It seems that the continuing Subprime mess is about to get messier. With Adjustable Rate Mortgages (ARM) for Subprime borrowers adjusting this quarter, the economy definitely showing signs of recession (first job cutbacks in 5 years, foreign investment in U.S. dollars and bonds down) it’s no wonder that everyone’s starting to think the sky is falling.

Know When to Hold’em

Holding onto the house that was purchased just a few years ago at an ENORMOUS increase in price over just a decade ago, is a struggle that many are facing now. The ‘low interest 5/5 ARM with no down payment‘ trap is starting to show it’s teeth. Those ARM’s are costing people up to an additional 30-35% more than they were just the previous month, and with the constriction on lending that the housing bubble has caused already, refinancing isn’t always possible.

The people that have gotten themselves into this mess are facing some difficult choices.

Know When to Fold’em

Many people are trying every trick in the book to keep their house. Some alternatives I’ve been reading about include;

Paying the Mortgage with Credit – Those same people that don’t have good enough credit to get a home refinance, seem to have good enough credit to pay their mortgage with plastic. I’m not sure why the banks don’t see this as a recipe for disaster. It’s pretty clear what the course of worst-case events are; The borrower maxes out their credit cards, stops paying on the house AND the credit cards, and eventually declares bankruptcy. The bank is saddled with a house it doesn’t want, that isn’t worth what they loaned the money on most likely, and as a bonus, a huge amount of unpaid credit card bills. What’s not to love??

Stop Paying, but Live in the House – I’ve been seeing more and more articles on this approach from various sources. The family just ’stops paying’ the mortgage. They continue to pay credit cards and such, but figure since they are going to go into foreclosure anyway, why throw more money away. With the average foreclosure taking up to six months to complete, that’s a lot of time before you have to vacate the premises.

It’s gotten so bad that one of the articles I’ve seen talked about someone that has been in their house TEN YEARS without paying, because of continued litigation efforts. Now there’s a difference between necessity and fraud, and that CLEARLY goes over the line. This isn’t a solution, it’s only a delay tactic.

Know When to Walk Away

Now, many of the people in these dire straits are finding that they have less and less options available to them. Giving back the house is a foregone conclusion, but you still have to have someplace to live, food on the table and gas to get to work.

Deciding when to throw in the towel on a house is a life-changing moment, I’ve had my own home Repossessed before. It tears at you and makes you feel like an utter failure. Doubly so if you’re the primary breadwinner or person that takes care of the finances. That’s why the ‘paying with credit’ or ’stop paying’ tricks come into play. The refusal to realize that the size of your bucket isn’t going to bail you out of your sinking ship. The worst thing that you can do though is to ignore the problem. It isn’t going to go away, and it isn’t going to fix itself (no matter what the government does to intervene).

Know When To Run

Face facts, scrunch up your courage, and take the bull by the horns. Seek professional financial counseling! It might not be too late if you start early. Some serious lifestyle changes will be in store, undoubtedly. But there could still be a light at the end of the tunnel that isn’t a Foreclosure Locomotive.