Of late, there has been a notable increase in calls from borrowers who are facing financial difficulties and struggling to pay their monthly bills. This sudden surge in calls reminds me of the early days of my column-writing career in 2011, when people were desperately trying to save their homes from foreclosure. But what exactly is causing this situation? Mortgage delinquencies are almost non-existent, with only 0.39% of mortgages being in a forbearance plan due to the impact of COVID-19, according to July data from the Mortgage Bankers Association. Home purchase applications have reached their lowest level since April 1995, which is attributed to high interest rates that are keeping homeowners locked into low rates and discouraging them from selling their homes, leading to a shortage of available homes on the market. Additionally, the national unemployment rate is exceptionally low at 3.8%. So, who are the individuals struggling with their mortgage payments? From my experience, the majority of calls I receive are from seniors living on fixed incomes who are exploring various options to make ends meet, such as taking on part-time jobs, considering a reverse mortgage to eliminate their monthly house payment, or contemplating downsizing to a cheaper living arrangement. Unforeseen expenses related to long-term care or skilled nursing and the impact of inflation seem to hit this group the hardest. Many of these homeowners have owned and lived in their homes for a significant period of time. The second largest group reaching out for assistance are individuals in the real estate industry and related businesses, who often work as independent contractors or receive commission-based payments. They are looking into home equity lines of credit as a means to survive, but their available liquid reserves are rapidly diminishing. The third category of individuals facing mortgage struggles are those affected by job disruptions in sectors such as the entertainment industry and technology. Strikes among Southern California entertainment industry workers have been ongoing since May 2, causing a ripple effect throughout the economy. Furthermore, laid-off tech workers are also contributing to the overall decline in spending, which is further exacerbated by inflation and rising interest rates. In the past year, the prime rate has increased from 5.5% to 8.5%, impacting the costs of credit cards, auto loans, and other consumer goods. For example, a $250,000 home equity line of credit that was previously at a 7.5% rate would now require a payment of $2,187, which is a staggering 40% increase. With expectations of further rate hikes in the near future, the situation does not look promising. Mortgage rates are currently at a 22-year high, and even adjustable-rate mortgages are experiencing significant rate increases. Homeowners with existing ARM mortgages can expect a 2% increase over their introductory rates, making it even more challenging to find relief. So, how can individuals determine if they are on the verge of financial collapse? And what steps can they take to prevent missing mortgage payments and damaging their credit or considering bankruptcy? Newport Beach bankruptcy attorney Michael Nicastro suggests allocating time each month to review the family budget and being mindful of financial decisions and spending habits. It is crucial to keep a close eye on cash reserves and compare monthly household expenses to the available income. For instance, if you have $20,000 in liquid reserves, but your monthly income after taxes is only $5,000, and your expenses total $8,000, you are facing a monthly deficit of $3,000. In such a situation, it becomes imperative to find additional sources of income and cut down on expenses within the next seven months to avoid financial downfall. Fortunately, the current housing market is significantly different from the time of the Great Recession, as most homeowners now possess substantial home equity. This equity can be tapped into if necessary. In fact, borrowers withdrew $39 billion through first- or second-lien home equity lines of credit in the second quarter alone. If you find yourself short on cash and unable to make a mortgage payment, it is important to prioritize the most significant payments that could negatively impact your credit score. For example, credit expert John Ulzheimer suggests that being late on a smaller dollar amount student loan payment is preferable to missing a larger mortgage payment. It is also worth noting that there are several options available to borrowers who need assistance, such as the extension of COVID-era hardship options by HUD until October 31, 2024. FHA borrowers, for instance, may qualify for payment forbearance for a period of three to six months. Additionally, there is a tool called a partial claim that allows borrowers to receive a zero-interest loan to cover previously delinquent mortgage payments, which is then paid back when the property is sold or refinanced. It is crucial to reach out to HUD-approved housing counseling agencies that can offer support and guidance to mortgage borrowers facing challenges, regardless of the type of mortgage they have. As for those who are considering selling their homes in the current market, common reasons include the death of a family member leading to the need for liquidation within a trust, divorce, and job losses. In conclusion, it is important for borrowers to closely monitor their financial situation, seek help from the available resources, and make informed decisions to prevent worsening their mortgage woes.
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