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We are all aware that homeowners who are seriously behind in mortgage payment are in danger of going through foreclosure. But more and more delinquent owners are find out that they can remain in their homes for years -- that is, if they are willing to put up a fight. Borrower tactics include: challenging the bank or lending company's actions, waiting to file paperwork until the deadline, requesting that the lenders produce the original paperwork, and in some cases, declaring bankruptcy. The national average time to process a foreclosure has grown to 674 days from 253 days only four years previous, says LPS Applied Analytics. In Florida, the average is around 1,027 days, which is almost three whole years! In Washington, D.C., the average is 1,053 days. New York's foreclosure average is about 900 days, representing about two-and-a-half-years. There are indeed those borrowers who are working with their banks in an effort to get back on track in paying their mortgage, but according to LPS, almost half (40%) of delinquent borrowers haven't made any type of mortgage payment in at least two years. How are they getting away with this, you ask?

Attorney Robert Brown says that in some cases, simply requesting that the bank produce the documents proving the bank is the legal holder of the note is enough to stall a repossession/foreclosure. Brown explains that since mortgages are transferred electronically, the original paperwork often gets lost. On occasion, filing for bankruptcy will halt a foreclosure process as bankruptcy requires all creditors to cease and desist all attempts at collection.  David Berenbaum of the National Community Reinvestment Coalition says the answer is simple -- we just need "lenders to work harder to find solutions that allow delinquent borrowers who can afford to make reasonable mortgage payments to keep their homes."

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Several owners of distressed properties -- those who are currently underwater on their mortgages -- are asking the question, "Why shouldn't I just walk away from my underwater home and upside-down mortgage?" Because there are far too many variables involved, this makes it impossible for experts to answer with a simple "yes" or "no" answer. Tara-Nicholle Nelson, a writer for Inman News, is one such expert and here presents six alternatives to defaulting on your mortgage and subsequent foreclosure. While some of these ideas may seem obvious to the average homeowner, she argues that they are certainly underused.

• Nelson suggests eliminating your credit card debt. She has met several homeowners who say they cannot afford their monthly mortgage payments -- most of whom could certainly afford their mortgage payments if their credit card debt was taken care of.
• Secondly, Nelson advises owners get a second job if at all possible. Many people avoid taking this step because of pride or "emotional defeatism."
  
• Thirdly, she advocates starting a side business. Sites like etsy, taskrabbit, and elance make it possible for people to "monetize their spare time, hobbies, and special skills."
• Fourthly, Nelson suggests maybe renting out a room or two. If the idea of a permanent roommate doesn't appeal to you, you can check out sites like airbnb which matches up homeowners with temporary renters.
• Fifthly, owners are encouraged by Nelson to apply for every loan modification program out there. Nelson advises owners not to just assume that a certain loan modification program will not work for them. Nelson recommends the federal HARP program as well as your own lender's loan modification program. Since many programs have loosened their guidelines, it's well worth it to apply for all programs available. You may also choose to visit this government site in order to find other options for your loan modification. You may also try the Home Save program offered by NACA.
• Lastly, if all else fails, Nelson proposes short selling your home. She explains that banks are currently taking at least a couple years after the first missed mortgage payment to foreclose on and repossess a home. If you decide to list your home with a real estate agent who has successful experience at closing short sales, "your chances of selling it and having the short sale complete in time to qualify for the income tax exemption that expires December 31, 2012, are actually better than your chances of qualifying for the exemption if you stop making your mortgage payments right now."
  

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photo credit: Ruin Raider

A loan modification is definitely the best option for underwater homeowners, but if the borrower is not able to get a loan modification, a short sale is the next best thing. Short sales make it possible for banks to allow an owner to sell their home for less than the amount currently owed on the existing mortgage.

Borrowers who short sell their home still experience blemished credit, but they're far less damaging than going through a foreclosure. Both short sales and foreclosures skyrocketed in 2010, but it's heartening to see that the amount of short sales have grown by 26,000 this year and the amount of foreclosures dropped by 255,000. There are some states in America that allow lenders to chase a homeowner down for the difference between the monies due on a mortgage and the sale price at foreclosure auction. But an owner who short sells their home has the chance "to negotiate away the lender's right to sue for that judgement."

Short sales are better for lenders as well because the banks will make more money from a short sale than they will from letting the home be sold at a foreclosure auction. RealtyTrac, an online company that tracks foreclosures, reports that the average price of a foreclosed home was $164,217 in the second quarter of 2011; the average short sale price was $192,129.

Banks and other mortgage lenders will also save costs if they allow a short sale to go through instead of allowing the property to head to foreclosure. Loan servicing companies also have to spend more time and money on due diligence.

Karen Dynan, the co-director of the Economic Studies program at the Brookings Institution, explains, "Servicers and lenders are being heavily scrutinized right now so they probably are more worried than ever about making a mistake in a foreclosure that could subject them to legal liability in the future." Short sales serve neighborhoods better than foreclosures, too. Jed Kolko, the chief economist at the real estate website Trulia.com, said that, "...foreclosed homes often sit vacant while short sales are re-occupied more quickly...short sales tend to depress neighboring property values less than foreclosures do." Foreclosed homes also stand more chance of being vandalized -- either by angry homeowners themselves, or simply opportunistic criminals. Dean Baker, the co-director of the Center of Economic and Policy Research, explains, "It's often not a friendly process so you frequently have cases where people deliberately vandalize homes."

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The lending industry's four largest mortgage providers Bank of America, Chase, Citigroup, and Wells Fargo all proclaim that they will be taking part in the new, revamped Home Affordable Refinance Program, also known as HARP. All corporations are eager to start offering homeowners a new chance to refinance, but now with a much lower interest rate.

The government proclaims that HARP's revisions will help to increase lender competition for mortgage refinancing. JPMorgan Chase reported that the new HARP program will begin "cross-servicing refinancing" now that the rep and warranty waiver releases lenders from any responsibility in dealing with "underwriting deficiencies that may have occurred with the original loan."

HARP may be used to substitute an adjustable-rate or interest-only mortgage loan with a standard, fixed-interest-rate loan -- resulting in lower monthly mortgate payments for borrowers. Chase CEO of mortgage banking, Frank Bisignano, guesses that the new HARP program could lower borrowers' monthly mortgage payments as much as $2,500 a year.

Wells Fargo spokesperson Veronica Clemons explains that Wells Fargo is currently awaiting the new guidelines and requirements from Fannie Mae and Freddie Mac. Clemons says that once they receive the new rules, it will probably still take Wells Fargo some time to make the necessary changes before offering the program's improvements to Wells Fargo customers.

The Federal Housing Finance Agency (FHFA) is expecting Freddie Mac and Fannie Mae to release these new guidelines by November 15th. Bank of America anticipates the new guidelines to be effective on the first of December.

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The Federal Housing Finance Agency (FHFA) recently revealed a new government mortgage refinancing program which includes several rule changes to the Home Affordable Refinance Program (HARP) -- which permits debt-ridden homeowners to lower their mortgage debt. Mortgage loans backed by Freddie Mac and Fannie Mae that were sold to GSEs prior to May 31, 2009 are eligible for the new program.

The new HARP rules eliminate the 125 percent LTV (loan-to-value) ceiling. Before the new guidelines, only owners who owed 25 percent more than their homes worth were eligible for HARP. New guidelines allow owners with above-80-percent LTV ratios. The HARP programs end date has been extended out to the end of December 2013 instead of June 30, 2012 and is hoped to help hundreds of borrowers to improve their household finances while at the same time allowing them to remain in their homes. FHFA anticipates some lenders will be prepared to accept applications for the new program as early as December 1st of this year. HARP has already made it possible for almost a million owners to refinance their current loans; they expect these new provisions to help another one million borrowers who are drowning in debt. To qualify, borrowers must be current on their monthly mortgage payments. Government officials believe that these new rules will prevent foreclosures after getting rid of the main "motivation behind strategic defaults."

University of Chicago economists estimate that almost 35 percent of mortgage defaults are strategic defaults. Several studies purport that homeowners who owe more than their homes are worth are much more likely to simply walk away from their homes and their mortgage debt known as stategic default.

Michael J. Williams, the president and CEO of Fannie Mae, says this new program is a "welcome development." He also explains that, "By removing some of the impediments to refinance, lenders can more easily participate in the program allowing more eligible homeowners to take advantage the low interest rates."

Freddie Mac CEO, Charles E. Haldeman, Jr. agrees that, "These changes mark another step on the road to recovery for the nations housing market."

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