Prevention Tools and Other Ways to Get out of Financial Funk

President Bush recently announced that the Federal Housing Administration will begin a program to allow homeowners who have good credit but can not afford their mortgages to refinance to FHA-insured mortgages. In the meantime, there are a few things you can do to avoid foreclosure on your property. Any homeowners should start taking matters in their own hands. Way before foreclosure is lurking around, they need to start consulting with their lawyers or credit counselors. The easiest thing they can do is to contact their mortgage lender. Who else knows better than the mortgage borrowers themselves? They need to call the loan servicer before they start falling behind. It will be pretty hard to catch up once payments are late.

Here are a few ways to avoid foreclosure: Refinancing may be considered if you have enough equity in the home. Even if you do not have equity, try it any way. The process may be more difficult though. You can persuade the lender to modify the terms of the loan. You can sell the house of file for bankruptcy protection as in filing Chapter 13. There is no easy way out. No easy option for sure. Homeowners who are facing foreclosure should never ignore letter from lenders. They must try to update their phone records in case the lenders want to contact them. Borrowers or homeowners should remember that the banks or lenders or investors do not want to own your own. They do not want to declare foreclosure on your property because of all the costs and time involved. All you have to do is to make a good gesture. They need to know that you are not going to run away and that they can keep your words.

Homeowners can look for some resources such as the Neighborhood Assistance Corporation of America, which has aligned itself iwth Citigroup and Bank of Ameirca to pledge $1 billion for people at risk of losing their homes. They can contact the department of housing and Urban development, Freddie Mac's guide to avoiding foreclosures, NeighborWorks America's Center for Foreclosure Solutions and the Federal Trade Commission's fact sheet "Mortgage Payments Sending You Reeling? Here's what to do."

Lenders can also make arrangements for a forbearance or repayment plan. A forbearance is a suspension or reduction of monthly payments until the borrower regains financial footing. With a repayment plan, the missed payments are spread out over time. The borrower has to pay them in addition to the regular mortgage. Borrowers can also look at "short sale" which is an arrangement in which the lender allows the sale of the property for less than is owed. This process may take some time too. Not too many lenders are willing to do this. Patience will pay off in the end. Cash-strapped borrowers may think about a "deed in lieu of foreclosure." That means that the lender is given ownership rights without the shame of a foreclosure.