Washington State Department of Financial Institutions

News Release

Wednesday, June 27, 2007

Lyn Iverson, Public Information Officer
PH 360.902.8731 liverson@dfi.wa.gov


DFI Advises Consumers To Plan For Mortgage Rate Increases

OLYMPIA, WA - The Department of Financial Institutions (DFI) is urging homeowners with adjustable rate mortgages to plan now for potential interest rate increases. Nontraditional mortgage loans, including many adjustable rate and subprime loans, frequently feature a periodic adjustment resulting in significant payment increases. Earlier this month, DFI sent a letter to consumer loan companies asking them to work with consumers who are experiencing difficulties making payments.

As interest rates reset, consumer loan companies are reminded that alternatives to immediately foreclosing - such as making modifications to the loan's terms and converting variable interest rate products into fixed - are available. Creditors should inform borrowers who are delinquent about opportunities for homeownership and debt counseling. In addition, the Servicemembers Civil Relief Act prohibits the sale or foreclosure of an enlistee's property during the military service period.

"We encourage our licensees to provide consumers with information before interest rate changes occur," said Scott Jarvis, Director of DFI. "It is important for borrowers to know how their monthly payments will be impacted. If the loan goes into default," he added, "companies should help borrowers avoid making rash decisions to lower their exposure to predatory foreclosure rescue scams."

DFI regulates approximately 2,000 mortgage broker companies and 350 consumer loan companies.

Washington State has fewer subprime mortgages than most states and one of the lowest foreclosure rates in the nation. However, many borrowers may see rate increases in the months to come.

Borrowers who are facing payment increases are urged to be proactive by:

Tips To Avoid Foreclosure

Foreclosure Alternatives

Special Forbearance. Your lender may be able to arrange a repayment plan that would be based upon your current financial situation and may even provide for a temporary reduction or suspension of your payments. You may qualify for this if you've recently experienced an involuntary reduction in income or an increase in living expenses.

Mortgage Modification. You may be able to refinance the debt and extend the term of your mortgage loan. This will help you catch up by possibly reducing the monthly payments to a more affordable level. You may qualify if you've recovered from a financial problem but your net income is less than it was before the default.

Partial Claim. Your lender may be able to work with you to obtain an interest-free loan from HUD to bring your mortgage current, if you qualify.

Pre-Foreclosure Sale. This will allow you to sell your property and pay off your mortgage loan to avoid foreclosure and damage to your credit rating. If you're unable to afford the house long-term, you may sell the house yourself before the foreclosure sale and save some of your equity.

Deed-in-lieu of foreclosure. As a last resort, you may be able to voluntarily "give back" your property to the lender. This won't save your house, but may help your chances of getting another mortgage loan in the future.

DFI's Free Guide to Home Loans

DFI's Guide to Home Loans CD-ROM and workbook are available on the department's website. The Guide includes worksheets, links to resources, mortgage calculators, and walks consumers through the closing disclosure documents. Copies can be ordered free of charge on DFI's website.