Walk on By

Foolish pride
Is all that I have left
So let me hide
The tears and the sadness you gave me
When you said goodbye
Walk on by
-Burt Bacharach, with lyrics by Hal David

Every day we hear stories about people simply walking away from their obligations – CNNMoney recently reported that “Homeowners are abandoning their homes and, more importantly, their mortgages, rather than trying to keep up with rising payments on deteriorating assets. So many people are handing their keys back to lenders that a new term has been coined for it: jingle mail.”

According to the Federal Reserve, more than 2 million homeowners face higher mortgage rates over the next two years, which means that that foreclosures should spike up to over one million this year, up from the average of 600,000 seen in a typical year. I can’t remember a time when financial responsibility was so low on people’s minds. The trend started when bankruptcy lost its edge of humiliation. Yes, I know that there are times when people get into trouble and need help, but some of the details emerging from the current housing boom/bust turn my stomach.

Some borrowers think that they have no choice but to walk away from their obligations (yes, it was an OBLIGATION, a PROMISE that you made when you assumed the loan). In many cases, it’s hard to fault the logic of walking. It seems crazy to expect that the Smiths in Phoenix, who earn $50,000 in household income, are going to be able to service $600,000 in mortgage debt on two homes—I know: How in the world could they qualify for those mortgages? But that is water under the bridge.

Before you “walk on by” your loan, you should heed the advice of Mike Raimi, CEO of WCS Lending (www.wcslending.com): “the worst thing you can do to your credit is to default on a mortgage!” Mike explained that if you are unable to make your monthly payments, there are specific steps that you should take, including:

1. Contact your lender when you realize that you have a problem. The most important thing to remember is that lenders do not want your house—they are not at all interested in being in the house selling business. In fact, to avoid foreclosure, the worst case for both parties, lenders have a number of options to help borrowers through difficult financial times.
2. Don’t blow off your lender. The first notices you receive will offer information about foreclosure prevention options that may be able to help, while later mail may include important notice of pending legal action. Open your mail!

3. Know your mortgage rights. Find your loan documents and read them so you know what your lender may do if you can't make your payments. Learn about the foreclosure laws and timeframes in your state (as every state is different) by contacting the State Government Housing Office.

4. Beware “foreclosure prevention” companies or attorneys. You don't need to pay fees for foreclosure prevention help-use that money to pay the mortgage instead. Many for-profit companies or lawyers will contact you promising to negotiate with your lender. These may be legitimate businesses, but will charge you a hefty fee (often two or three month's mortgage payment) for information and services your lender or a HUD-approved housing counselor will provide free if you contact them.