Foreclosure, Short Sale Real Estate

Not unlike preparing for natural disaster, representatives from a network of more than 240 community development organizations are quickly gathering to stockpile home ownership survival skills for what could be a man-made disaster spawned by the flood of riskier mortgages.

To get its network of home ownership counseling professionals in the best shape and prepared for the worst, the nonprofit NeighborWorks America is hosting an extensive training conference in Kansas City, MO, June 26 to June 30.

Offered by the NeighborWorks Training Institute, the conference is an opportunity for professionals in the nonprofit housing and consumer finance fields to hone their counseling skills and learn how best to help home owners who find themselves facing a mortgage delinquency or other debt problems that put their home ownership at risk.

Representing 4,400 partner organizations NeighborWorks says its agencies are bracing for an influx of home owners seeking mortgage and budget counseling as interest rates rise, home price appreciation slows, and adjustable rate mortgage (ARM) payments continue to ratchet up. The convergence threatens to push many home owners into mortgage delinquency, dire budget straits or both.

The housing boom has left home prices in the ozone in many locales. The higher costs force home buyers to seek greater financial leverage and that typically means riskier ARMs, especially those with additional low initial-cost benefits, including interest-only payments, option-payment and piggy-back loan terms.

The loans start off cheaper and allow buyers to afford a home, but those alternatives are also deemed riskier over the long term than fixed-rate loans and the best way to invest in a home is over the long term.

Mortgage industry publisher Inside Mortgage Finance says nearly $150 billion of the almost $670 billion of mortgages originated in the first quarter of 2006 were interest-payment only ARMs.

NeighborWorks and others say, depending on the locale, the ratio of creative ARMs-to-fixed rate mortgages can be has high as 50 percent and more.

Concerned about growing widespread risk associated with the so-called "non-traditional" mortgages, the Federal Reserve and other federal money market regulators have moved to curtail growth in their use.

Many home buyers who used the loans to open the door to home ownership were aware of the risk and or have the extra equity to help cushion any financial blow, but for others, especially those who purchased a home in the last year or so, the delayed sticker shock won't be pretty.

"For many of the new homeowners who were just able to afford their homes with low-rate adjustable mortgages, when the rates on these mortgages begin to reset, they're going to be in for significant payment shocks," said Ken Wade, CEO of the Washington, D.C.-based NeighborWorks.

"We know that as many as one-quarter of all borrowers chose interest-only mortgages, and are choosing not to pay the optional principal. Coupled with flat and even declining home values in some communities, borrowers who got into their homes with small down payments may not have enough equity to enable refinancing," explained Wade.

Not to mention the added costs associated with refinancing.

Those are the borrowers for which NeighborWorks is preparing. A safety network of counselors trained to help them manage mortgage debt and household budgets has a proven track record.

The recognized effectiveness of financial, debt and credit counseling is why provisions in the federal Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) call for counseling prior to and after filing for bankruptcy.

Many mortgage programs now require credit and financial counseling before consumers become home owners, because numerous independent studies have shown consumers who are schooled in personal finances, credit and the like, compared to those who aren't, are more likely to keep their home ownership, their credit and their financial goals intact, even in tough times.

There remains some debate over what types of counseling are most effective and counseling standards which vary now vary from groups like NeighborWorks to those approved by the federal bankruptcy law to those used by individual lenders and private credit counseling agencies.

"One thing is for sure, however, any counseling, when it comes to financial management when the mortgage isn't being paid, is better than no counseling at all," said Douglas Robinson, spokesman for NeighborWorks.

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