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Mortgage Lending: 1.3.5.2 Consequences for Communities: Vacant and “Zombie” Properties

At the community level, increased numbers of vacant properties, due to imminent and completed foreclosures, led to increased crime and blight.179 Local governments were hit hard due to the increased costs of policing and securing vacant homes and the reduction in tax revenue that followed the inevitable decline in property values.180 Between mid-2007 and the end of 2009 alone, state and local governments lost $917 million in property taxes.181 Thes

Mortgage Lending: 1.3.5.4 How Poor Servicing Fed the Crisis

Origination abuses were not the only cause of widespread foreclosures. Distressed homeowners were encouraged to ask their loan servicer for help negotiating a workout that would avoid foreclosure or resolve a default. But the servicers were unprepared and overwhelmed. They often failed, refused, or felt they were unable to modify the terms of the mortgage due to various constraints—real and perceived. When loans had been securitized, servicers seemed particularly unsure as to their authority and often gave consumers inaccurate information.

Surviving Debt: Appliances, Furniture, and Electronics

A trap you can fall into when purchasing appliances, furniture, electronic items, or the like, is to use a rent-to-own company. You might think that this is the only way you can purchase these items, when in fact it is by far the most expensive possible way. Rent-to-own contracts have hidden interest rates of hundreds or even thousands of percent interest. You may even unknowingly be paying for used goods. Miss one payment and you could forfeit the item completely.

Surviving Debt: Check Cashing and Banking

If you regularly use a check-cashing service and also frequently purchase money orders or certified checks, it is amazing how fast these costs can add up. You may have good reasons not to use a bank—difficulties opening an account, no bank in your community, fear of high bounced check and debit card fees, not to mention other bank fees, and the threat that a creditor could seize your bank account if there is a court judgment against you.

Surviving Debt: Pressure-Related Shopping

Do not respond to financial pressures and anxiety by going shopping, buying items you don’t need, or overspending. Spending for unnecessary items or through credit card cash advances can be a problem if you later file for bankruptcy. You may lose your right to erase those debts in bankruptcy if the creditor can prove that you ran up your credit cards knowing that you could not pay them back.

Surviving Debt: Winter Holiday Cycle of Debt

Many consumers overspend on credit for Christmas or other winter holidays, hoping to repay their debt through their tax refund. This can be costly. When you are paying someone to loan you money early against your tax refund or when you put the purchases on your credit card and then you do not get the refund you were expecting, you may then carry a large credit balance for months.

Surviving Debt: Other Expenses

Automobiles are expensive. Between car payments, gas, repairs, and insurance, an automobile in some communities can be as expensive as a home. If you can get by without a car (or with one fewer car than you have) temporarily or permanently, you will save hundreds of dollars a month.

Surviving Debt: Introduction

For households struggling to pay all their bills, and where at least one homeowner is 62 years old, one option to consider is a reverse mortgage. A reverse mortgage differs from a traditional mortgage because the borrower receives a lump sum or a stream of payments but does not make monthly payments on the loan. Instead, over time the balance due on the reverse mortgage grows, as the monthly interest and other fees are added to the loan balance. The loan is called a “reverse” mortgage because the balance goes up over time, instead of going down.

Surviving Debt: Who Should Consider a Reverse Mortgage?

Most reverse mortgages are insured by the Federal Housing Administration (FHA) under its Home Equity Conversion Mortgage (HECM) program. There are only a very small number of reverse mortgage loans made by private lenders outside of the HECM program. You are only eligible for a HECM (government insured) reverse mortgage on your home if you meet all of these requirements:

Surviving Debt: How the Reverse Mortgage Works

A reverse mortgage loan is secured by your home, as with any mortgage, meaning the lender can foreclose if the loan terms are violated. Unlike most mortgages, there are no monthly payments required on the reverse mortgage loan. Instead, the loan comes due (with interest) upon a triggering event, typically the borrower passing away or permanently moving out of the home.

Surviving Debt: Reverse Mortgages Can End Up in Foreclosure

A reverse mortgage lender may foreclose on your home if you do not keep up with property taxes, homeowner’s insurance, homeowner association fees, and the like. If you fail to pay these charges, the lender may pay them for you and, if you can’t repay the lender in a relatively short time period, they may foreclose.

Surviving Debt: What About My Spouse, Partner, or Co-Owner?

Usually you should add your spouse, partner, or other co-owner of the property as a co-borrower on the reverse mortgage. Then you both are responsible for the loan and both receive the benefits. As a co-borrower, your spouse or partner will be able to live in the home even if you no longer live there, such as if you have to move to a nursing facility. Even after you pass away, the co-borrower will be able to draw funds from an available line of credit (if the reverse mortgage is structured that way), as long as they remain in the house.

Surviving Debt: Is a Reverse Mortgage a Good Idea?

A reverse mortgage is not for most people, and much depends on why you need the money. Reverse mortgages do not make sense to just pay off old credit card bills or medical debt that may no longer even be charging interest and where the collector may never even sue you for the money.

Surviving Debt: How Does a Reverse Mortgage Stack Up Against a Traditional Mortgage, Refinancing, or Home Equity Loan?

There are other options besides a reverse mortgage to use your home as collateral to obtain loans to pay off your obligations—refinancing a first mortgage, a new first or second mortgage, or a home equity line of credit. A reverse mortgage’s advantage is that there is no monthly payment and there is looser underwriting as far as your income and creditworthiness. The lender is not concerned whether you can make mortgage payments, and just wants to ensure you can pay for property taxes and insurance, either out of the reverse mortgage loan proceeds or otherwise.

Surviving Debt: Paying Medical Debt Is a Low Priority; Don’t Put It on a Credit Card

Most families encountering financial difficulty have overdue medical debt. You should treat medical debt as a low priority debt to be paid only after you pay more pressing types of debt, such as your mortgage, car loan, or criminal citations. Almost any other type of debt will be more pressing—medical debt should typically be a lower priority. Its priority only changes if you are sued on the debt, as discussed later in this chapter.

Surviving Debt: Debt Collectors and Medical Debt

Hospitals and other health care providers frequently turn over medical debt to debt collection agencies—some will do so after a month or two, while others may wait six or more months. The job of these debt collectors is to try to get you to pay medical debt even if this is not in your best interest.

Surviving Debt: Can a Hospital Turn You Away If You Owe It Money?

If medical debt goes unpaid for a period of time, a hospital or other health care provider may decide to stop providing you services. In some areas, you may have few other options for medical care, but in other locations you should be able to find other health care providers to take care of your family. The fact that you owe money to one hospital or one health care provider should not prevent you from obtaining services from other hospitals or providers. This will particularly be the case with public hospitals and community health centers.

Surviving Debt: Correcting Your Medical Bills

One way to reduce a medical debt is to review it carefully for errors and unauthorized charges. Review any explanation of benefits (EOB) form you receive from your insurance company to see if it is consistent with the medical bill. If you see errors, contact the health care provider or your insurance company to have the erroneous charges taken off your bill.

Surviving Debt: Requesting Financial Assistance

Federal law requires nonprofit hospitals to establish policies for offering patients financial assistance, such as free or discounted medical services for eligible patients. The policies and how to apply for financial assistance must be in writing and available from both the hospital and on the hospital’s website.

Surviving Debt: Will a Health Care Provider Sue You for Unpaid Bills?

A hospital or other health care provider is less likely to sue you to collect on an overdue bill than are most other creditors, such as credit card companies. This is particularly the case for relatively small medical bills. In addition, if you request financial assistance from a nonprofit hospital, the hospital cannot start a collection lawsuit against you until it determines whether you are eligible for financial assistance.