Saving for a rainy day may be best way to avoid financial
chaos
Foreclosed homes may be on the rise, but there is help out there
for local homeowners.
Saving for a rainy day may be best way to avoid financial chaos
Foreclosed homes may be on the rise, but there is help out there for local homeowners.
A hard look at one’s finances and a little strategizing may be all it takes to keep a family in its home, according to Julius Nyanda, co-founder of the Homeowner Rescue Alliance (HRA), a San Jose company working with local officials to help at-risk homeowners struggling with the possibility of foreclosure.
“There are two things a good financial planner can do to help homeowners,” Nyanda said. “The first is to teach people how to get their finances in order and how to spend and save. The second is to be able to recognize when things are starting to go bad and how to get help when they do.”
Many Americans spend more than they make, Nyanda said, which leads to financial problems when a recession hits.
“Every race, every creed, reaches that point in their lives where they realize they don’t really know just how much money they spend,” he said.
Nyanda said every adult with an income should be willing to ask themselves the following questions:
– How is my emergency fund?
– How well do I manage my debt?
– What is my cash flow? How much income do I need to meet my obligations?
– What is my current/future credit situation?
– How well do I manage my budget?
“Homeowners will have to be willing to restructure their finances to make it through the long haul,” Nyanda said.
Homeowners attending one of HRA’s free public workshops being held throughout the 28th Assembly District this month will not only receive advice on how to avoid losing their homes to foreclosure, but financial planning services as well.
“People who have retirement plans such as a 401K are able to save because they never see the money – it comes right out of their paycheck – and so they don’t touch it,” Nyanda said. “But if you put the money directly into the hands of a client, they will spend it. The car will break down, or they’ll go on vacation. But they will spend it.”
Another way to avoid foreclosure is for homeowners to create a five-year plan and compare potential income versus projected spending. Many homeowners currently hold a mortgage they cannot keep up with, said Violeta Perez, HRA’s manager of business development.
“Some people just realistically cannot afford their homes,” Perez said. “Someone who makes $4,000 a month probably shouldn’t be living in a $700,000 home.”
The goal of HRA is to keep people in their homes, Perez said, by negotiating lower mortgage payments for a short period of time to allow homeowners to stay current or by completely refinancing the loan.
“We’ll first try to negotiate a modification, so that the homeowner stays in the same loan but maybe they make lower payments for three or four years. If they aren’t eligible for that, we can look at a complete refinance,” she said. “If they can’t qualify for either of those options, they probably at that point need to realize they don’t belong in the house. At that point we will try to negotiate a 30-day turnaround on a short sell so that the homeowner can get on with their lives.”
A short sell is when a homeowner or lender sells the home for less than what is currently owed on the mortgage as a way of avoiding foreclosure, Perez said, and is usually considered a last resort, as it can have an adverse effect on both a person’s credit and property values.
“Short sells hurt everyone – the neighborhood, the homeowner, the real estate market,” Perez said. “Unfortunately, in some cases, it is the only option.”
One silver lining to the current housing crisis is that people are becoming better at managing their finances, Nyanda said.
“In 2004, all people wanted to know was what their interest rate was,” he said. “Now, they want to know all about their mortgages. The only good thing about all of this is that people will be more cautious about the papers they sign.”
