ForeclosuresMass - ForeclosuresMass Monthly - Interview with the Expert - Helping Families Get Back on Track Financially After Foreclosure (November 2008)

Worried about families being left to "fester" emotionally and financially after going through their foreclosure, Jennifer Matthews launched a new division within her company in order to provide help families begin the post-foreclosure financial and emotional healing processes. A frequent corporate and community speaker, Matthews is a regular guest expert on WUSA TV9's Mind Over Money consumer television show in Washington DC and was one of only 100 people invited to participate in the White House Office of Faith-Based and Community Initiatives Compass in Action Roundtable on Financial Literacy.

According to Matthews, it's imperative that those impacted by foreclosure get serious help in the forms of financial and emotional counseling, money management strategies and credit restoration so that they can reestablish themselves as homeowners or be in the position to enjoy other financial options that may become available to them. We recently caught up with her and gained valuable information real estate investors can use when working with former homeowners trying to regain their financial footing.

ForeclosuresMass Monthly: Jennifer, what do you see is the biggest problem facing people who have gone through foreclosure?

Jennifer Matthews: There are two major problems after foreclosure. First, families need to effectively address the stress and other emotions they experienced before, during and after the foreclosure process. Additionally, the emotional well-being of any children in the home needs to be addressed, regardless of their age. Children of foreclosure lose everything they perceive as their stability: their home, bedroom, friends, school, etc. Children of any age may not know how to express their emotions. Nationwide, foreclosure is expected to impact 2 million children.

The second problem is the lingering credit and debt issues. People often believe the biggest problem is the inability to obtain credit due to a poor credit score. This is a major obstacle, but in many cases, credit scores are low because of debt and/or money management issues. These problems are often present because most people do not have adequate financial literacy and money management skills. In some cases, the lack of financial literacy skills was a major contributing factor to the foreclosure, even if the loan was predatory or subprime.

* Next 37 17 investors only!

JM: Getting families back on their feet faster requires that they increase their financial literacy skills. Understanding cash flow is one of the most important components of financial literacy. Real estate investors understand cash flow, but your average person usually does not. In most cases, we've always been told to look at our "bottom line," or net worth. No one talks about cash flow. Cash flow is how much money you have left over after all expenses and outflows have been made. Cash flow is maximized when families (and investors!) use monthly written spending plans.

Here is an example of cash flow and effectively using it. Let's say a homeowner had an affordable mortgage of $2,000, then it reset to $3,000 - which resulted in the homeowner going into foreclosure. Now they are renting a home or apartment for $1,000. If their income hasn't changed and their expenses are covered, they now have $1,000 of cash flow. A viable option is to use half of the money to pay down bills and save the other half. At the end of one year, they'll have $6,000, at the end of two years they'll have $12,000.

Although the foreclosure is still on their credit report, their credit score begins to improve because of on-time payments. Plus, the additional debt payments help lower debt ratios, which also helps increase credit scores. But most important, they have cash in the bank - which helps families regain a sense of financial security and confidence.

Having money in the bank and a credit score that's going up also makes these families a viable prospect for real estate investors who do lease-to-owns and for mortgage brokers looking to firmly establish their future sales pipelines.

FMM: How can people who have gone through foreclosure start repairing their credit?

JM: Two words: On-time payment. People who have gone through foreclosure usually have late payments showing on their credit reports, so the first step in repairing credit is ensuring that you pay everything on time for a minimum of six consecutive months - and that includes everything from electric bills to library fines and parking tickets.

People trying to repair their credit must also pay down their credit card balances. The reporting agencies look at debt ratio - the balance on the card versus the credit limit. People need to get this down to below one-third, meaning, if the credit limit is $6,000, then the balance should not be more than $2,000.

People should also be wary of closing accounts because that can hurt your score - especially if it's an account that has been open for a long time. These three things account for more than 75% of a person's credit score.

FMM: You can find companies that claim to fix people's credit reports. Is this something people can do themselves or do they need to hire a company to do it for them?

JM: Yes and no. Simply paying your bills on time and paying down credit card balances can help improve low credit scores. However, when trying to repair credit themselves, people can unknowingly wake up a "sleeping tiger" by making payments on some old, derogatory accounts. Most negative items on a credit report stay on the report for seven years. Depending on the debt, if you make a payment on an old, derogatory debt, you may "wake up" the trade line. This means the payment restarted the seven year "clock," even though the balance is zero for the debt. That zero balance debt may stay on the your report, and reported negatively, for another seven years!

The other important caveat I would add is this: Hundreds of credit laws exist on the books. Creditors know each of these laws and consumers don't. If there was an improper transaction related to your debt as it pertains to your credit report, the reporting company may be forced to remove it from your report - but not many people have the means or resources know this.

People opting for professional credit repair need to be very careful with whom they work, whether non-profit or for-profit. My office gladly makes recommendations.

JM: In 2000, I faced a very major medical challenge. Following my complete recovery, I earned an MBA from John Hopkins University. I knew that I wanted to do something to give back to society, so I began helping people with credit repair and money management for the purpose of buying their first home. This experience led me to start a non-profit; three years ago I added a for-profit entity.

When the housing market changed, I realized that no one was helping families who had lost their homes to foreclosure. Families who have gone through foreclosure need hope and options - and together we can give them that by helping them understand cash flow, helping them restore their credit, and encouraging them to get all the emotional support their family needs.

Jennifer Matthews provides financial literacy services, training and mentoring that helps people understand cash flow and better manage cash on hand. Her services also include credit restoration and affordable, detailed, personalized wealth creation systems for her clients. She can be reached by phone at 866-732-4270, via email at info@CreatingFinancialLiteracy.com or by visiting her website at http://www.creatingfinancialliteracy.com.