If you’ve been unable to get your lender to work with you on refinancing your mortgage, try these resources:
For VA loans: Visit the foreclosure alternatives page at www.va.govwww.va.gov.
FHA loans: Contact the National Servicing Center at 877-622-8525.
Conventional loans: Talk to a Department of Housing and Urban Development-approved counselor at 800-569-4287; visit www.hopenow.com; or call the Homeowners Hope Hotlines at 888-995-HOPE.
Army Lt. Col. Christopher Meredith says he won't walk away from his responsibility in making the mortgage payments on his house — even though it's draining his family's finances.
Meredith and his family moved out of their Woodbridge, Va., home in the spring after Meredith was reassigned to U.S. Special Operations Command headquarters in Tampa, Fla.
At the moment, they have no tenant, so they're carrying the full weight of about $2,800 a month paying for two mortgages on that home as well as homeowners association dues — plus they're paying for a house in Florida.
Many civilian homeowners in similar situations have simply "walked away" from their mortgages — defaulting on their drastically devalued properties.
Nationwide, about 2.5 million homeowners have lost their homes in the last four years, according to the Center for Responsible Lending. Even some homeowners who could afford to make their payments have walked away because their homes have lost so much in value.
Meredith says he won't go that route. "I could not in good conscience walk away and dump the burden on the bank, who would then ask the taxpayers for another handout," he said.
And he knows that even after a foreclosure, "there's nothing that would stop the creditors from coming after your assets."
Meredith and his wife are already feeling the burden — they've stopped saving for retirement and are "slowly eroding $11,000 in savings," he said.
With a basic housing allowance of $2,500, they're paying nearly $4,000 a month on three mortgages — they bought a house in Florida because it was cheaper than renting a home for their family of four. Their sons are ages 7 and 3.
They've tried unsuccessfully to refinance the first mortgage on the Virginia home, an interest-only loan that costs $2,078 a month without paying toward the principal loan amount.
"I can make my monthly payment. My family is taken care of. The issue is this loan is never going away" because it's an interest-only loan, Meredith says. The Merediths thought they'd be able to sell the house and at least break even within a couple years, but they now realize taking out the loan was a mistake. They want to refinance to a conventional loan that will allow them to pay toward the principal.
For military homeowners who have been hit hard by the crumbling housing market in recent years, it's not just about doing the ethical thing by paying their debts. It's also about what a foreclosure could do to their futures — affecting credit ratings and possibly careers.
Of course, you can always sell your house at a loss, if you can take that blow to your bank account. Service members who can't should think long and hard about the potential consequences of walking away from their mortgages — to include talking with a personal financial counselor or a military attorney at your installation's legal assistance office before making a decision.
Walking away from a mortgage ultimately is a very personal decision that depends on your specific situation — and it should be seen as a last resort.
None of the experts interviewed for this article would give an opinion about when a service member should stop making payments, citing complicated individual situations that must be considered.
"If you can make payments, it's better to talk to a lender to work out a plan because of the irreparable damage it will do to your credit history" if you stop, said Gerri Walsh, vice presidenet for investor education at the Financial Industry Regulatory Authority.
Some things to consider:
• If you've been reassigned and are having trouble making payments on two houses because you couldn't sell the old one, consider renting the home you left behind. That works well for many people, but not all — Meredith's renter, for example, skipped out on him in the middle of the lease.
• Try working with your bank to refinance or restructure your loan. Again, this doesn't always work.
Meredith has been trying for two years to refinance his loan, originally obtained through Countrywide and later bought by Bank of America. This last round took eight months before he found out he was denied.
Meredith says Bank of America refuses to refinance because he has no equity in the house, which has declined in value from $319,000 to about $300,000.
Although interest rates are lower now than the 6.35 percent he's paying, he realizes that refinancing from a no-interest loan actually may increase his monthly payment.
But he said he's willing to do that if it means he can start reducing the amount of the loan.
Bank of America spokeswoman Jumana Bauwens said there was a delay in receiving documents required for Meredith to be considered for the Treasury Department's Making Home Affordable refinancing program.
After further review, Meredith was found ineligible because he, the owner, is not living in the house.
Even so, Bauwens said, "We will go ahead and review him for a Bank of America proprietary modification."
One mortgage industry source who asked not to be identified said banks often are limited in what they can do in such cases.
"They may not actually own the loan," the source said. "And they may be servicing loans for a group of investors who may not be willing to agree to the refinancing."
If the Merediths had bought their home 10 months earlier, they might have qualified for the military's expanded Homeowners Assistance Program (http://hap.usace.army.mil).
In addition to helping wounded warriors, surviving spouses and military homeowners affected by base realignments and closures, assistance also is available to certain homeowners reassigned to a new duty station who are unable to sell their old homes because they declined in value during the housing crisis.
But HAP help for reassigned troops is limited to those who bought their homes no later than July 1, 2006.
Meredith isn't the only one left out. To date, 730 military homeowners affected by reassignment orders have applied for HAP and been turned down because they don't meet that eligibility window, said Don Chapman, assistant manager of HAP, which is run by the Army Corps of Engineers.
Most bought their houses in 2007 and 2008.
Meredith and others contend that the low point of the housing crisis hit well after July 2006 and thus the eligibility window for HAP should be extended.
He said his financial discipline in saving money and taking care of his obligations in the past is one reason he is not eligible for government help now.
Can you really walk away?
Depending on the state where the home is located, lenders may be able to sue you for the amount of money left on the mortgage after a foreclosed property is sold, said retired Marine Maj. Michael Archer, regional legal assistance officer for Marine Corps Installations East. Service members should be aware that lenders also may charge extra fees during a foreclosure.
The Servicemembers' Civil Relief Act may offer some protections. For example, service members may delay foreclosure proceedings when military service materially affects their ability to appear in court.
The impact of a foreclosure is not limited just to money. Military regulations require that service members pay their debts, and failure to do so may affect your career.
Ultimately, the individual services decide whether a foreclosure should affect a security clearance.
But defense officials have asked the services to recognize that the foreclosure problem that swept the nation did not represent "the normal types of financial difficulty that we believe should negatively affect one's security clearance," said Air Force Maj. Monica Bland, a Defense Department spokeswoman.
But the services make the final decisions.
"How they view the impact of foreclosures and other types of housing distress — like short sales — is up to them," Bland said.
The effect on credit scores
One thing is certain: Foreclosure will affect your credit score. And like most other negative information, it remains on your credit report for seven years, said Barry Paperno, consumer operations manager for MyFico.com.
The company behind that website, Fair Isaac Corp., developed the mechanics for calculating the credit score that most lenders use. It takes information from the credit reporting agencies regarding payment history, the amount of money you owe and other factors that determine your FICO credit score — and helps leaders decide whether to lend you money.
Many landlords check your score before deciding whether to allow you to rent. Insurance companies may charge you a higher rate based on your score; employers may check it, too.
The higher your credit score, the farther it will fall if you're in a foreclosure situation, Paperno said.
The company did simulations using two different credit score points, looking at typical scenarios of how a foreclosure would affect a score.
Those with credit scores of 680 could expect to see a drop of 85 to 105 points. Those with credit scores of 780 could expect to see a drop of 140 to 160 points.
In both cases, that could affect a borrower's ability to get future loans and the best interest rates.
"A foreclosure can keep you from getting a mortgage, regardless of your score and income, for three to five years," Paperno said.
There may be other effects. One sailor said his foreclosure did not affect his security clearance but found when he was making a purchase that his credit card company had drastically reduced his card limit.
Meredith thinks banks should be more flexible in working with homeowners who are trying to avoid foreclosure and are making every effort to pay their debts.
"I worry for the lower enlisted who are in the predicament I'm in," he said.