The financial drawbacks of going through a foreclosure, along with the psychological devastation can create significant turmoil for the individual who chooses that path.  We have always heard of how bad the “F” word really is…

Here are some of those drawbacks:

* The right of home ownership is stripped away.

* Homeowner returns to the rental market as a renter.

* The bank may post a notice of public sale on your front door.

* Your credit takes a nose dive, and a foreclosure will stay on your credit report as well as the public record for up to 10 years.

* Under Fannie Mae guidelines, without extenuating circumstances, you will not be eligible to get a  home mortgage for at least 5 years.

All the above are financially and can be emotionally devastating…but what about “Strategic Default”?…the latest buzz word.  This is a concept where you choose to go through the foreclosure process, accept the credit issues in light of how far upside down you are.  You have the capability to rebound quickly through various portals…an empowering thought…

The Department of Treasury has spoken and banks will have to comply.   On November 30, new guidelines were released that will change the face of loan modification and short sales. President Obama instilled these changes to help prevent more foreclosures, as well as streamline the loan modification and short sale processes.

“Supplemental Directive 09-09″, entitled “Introduction of Home Affordable Foreclosure Alternatives (HAFA) – Short Sale and Deed-in-Lieu (DIL) of Foreclosure” is part of the Home Affordable Modification Program (HAMP).

There are a number of guidelines that loan servicers must follow prior to recommending a borrower for HAFA or “Short Sale”.   Borrowers that meet the criteria for HAMP but who are not offered the trial plan,  do not successfully complete a trial plan,  or default on a HAMP modification should be considered for alternate types of modification prior to being evaluated for HAFA.

Some bullet points of HAFA criteria include:

* The property is owner occupied
* The mortgage loan is a first lien mortgage originated on or before January 1, 2009
* The mortgage is delinquent or will be in the foreseeable future.
* The current unpaid balance is equal to or less than $729,750.00; and
* The borrower’s total monthly mortgage payment exceeds 31 percent of the borrower’s gross income.

*A huge aspect of this program is that if the borrower follows through on the HAFA program, once the servicer accepts the short sale, the borrower will be released from liability of the debt.
* It will allow the borrower to receive pre-approved short sale terms prior to the property being listed.
* Uses standardized processes, documents, and time frames.
* Provides financial incentives to borrowers, servicers, and investors.

These guidelines are set to be in place immediately. Servicers who wish to participate must be on board with Fannie Mae prior to December 31, 2009 with the effective date being April 5, 2010.  This is a major step toward streamlining the short sale process.  It also provides leverage on the part of the borrower to successfully complete a loan modification if this is in their best interest.

Are you upside down in your mortgage and do not know how to deal with it? Are your credit card bills mounting with high finance charges and late fees? Is your stress meter pretty much pegged? We are all facing moderate to severe financial challenges in this economy. Most of us have moderate to high levels of credit card debt. As of September 2009, Americans owed $917 billion in credit card debt with $69 billion of that amount past due, according to the Federal Reserve statistics.

But why do you need a good credit score? If you need to purchase a house or a new car. If you need to get some sort of revolving debt such as a credit card, get a student loan, or get insurance. After you have utilized your credit for these items, does your credit score do you any good? No…your credit score is only good when you NEED it to apply for some sort of credit-related issue.

Step back and evaluate your financial position at your current state and then project how you see it evolving over the next 2-3 years at your current pace. Can you resolve your financial issues during that time frame? Does it make sense? This is tough, but be unemotional about it. Consider your options:

1.] Continue to struggle
2.] Debt consolidation
3.] Debt reduction
4.] Stop paying and allow the debt to go to collection
5.] Bankruptcy

These are choices you can make. Obviously, bankruptcy creates the most long-term problems with respect to your credit rating, but sometimes it is the best choice. Debt reduction and consolidation can often times reduce your debt by as much as 50%. These are some options to consider.

Your credit can be repaired rather quickly depending on the number of derogatories. However, most credit problems can be repaired and removed with in 2-3 years. You have options. Planning the next 3-4 years strategically can not only reduce your financial stress level, but it might save you a significant amount of money. Stop allowing debt to control you. Empower your financial future and decrease your stress level. Consult your accountant and a debt reduction specialist to see if these are good options for your situation.