How to Hang On to Your Foreclosed Home

The biggest issue facing delinquent borrowers today may not be unaffordable mortgage payments but the self-inflicted wound of avoidance. As long as homeowners are ignoring the situation, it's impossible for them to restructure the debt or walk away with unscathed credit reports.

Though borrowers are undoubtedly strained, the crumbling housing market has made it easier for those at risk of foreclosure to keep their homes. Values have declined, lending standards have tightened for new borrowers, and foreclosures are an expensive and time-consuming process for the lender as well.

Today's economy, which has little appetite for home or mortgage sales, offers the distressed borrower a glimmer of hope: Lower mortgage payments are better than no payments at all.

Biltmore Capital Group, which buys and sells nonperforming residential mortgages across the U.S., is urging homeowners who are at risk of foreclosure to get in touch and work out a deal. The risk-averse markets are not affording many other options, says Jacob Benaroya, Biltmore's president and managing partner.

"With the tightening credit markets right now, we're finding that less and less of our borrowers are being able to get refinanced," he says. "There was a time we could buy a portfolio where we could finance 30% to 40% of it and another bank would buy it and take on the risk. Right now, we're really focused on working on modifications."

Though many borrowers duck their lenders' letters, calls and visits, that's the worst possible strategy. As more time elapses without contact or payments, fewer options are left, and it becomes more likely that the borrower will lose the home. Foreclosure is not only a black mark on a credit report, it can hurt employment prospects as well, says Greg Womack, a financial planner and president of Womack Investment Advisers.