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10 Ways to Protect Yourself From the Mortgage Meltdown

Mark Twain once famously advised, "Invest in land-they're not making it anymore." But for millions of U.S. homeowners, these hardly seem like words of wisdom. Over the past few years, a record number of foreclosures, plummeting property values, and the sub-prime loan fiasco have all combined to create a nationwide housing crisis.

While no one knows exactly when the real estate market will rebound, one thing is clear: It's more important than ever that Americans take cautionary steps to protect their finances and stay in their homes. The question is, are you safeguarded from the mortgage meltdown? Follow these 10 tips to protect yourself.

  1. Don't Fall Behind. If you're one of the many Americans who was seeking employment in 2008, you may be able to write off some of your job search-related expenses. The cost of résumés, paper, postage, faxing, and job-related phone calls can all be deducted. What's more, you can generally write off all travel to and from interviews, job fairs, and networking events. However, to claim these deductions, you must have searched for a position in the same field you previously worked in. If it's your first job search, you won't be eligible for these deductions but may be able to claim job-related relocation costs.
  2. Ensure Your Income. These days, the job market is just as unstable as the real estate sector, so it's important to take steps to protect your income. If you think layoffs might be looming at your company, try to maintain a positive attitude, volunteer for new projects, and boost your marketability by learning new skills. Also remember to keep your resume updated, network with colleagues, and make new connections. If you've already been laid off, check out our guide to Dealing With Job Loss for expert tips and advice.
  3. Cut Costs and Save. Perhaps you've lost your job, gotten a divorce, or experienced a costly medical emergency. Or maybe your adjustable-rate mortgage payments have skyrocketed over the past few months. Either way, if you want to avoid foreclosure, you must try to cut costs and save as much money as you can. To get started, create a detailed inventory of all your current expenses, and make a new budget that eliminates unnecessary spending. For more information on budgeting and saving, visit our Money Management Center.
  4. Request a Tax Reassessment. If you purchased your house within the past three to four years, chances are, its value has declined. If you suspect that your property's assessed value is higher than its current market value, you can request a tax reassessment that might reduce the amount of property tax you have to pay. Bear in mind, however, that property tax reassessment scams are on the rise. To avoid becoming a victim, be sure to contact your county tax assessor's or collector's office directly.
  5. Protect Your Home's Worth. Even if you're making your mortgage payments on time, you could be impacted by mortgage defaults in your neighborhood. If your home is surrounded by foreclosures, it will most likely drag your property value down. Even worse, if a vacancy on your block becomes the target of vandals or squatters, your safety could be at risk. To prevent these problems, organize a neighborhood watch to monitor foreclosed and vacant properties in your area.
  6. Consider Refinancing. If you currently have an adjustable-rate mortgage or option ARM (negative amortization loan), consider refinancing to a lower-interest fixed-rate loan. Keep in mind that to qualify for the Home Affordable Refinancing Plan, the home must be your primary residence, the loan must be held by either Fannie Mae or Freddie Mac, and the amount due must be no more than 105 percent of the home's current market value. In addition, all of your payments should be up to date. To learn more, read Refinancing Your Home Mortgage.
  7. Talk to Your Lender. If you've tried everything but still can't afford to make your mortgage payments right now, contact your lender as soon as possible to explain the situation. Be specific about why you can't pay, be willing to compromise, and remain open to creative solutions. In some cases, a lender might suggest a temporary forbearance, a repayment plan, or a reinstatement plan. Remember, foreclosures generally mean losses for lenders, so most want to avoid them as much as you do.
  8. Read the Fine Print on Rescue Plans. Unfortunately, there are some unscrupulous people trying to capitalize on the mortgage meltdown by offering "phantom rescue plans." Consumers pay hefty fees in the hopes they will help them avoid foreclosure, but all too often, these services never materialize. To protect yourself, rely only on your own lender or a reputable nonprofit mortgage counselor that's certified by the U.S. Department of Housing and Urban Development.
  9. Don't Sell in a Panic It's no secret that's it's a buyer's market right now. So unless you absolutely have to sell your home due to divorce, job relocation, or another unforeseen life event, try to avoid selling for the next 12 months. It's important to remember that real estate is a long-term investment, and it may take several years for the market to rebound.
  10. Be a Smart Shopper.If you're currently looking to buy a home, this could be a great time to lock in a low interest rate and find good deals on properties that were out of your reach a few years ago. That said, it's still important to buy a home that will continue to be within your means. Check out our Mortgage Loan Center to learn more about the process, and use our Home Financing Calculators to determine what you can realistically afford.

Remember, while you can't change the economy, you can take steps to protect yourself during the real estate recession. For more information on how to prevent foreclosure, read our comprehensive guide to Avoiding Mortgage Foreclosure.

Content provided by CareOne Credit Counseling

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