Forgiving Your Debt

Nowadays, lenders are much more willing to work with you if you come across a financially hard time. It wasn’t always this way. In fact, there was a time period when lenders wouldn’t work with you if you couldn’t pay. In order to avoid lawsuits, foreclosures and repossessions, lenders have changed their stance when it comes to working with you.

It used to be that lenders wouldn’t “work” with you because it was cheaper for them to just “write-off” delinquencies as bad debt. Default rates have recently soared to new heights. The economy has become extremely weak. Credit is much harder to come by. Because of this, the “rules” of working with the consumer have drastically changed.

Here are some interesting statistics to consider.

-During the second quarter of 2008, credit card lenders “charged off 5.47% of the total amounts owed on cards as bad debt.” Last year (during 2007), the charge-off rate was at only 3.85%

-Consumer bankruptcy filings experienced a 40% increase from last year during the month of October. During October of this year, more than 100,000 bankruptcies were filed. This is the highest number of filings since October 2005 when the Federal Bankruptcy Reform Law took effect.

-When it comes to being more than 60 days past due on mortgages, more than 2.2 million homeowners fall into this category.

-One in six homeowners owes more on their home than it is worth.

-”With home prices plummeting, every foreclosure now represents a loss of 44% of the original loan amount, up from 29% a year ago,” according to data from LPS Applied Analytics.

Can’t you see why lenders are more willing to work with consumers now? The more lenders work with financially-troubled consumers, the more revenue they are able stop from being lost. Some of the biggest relief programs are as follows:

-Fannie Mae and Freddie Mac will begin paying mortgage service companies $800 for every loan that is modified. This helps out the borrower in several ways. 1) Interest rates would be reduced 2) The borrower wouldn’t spend more than 38 percent of their “gross income on housing expenses.” 3) Home loan terms would be moved from 30 years to 40 years

-Citigroup also announced that it would suspend foreclosures for people who lived in their own homes, who had a good chance of making full, lower payments and who had decent incomes

-JPMorgan Chase also modified about $70 billion in home loans. This modification program could aid as many as 400,000 homeowners.

-Bank of America announced that it would modify 400,000 mortgages.

Yes, if you are upfront and honest with your lenders, chances are that you will end up just fine in this whole mess. Lenders are more willing to work with borrowers than ever before. Whether your loan is modified by your lender or your payment options are a little more flexible, it is certainly worth it to talk to your lender about your current situation.

This entry was posted on Tuesday, January 6th, 2009 at 4:38 pm and is filed under credit. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.