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Washington Mutual (WAMU), who received a windfall by foreclosing upon a Maryland family after WAMU lost paperwork showing it had been paid, is now paying for losing paperwork in another mortgage.

Since 2002, Joe Lents had not made a payment on his $1.5 million home in Boca Raton. WAMU tried to foreclose, but could not prove that it held the mortgage note because it had lost the paperwork. Is Joe Lents a deadbeat? Well, it sure sounds like it, because he agreed to pay back the money he borrowed. But in the case of WAMU, I say what’s sauce for the goose is sauce for the gander!

Across the country homeowners are using this failure on the part of the mortgagors as a defense to prevent foreclosure and it looks as if federal judges are not unsympathetic. I feel the same; if these corporations want to lend out and then constantly resell these subprime mortgages, they should be required to keep the paperwork in order to at least prove who owes what to whom. Otherwise, we see situations like the two above where both sides can get hurt.

If you are thinking of walking away from your home and letting foreclosure take its course, you certainly need to evaluate all your options. Here are some links from the Federal Reserve Board that are designed to help people find options to keep their house:

Department of Housing and Urban Development (HUD)

• Housing Counseling Agencies
• How to Avoid Foreclosure (82 KB PDF)
• Tips for Avoiding Foreclosure

Department of Justice

• Credit Counseling Agencies Approved Pursuant to 11 U.S.C. § 111

Federal Housing Administration

• You Can Avoid Foreclosure and Keep Your Home

Federal Reserve System

• Putting Your Home on the Loan Line Is Risky Business
• Federal Reserve Education - Foreclosure Resources

Federal Trade Commission

• Credit & Loans
• Credit Repair: Self Help May Be Best
• Mortgage Payments Sending You Reeling? Here’s What to Do

Internal Revenue Service

• Homeowners Who Lose Homes; Foreclosure Tax Relief Available to Many
• Questions and Answers on Home Foreclosure and Debt Cancellation

NeighborWorks® America

• Center for Foreclosure Solutions
• NeighborWorks® America Organizations Locator

Do you know what’s in your credit report? Besides receiving competitive loan rates, your rates for all kinds of insurance and even rent may be affected by what is in your credit report. Not to mention that prospective employers are now pulling credit reports.

The good news is that you are entitled to one free credit report per year from each of the three major credit bureaus. Therefore I am setting up a yearly schedule for pulling your Experian, TransUnion, and Equifax credit reports and reminding you when the time arrives.

The schedule will include pulls in February, June, and October, so as to spot negative issues more quickly, rather than pulling all three at once.

You can obtain your free credit report here: https://www.annualcreditreport.com/

The process is simple, although once you choose Experian, you will be asked a handful of credit questions about your history to verify your identity. You may want to have your financial records available because you will be asked multiple choice questions about loan providers and monthly payment amounts.

Once you are into the Experian site, just skip all the pay options (unless you also want to check your credit score- you will have to pay to do so) and choose your free credit report. At this point, save or print it out for your future use and perusal. If you have any disputed issues, make sure you contact the credit bureau ASAP!

There you go! See you again in June for TransUnion.

Talk about finding a silver lining! Homeowners who are feeling the pinch of falling real estate values and rising adjustable rate mortgage payments are weighing the consequences of foreclosure and finding it may make more financial sense to take the default. Recently

A homeowner who can’t sell his house [told] the L.A.Times, “Foreclose me. … I’ll live in the house for free for 12 months, and I’ll save my money and I’ll move on.”

According to Calculated Risk, that response is exactly what is keeping bank execs up at night: people who are current on their credit cards and have the ability to pay their mortgage, but walk away from their homes because it doesn’t make financial sense to keep paying on a sinking ship. Says a commenter:

I am one of these people. My condo has dropped in value from $520K in 5/06 when I bought it to $350K now. My ARM payment will probably go up $900 per month in June.

But the bank won’t work with him, so he’s taking his finances into his own hands:

I have purchased a cheaper place in a nearby area now, while my credit is good, and will stop making payments on house #1 after house #2 closes. I know the foreclosure will be on my credit for 7 years, but I will have saved a lot of money.

What about his obligation? Well, he makes a good point:

I realize I agreed to the deal when I signed the mortgage papers, but I am within my rights to walk away from a bad deal and suffer the consequences, just as many corporations write down billions of dollars of debt, lose money for their shareholders, and lay off people as a result of their bad decisions.

In certain situations, a 7-year ding on the credit report might save money in both the short and long run. This is not a decision to take lightly. If you are in trouble and thinking about doing this, make sure you thoroughly think through the ramifications and consult a professional to figure out the pros and cons you probably didn’t think of on your own.

See Walk Away From Your Home Part II: Resources for sites to help you review your options to keep your home.

That was one of the questions raised in a Get Rich Slowly post Friday morning. I happened to be the first one to respond on GRS, and part of that was because this was already a decision I had reached. My answer is HELL NO!

Your answer might be different, but then you don’t have my brother-in-law. In fact, I have “loaned” him money in the past. I did so with the expectation of never getting it back and he fulfilled my expectations. I even “sold” him a vehicle once when he was in a pinch. Apparently the agreed-upon price was $0 because that’s what I received.

All told, it only cost me around $3000, which is a pretty cheap price to pay for something that made Mrs. Argonautica happy. I suspect she occasionally slips him money on the sly as well, but I choose to look the other way for the sake of marital harmony.

So if I obviously have not had any trouble giving/loaning him money in he past, then why would I not co-sign a loan? Well, because co-signing is different than giving and:

1. I don’t want creditors calling me when he fails to pay.
2. I don’t want to be legally responsible for his debt when he fails to pay
3. I came up with a better idea last year.

Last year, in the midst of my exploring loaning on Prosper.com , I came to the realization that Prosper was going to be my response if the brother-in-law ever came to me for money again. If he goes to Prosper instead of directly to me, we both benefit. For example, I’d be willing to cover a large percentage of the loan, but other lenders would likely jump in to get a piece of the loan.

I was plannng to lay out all the benefits of utilizing Prosper in this situation, but Tom, over at Prosper Lending Review, already addressed some of the benefits of going through Prosper. Therefore my work here is done. Thanks, for the assist, Tom!