The Bottom Line
By Susan L. Smith,
Director of Training & Financial Education

Meet Susan L. Smith:

The news is filled with articles of mortgage foreclosures. How vulnerable are you?

Families being affected by this financial crisis weren't necessarily foolish with their money. They had good intentions when they signed on for the 80/20 ARM. They expected their income to rise and costs to stay pretty much the same.

The rule of thumb has been to stretch the limit where mortgages are involved. Everyone has assumed their income would increase each year and they would be in good financial position in just a few years. That has not happened for a long time, but the go-for-broke mortgage loan is still a reality.

Taking a look at your spending is a good way to assess your risk. Assign a percentage to each category to reveal potential problems. The debt-to-income ratio of your mortgage determines your life style. By mortgage, we mean principal, interest, taxes and insurance. If the percentage is 30 to 35% of your total monthly net income, you should have money available to provide extras, e.g. entertainment, extra clothes and a nicer car. If the percentage is 35 to 45%, the budget will be getting tight. If the percentage is over 45%, you will experience growing pains with increased gasoline, utilities and food cost.

Let's turn this around. If your mortgage is 45% of your net income, that only leaves 55% to pay for everything else. The increase in gasoline has affected the cost of just about everything. It is either made with petroleum or petroleum was used to get the product to market. Gasoline cost for the average family has doubled. The price of food has increased substantially. There is much less left for the quality of life items. That is where you must be careful. As gasoline and food costs increase, you have to reduce spending in other areas to make up for it. Suddenly you don't have enough money to make the mortgage payment at the first of the month and the adjustable rate is increasing in 60 days. The most common remedy is to use a credit card to cover the negative. That throws up another caution flag.

Categorize all of your expenses and assign a percentage of income to each category. Expense divided by net income equals debt-to-income ratio. Obviously, when you get to 100%, you have to stop. To fit in everything over 100% means reducing spending in the original categories. Oh what fun!

CCCS of Greater Dallas, Inc. has been assisting the community in financial counseling for 34 years. Our counselors are here to help you. Don't wait! If you are facing a mortgage crisis, call today. CCCS and your lender want you to be successful.

We are also participating in the HOPE Now Alliance as one of ten agencies working with lenders in a special program to assist consumers who are facing a mortgage crisis. Call CCCS at 800-249-2227 for preventative counseling or call 866-370-3056 (Spanish 866-829-9169) for delinquent mortgage counseling.

Loss Mitigation options that are available are a Special Forbearance (repayment plan), Loan Modification (refinance), Partial Claim (2nd lien) or Forbearance (extension of amount due). Special programs being offered through the HOPE program are refinancing ARMs, refinance into a FHA Secure Loan or freezing the interest rate for up to five years.

The investor (money source) controls what options are available on their loans. The servicer can only do what the investor allows so don't get mad at the person on the other end of the telephone line.

A loan should never go to foreclosure. If you take action immediately, and decide you cannot keep the home, you may be able to save some of the equity you have accumulated by selling the property, working with a Quick Sale/Pre-foreclosure specialist (sell to an investor) or Deed-in-lieu (return the property to the lender).

CCCS-Dallas offers a full range of housing and debt management programs, face-to-face or by telephone. We have pre-purchase as well as delinquent mortgage counseling. And, more importantly, budget counseling could prevent the delinquency before it gets started.

Look forward to hearing from you.

Susan L. Smith, Director of Training & Financial Education of Consumer Credit Counseling Service of Greater Dallas. You may email her at TheBottomLine@cccs.net.