The Mortgage Bankers Association has delivered more bad news about the housing market.
Mortgage delinquencies in the fourth quarter of 2007 were the highest in the history of the MBA’s survey. The rate of foreclosure starts and the percentage of loans in the process of foreclosure were at the highest levels ever.
Despite this dismal report, financial institutions are trying to work with homeowners to keep them from losing their homes. To stave off foreclosure, many borrowers have to come up with some money. Where they get it varies. Some have drastically cut expenses. Others are selling belongings. And some are turning to friends and relatives for financial assistance.
That last option is putting a lot of pressure on people who aren’t so sure they should pony up the money.
Lisa, whose last name I’m withholding to maintain her privacy, says her husband’s brother and his wife are facing foreclosure on their townhouse.
“Should we bail them out when we know that they are not able to handle their finances well?” Lisa asked. “My husband and his mother both think that we should do this.”
Part of the reason the couple is facing foreclosure is that they live beyond their means, Lisa wrote.
“They accumulate debt and then refinance, rolling the debt into their mortgage,” she said. “They have done this several times. However this time, the banks said no to a refinance and now they are faced with a debt they cannot handle.”
Lisa is right to be concerned and she shouldn’t feel guilty about pausing before bailing out the in-laws.
If you’ve been asked for financial help from someone who is at risk of losing their home, assess the situation carefully. In many cases, people facing foreclosure need to let the house go — preferably by selling it, if they can.
Many homeowners caught up in the current mortgage mess can’t afford to stay in their homes even if their lenders modify their loan terms and set up repayment plans, said Ken Wade, chief executive officer of NeighborWorks America, a national nonprofit organization created by Congress to provide financial support, technical assistance and training for community-based revitalization efforts.
Either people don’t have enough income to support the mortgage or their expenses are still too high or both, Wade said.
Whatever the situation, do not give money that you absolutely need repaid. Chances are you will never see much, if any, of it again. You have to be comfortable with that outcome — even if you decide to offer help in the form of a loan. Give the money with no expectation of repayment.
Lisa and her husband had agreed that if they bailed out the brother, the money would be a gift. Recognizing that, she still wanted to know what conditions they could put on the cash.
“Can we put a disclaimer on the money that they must see a credit counselor?” she asked.
I think that’s a perfectly reasonable request but one that is not enforceable. Once the money is handed over, you have no leverage other than perhaps guilt or nagging.
If you ask someone to use a cash gift in a certain way such as paying for college tuition or catching up on their mortgage, they should honor your request to the best of their ability. However, once you give a gift, the money or item is no longer yours to control. It’s the recipient’s to do with as he or she pleases. You have to leave it to the person’s conscience to do the right thing.
Before giving someone thousands of dollars to save their home, you should ask to see a written budget and the underlying documentation, such as pay stubs, bills, etc.
Yes, this is an intrusive demand.
Yes, the person or couple might balk, refuse or even cuss you out.
But if they’re asking for a significant amount of money, they need to prove to you that your money won’t be wasted. They need to prove their financial situation has improved. Or they need to demonstrate they are becoming better money managers. Otherwise if you bail someone out and a few months later they are behind again on their mortgage and the lender forecloses anyway, you’ve done what your mama told you never to do — throw good money after bad.
If you’re not equipped to help someone establish a budget, then require that the person see a qualified credit counselor. Send the person or couple to www.debtadvice.org or call 800-388-2227. DebtAdvice.org is a service provided by the members of the National Foundation for Credit Counseling.
Even if a friend or family member’s foreclosure is looming, don’t let their desperation result in your giving money that in the end will just postpone the inevitable. Help if you can, but in a way that your generosity won’t be in vain.
&Copy; Washington Post Writers Group
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