Posts Tagged ‘avoid foreclosure’


US Foreclosures Up 24 Percent In 1st Quarter 2009

April 17, 2009

foreclosure-03The number of American households threatened with losing their homes grew 24 percent in the first three months of this year and is poised to rise further as major lenders restart foreclosures after a temporary break, according to data released Thursday, April 16th, 2009.

The big unknown for the coming months, however, is President Barack Obama’s plan to help up to 9 million borrowers avoid foreclosure through refinanced mortgages or modified loans. The Obama administration expects its plans to make a big dent in the foreclosure crisis. But it remains to be seen whether the lending industry will fully embrace it, despite $75 billion in incentive payments.

The faltering economy is causing the housing crisis to spread. Nationwide, nearly 804,000 homes received at least one foreclosure-related notice from January through March, up from about 650,000 in the same time period a year earlier, according to RealtyTrac Inc., a foreclosure listing firm. During the quarter, Ohio was the state with the seventh highest number of homes seeing foreclosure activity with about 31,600 receiving at least one filing, up 1 percent from a year earlier.

In March, more than 340,000 properties were affected nationwide, up 17 percent from February and 46 percent from a year earlier. Ohio had 12,600 homes receiving foreclosure notices during the month, 12 percent more than during March 2008. Foreclosures “came back with a vengeance” last month and are likely to keep rising. Nearly 191,000 properties completed the foreclosure process and were repossessed by banks in the quarter. While the number was down 13 percent from the fourth quarter of last year, it is expected to rise through the summer and then possibly taper off.

Fannie Mae and Freddie Mac, the big mortgage finance companies, together with many banks had temporarily halted foreclosures in advance of Obama’s plan. Now armed with the details about which borrowers can qualify, the mortgage industry has begun foreclosing on ineligible borrowers. The Treasury Department has signed contracts with six big loan servicing companies — including Citgroup, Wells Fargo and JPMorgan Chase. Many have already started processing loans as part of the government’s “Making Home Affordable” plan.

In the coming months, there are still likely to be increased foreclosures, especially from vacant houses, second homes and those owned by speculators. None of those properties will qualify for a loan modification. However, overall foreclosures could start to decrease this summer. But even industry executives who emphatically support the plan emphasize that its success isn’t guaranteed. Plus, the lending industry has been swamped by the unprecedented wave of calls from distressed borrowers.

In RealtyTrac’s report, Nevada, Arizona, California and Florida had the nation’s top foreclosure rates. In Nevada, one in every 27 homes received a foreclosure filing, while the number was one in every 54 in Arizona. Rounding out the top 10 were Illinois, Michigan, Georgia, Idaho, Utah and Oregon.


Obama Loan Modification Plan Launches

April 17, 2009

obama2The Obama administration’s loan modification program is finally underway. First participants in the Treasury Department’s program to help homeowners avoid foreclosure include some of the nation’s largest banks.

The Treasury Department announced Wednesday the first six participants to sign up for President Obama’s plan. They include three of the nation’s largest banks: JPMorgan Chase (JPM, Fortune 500), which will get up to $3.6 billion in subsidy and incentive payments; Wells Fargo (WFC, Fortune 500), $2.9 billion; and Citigroup (C, Fortune 500), $2 billion. The others are GMAC Mortgage, $633 million; Saxon Mortgage Services, $407 million; and Select Portfolio Servicing, $376 million.

Additional loan servicers will be added to the list over time, a Treasury spokesman said.

Several major servicers, including JPMorgan Chase and Wells Fargo, said they began modifying loans under the government initiative earlier this month. CitiMortgage signed up for the program on Monday and will start processing applications soon. Wells Fargo said in a statement that they view this modification program as yet another incremental opportunity for thousands of homeowners to preserve and maintain the dream of homeownership.

Distressed homeowners and housing counselors have been eagerly awaiting the program’s launch since Obama first announced it on Feb. 18. However, it took weeks for the government to clarify the terms and for the financial institutions to update their systems and start accepting applications, frustrating many of those in trouble.

Billed as helping up to 9 million borrowers stay in their homes, the two-part plan calls for servicers to reduce monthly payments to no more than 31% of eligible borrowers’ pre-tax income or to refinance eligible mortgages even if the homeowner has little or no equity. The government is allocating $75 billion to subsidize part of payment reduction, as well as provide thousands of dollars in incentives for servicers and borrowers to participate.

The Treasury Department said Wednesday it is capping the payments to servicers to allow more companies to participate. It is allocating $50 billion to the program, with Fannie Mae (FNM, Fortune 500), Freddie Mac (FRE, Fortune 500) and the Department of Housing and Urban Development providing the rest.

The modification plan calls for the servicer to reduce interest rates so that the monthly obligation is no more than 38% of a borrower’s pre-tax income, and then the government would kick in money to bring payments down to 31% of income. Servicers can also reduce the loan balance to achieve these affordability levels. The government will share in the cost, up to the amount the servicer would have received if it had reduced the interest rates.

Only loans where the cost of the foreclosure would be higher than the cost of modification would qualify. Also, Treasury will not provide subsidies to reduce rates to levels below 2%.

In addition to subsidizing the interest rates, servicers will use the Treasury funding to pay for incentives for themselves, homeowners and investors. The program gives servicers $1,000 for each modification and another $1,000 a year for three years if the borrower stays current. It will also give $500 to servicers and $1,500 to mortgage holders if they modify at-risk loans before the borrower falls behind.

Homeowners, meanwhile, will get up to $1,000 a year for five years if they keep up with payments. The funds will be used to reduce their loan principals.


Need To Refinance To Stop Foreclosure

April 15, 2009

If you are in a position that you need a stop foreclosure refinance for stopping foreclosure immediately, you will be happy to find out that these types of loans are available as long as you have a significant amount of equity in your property.

What this means is that the total balance due on your current mortgage, in addition to any other liens on your property such as a second mortgage, property taxes, unpaid judgments, etc. plus the closing costs of a new loan do not equal an amount greater than 65% of the appraised value.

In your application to the lender, you will need to provide an estimated property value, as well as the identification of the liens on the property and the estimated amount due on each of the liens. If the lender is a equity only lender, and if the information you have provided supports their loan to value criteria, they will proceed with ordering an appraisal immediately from a licensed appraiser who will come to your property to determine its current fair market value.

Documents, of course, will need to be drawn up, and an escrow account will need to be set up just as quickly so that the documents can be delivered hastily to the escrow company so you can sign the new loan documents, and they can be reviewed and accepted by your new lender.

In addition, a stop foreclosure refinance may require an extension from your current lender if the trustee sale is imminent, so that your new loan has time to be completed, which includes the necessary time for the wiring and processing of all funds.

By the way, by researching and comparing the best stop foreclosures services in the market, you will be able to determine the one that meet your specific financial situation, plus the cheaper and quicker options.

However, it is advisable going with a trusted and reputable stop foreclosure specialist before making any decision, this way you will save time through specialized advice coming from a seasoned advisor and money by getting better results in a shorter span of time.


Stop Foreclosure

April 15, 2009

Here is a list of 10 things that might help you stop foreclosure, before you even get a foreclosure warning or a ‘late payment’ letter.  It’s not a ‘to do’ list, it’s actually a ‘NOT to do’ list…but follow this like it’s the 10 commandments, because each and every one of these offenses has the potential to send you hurtling over the edge of financial despair.

1. Do NOT fail to accrue savings for an emergency.
Many wants and needs face each of us each day. Every dollar we earn seems to have its path determined before it comes to our hand. This often results in people putting aside little or no savings for a rainy day. Yet, rainy days do happen, that fact we know. I would love to see homeowners with six months of mortgage payments in savings. As a minimum people should have one to three months of mortgage payments as a reserve to help stop a foreclosure.

2. Do NOT get caught without a Home Equity Line of Credit in place.
If something comes up forcing you to stop a foreclosure you will need money fast but the options may be gone by then. At least 90% of foreclosures could be prevented or delayed if home equity lines of credit were previously activated. Setting up an equity credit line can often be done for no cost and can lock in rates as low as 4%. In most cases you pay nothing each month if you do not access the line. No one ever expects sudden health problems, loss of a job or emergency requiring funds fast. By definition, these unforeseen events might prevent obtaining a loan once they occur. By setting up a home equity credit line before you ever miss a mortgage payment, you will have money when you really need it. No reason to fill out an application again, just write yourself a check. When things get back in order, pay back the line and then use it again the next time. Just be careful not to use the line for frivolous purposes and you will love your home equity credit line – especially if you never have to use it.

3. Do NOT miss a mortgage payment.
This may seem like a “no-brainer”, but every foreclosure traces its origin to missing one mortgage payment. Keep these things in mind here:

1. Skipping a mortgage payment ranks as a far more serious issue than missing a utility or credit card payment. Consider not spending on non-essentials, ignoring a different bill or using savings before letting a mortgage obligation pass.
2. Once you have missed a mortgage payment you have started down a slippery slope and missing a second, third or forth payment becomes easier from a psychological point of view.
3. Once you have missed a mortgage payment, your credit suffers an immediate blow, which may stop you from getting the loan you need to save your house. While some foreclosure prevention loans remain options deep into the foreclosure process, how much you can borrow decreases with each corresponding decrease in your credit score. Often the difference between what you could have taken as proceeds from a foreclosure prevention loan or refinance before you miss your first mortgage payment and the loan available after missing several payments means the difference between keeping or losing your home.

4. Do NOT fail to ask for help.
Some say, “A friend in need is a friend indeed” but when it comes to trying to stop a foreclosure, pride must take a back seat. Fear, shame and embarrassment just touch the edge of the deep emotions that affect someone losing their home to foreclosure. The last thing someone in foreclosure wants to do is admit to a parent or sibling that they have gotten into such trouble. Yet no one other than a parent, sibling or close friend would stand by your side and help you through an experience as difficult as a foreclosure. Remember these items:

1. People will learn of your situation when it hits the papers or when you have to move out of the house, wouldn’t you rather they heard the news from you first?
2. Most people whom you care about will be more understanding than you expect and will not try to make you feel like a failure.
3. You may be surprised at what kind of help will be offered and the difference it can make in saving your home from foreclosure and making you feel better about the whole situation.

5. Do NOT ignore the lender.
Somehow getting behind on a mortgage comes with a built in belief that phoning your lender constitutes a sin or that a call to a lender will result in their ripping your head off right through the chord. In truth, most lenders appreciate knowing why you are having trouble and like updates on how things are going, especially when your problems have justified reasons like health issues or the loss of a job. Treat letters from your lender as wake up call from a concerned neighbor rather than a threat from a bully. Remember – banks want to help get you back on track, they want their payments not your house. If you do not think you can talk to them yourself about a plan there are professional foreclosure negotiators who can help if you have fallen behind.

6. Do NOT deny you have a problem.
The technique most commonly employed to deal with a foreclosure or financial crisis remains the “ostrich” method of ignoring the problem. A related option involves reacting to the issues by losing hope and giving up. Following these paths will surely lead to never stopping the house foreclosure. From the time one evens thinks a payment will be late only a limited amount of time exists until the foreclosure auction and with each passing day more options become unavailable. Face the problems, deal with them, and find solutions.

7. Do NOT think you have no options, Do NOT fail to take advantage of them.
You may believe, or your lender may lead you to believe, that you must pay them in full or lose your home to foreclosure. In fact, many options exist which will allow you to keep your house and stop the foreclosure proceeding without paying all of your arrearage at once. Some choices may even reduce what you owe on your property by tens of thousands of dollars. Almost everyone has some options and the sooner you act the more options you have. As the foreclosure date gets closer, options continue to become unavailable until by the foreclosure date only payment in full or a bankruptcy filing remain. Read more about what foreclosure prevention options you have and take action as fast as you can.

8. Do NOT spend what money you have on other bills.
After missing mortgage payments for 3 or 4 months a mortgage company may “call” or “accelerate” the home loan. Once this happens they no longer take a single monthly payment, instead insisting all back payments be made at once. While other options short of paying all arrearage may be negotiated, the biggest mistake people make at this time involves allocation of what little cash they do have. It almost seems natural since the mortgage company says they do not want your money, and the second mortgage company, credit cards and others call everyday demanding money, the proper thing to do it pay the others. If there are ten people calling, making nine happy means fewer calls for you and less headaches in the short run. In the bigger picture this represents a critical mistake. At some point you will need those funds to save the house. Many methods exist to stop a foreclosure but they will all require money. Ask yourself this, “Would you rather lose your credit cards or loose your house?” If you want to keep the house and you cannot pay what they want just save what you can, you will likely need it for whatever steps you might take to save your home. For much more on this subject read “Who to pay when you can pay everyone”.

9. Do NOT stop making payments.
You’ve missed a mortgage payment. Now comes the second month and you get a bill for two payments. Part way thought the month you have the money for one payment, but the bill says you owe two so you do nothing. Think carefully before you fall into this trap. There will come a time when the bank will demand you pay all you owe them and they will take no less. Until the bank refuses to take your money consider making what payments you can. This will show the bank you intend to pay them and show them efforts are being made. More importantly if over four months you made only two payments you may be only 60 days behind, while that may not make the bank happy, it may not meet their criteria to start a foreclosure. Keeping in touch with the bank and making some payments can delay the start of foreclosure many months. Hopefully during that extra time you can solve the underlying problems and avoid ever having a foreclosure. On the other hand, if you have no hope of ever keeping the house anything you pay to stay longer should be viewed more like rent, which may or may not make sense depending on your personal circumstances.

10. Do NOT miss bankruptcy filing deadlines.
Proper filing of a Chapter 13 Bankruptcy always stops a foreclosure in its tracks. When a Chapter 13 plan to pay back creditors meets approval from the court and the debtor pays all the payments under the plan the foreclosure never starts up again. Failure to make payments gives the creditor the option of restarting the foreclosure when it left off before the Chapter 13.

1. Points to remember: You must file on time; failure to meet a filing deadline could result in losing your home.
2. You must make all payments required under the plan; otherwise creditor can start the foreclosure back up.


Can Bankruptcy Stop Foreclosure

March 23, 2009

foreclosures1Stop Foreclosure in the United States

Mortgage companies continue to foreclose on American homes at an alarming rate. The real estate market boomed in the late 1990’s and early 2000’s. Property values appreciated at an unprecedented rate and homeowners cashed in on their new found home equity. At the same time, a variety of “creative” mortgage options became available, options mortgage lenders said would allow people who might otherwise not have qualified for home financing to become homeowners.

Now, interest rates have climbed, and the real estate market has cooled. Homeowners with adjustable rate mortgages (ARMs) and interest-only loans are reaching the “shock point” and seeing payments increase dramatically, but prepayment penalties, rising interest rates, and declining home values make refinancing difficult-especially since these “creative” mortgage options have left most borrowers with little or no equity.

What is Mortgage Foreclosure?

Foreclosure, in simplest terms, is the process by which the bank or mortgage company that has a lien on a piece of real property takes that property back because the borrower / property owner hasn’t complied with the terms of the mortgage agreement. Most often, this is because the borrower has fallen behind on payments.

The exact foreclosure process differs somewhat from state to state, but the real problems usually begin when mortgage payments are 16 days past due. Although it is still possible to work out a repayment plan with the lender at that point, many homeowners do not. This may be because they’re still in the midst of the financial difficulties that caused the past-payment, or simply because they’re hoping things will get better with the next paycheck or the next month or some other change in circumstances.

Unfortunately, many people delay too long while hoping for things to get better. If a homeowner has significant equity (usually at least 15 – 25%) in the home and is less than 90 days past due, there may be a variety of possible ways to stop foreclosure, including refinancing. However, once a loan is more than 90 days past due, or if the homeowner doesn’t have significant equity-which is often the case due to creative financing options-refinancing can be difficult. In those cases, Chapter 13 bankruptcy may still allow the homeowner to stop foreclosure.

How Can Chapter 13 Bankruptcy Stop Foreclosure?

Many people file for Chapter 13 bankruptcy specifically to stop foreclosure. In most cases, an automatic stay is entered as soon as a Chapter 13 bankruptcy petition is filed. The automatic stay will temporarily stop foreclosure, along with all other collection action, regardless of the stage of the foreclosure proceedings. With the automatic stay in place, the debtor and his attorney have the breathing room to work out a Chapter 13 repayment plan.


Children Of Foreclosure Falling Behind In School

March 13, 2009

sad-childSome of the people hit hardest by this bad economy are the youngest. Almost 2 million children nationwide have had or will have their lives disrupted by home foreclosures, according to one study.

These are the children whose families have had to move, sometimes more than once. The youngsters are pulled out of school, often leaving their friends behind without even saying goodbye.

Nine-year-old Kenia, who is in the fourth grade at Fairview Elementary School in Modesto, California, said that is what happened to her. She is new to the school, having moved to the area just a few months ago. She said it is really hard and she misses her friends.

Her classmate Bethany said her best friend since kindergarten just left without saying goodbye.

Heather Sharp, the principal at Fairview, said her school has been the one most affected by the bad economy in the Modesto City School system.

“We have, over the last couple of months, 50 students coming new to the school and 50 students leaving,” Sharp said.

It was so bad that the school conducted a door-to-door search for missing students, she said.

“We had our community aide going out to houses. And they were boarded up, windows boarded, yard brown. She had to go to neighbors to find out where the kids were.”

In terms of raw numbers, California had the most foreclosures of any state from 2007 through January 2009. More than 57,000 homes entered foreclosure. Many of those were in Stanislaus County, where home prices have declined 65 percent since December 2005, according to the Modesto Bee.

Fourth-grade teacher Suzell Tougas said she has lost 10 kids from her class so far this year and is braced to lose more. She usually has a room full of children with every desk occupied. Now, it “looks empty … it’s like a “ghost town”.

She said constant moving is hard on kids.

“Just having to start over and start over is really hard on a child,” Tougas said. “It takes six weeks for a child to adjust … at least.”

While children are in that period of adjustment, she said, they aren’t learning and their studies suffer.

“The biggest issue is that when [children have to move] when there are other stressors going on, we know it puts these kids at greater risk for being behind in their academics,” said Pat Popp, a past president of the National Association for the Education of Homeless Children and Youth.

That is borne out in a recent study by a nonpartisan group in Washington called First Focus. It said that children who move twice in one year are only half as likely as others to be able to read proficiently, and may have a greater chance of being held back. It also found that moving a lot reduces the student’s chance of graduating from high school by half. Read the report here

The report, published in May, estimated that 1.95 million children will be affected by foreclosure over the next two years.

The number of homeless students is increasing dramatically. A study by the National Association for the Education of Homeless Children reported that more than 450 school districts across the nation had an increase of at least 25 percent in the number of identified homeless students between the 2006-2007 and 2007-2008 school years.

A student who moves “may hear the same information again that you learned in your previous classroom or miss information that has already been covered in your class but wasn’t taught in your previous school,” Popp said.

The fallout from the rash of foreclosures likely will have a long-term impact on education, especially in California. Schools get much of their funding from property tax revenues. Real estate values are spiraling downward and so is the revenue.

At Fairview Elementary, Principal Sharp worries about students like 9-year-old Eunice, who has moved twice in the last year. Her parents told her that after they pay their mortgage this month, they won’t have any money for a week.

But, Sharp said, children are resilient.

“We don’t give them credit for what they can handle but, at the same time, the flip side is it’s sad — they shouldn’t have to handle it. They should be able to know they can go to school and focus on reading and math and recess.”


U.S. Home Foreclosure Notices Hit 274,000 In January 2009

March 13, 2009

The number of Americans on the verge of losing their homes fell in January but was still up from the same month a year ago. The numbers would have been higher if not for efforts to stall the foreclosure process.

Across the U.S., more than 274,000 homes received at least one foreclosure-related notice last month. That was down 10 per cent from December, but still 18 per cent higher than a year ago, according to RealtyTrac Inc., an Irvine, Calif.-based foreclosure listing service.

Contributing to the monthly drop was a decision by government-controlled mortgage finance companies Fannie Mae and Freddie Mac to suspend foreclosure sales during the winter holidays. As well, Florida Gov. Charlie Crist brokered a deal in which lenders in that state agreed to a 45-day halt to new foreclosure petitions.

But those efforts may not have much effect in the long run.

“If you don’t do anything to get to the core problem, all you’re doing is extending the housing downturn,” said Rick Sharga, RealtyTrac’s vice-president for marketing. “It’s only a good idea if there’s a corresponding program that dramatically restructures hundreds of thousands of loans.”

Meanwhile, a federal regulator on Wednesday urged more than 800 thrift institutions to suspend all foreclosures while President Barack Obama’s top economic officials develop plans to keep borrowers in their homes.

The Obama administration plans to spend $50 billion to combat foreclosures of owner-occupied, middle-class homes, but is divulging few details. An announcement of the administration’s housing plans is expected in the coming weeks.

Testifying before House lawmakers on Wednesday, Treasury Secretary Timothy Geithner said the government would provide incentives to “try to induce economically sensible restructuring of mortgages,” but offered no specifics.

2 million foreclosures in last year
More than two million American homeowners faced foreclosure proceedings last year, and that number could soar as high as 10 million in the coming years, according to a report last month by Credit Suisse, depending on the severity of the recession.

The RealtyTrac report said nearly 67,000 properties were repossessed by lenders in January as the worst recession in decades, falling home values and stricter lending standards continue to sap the U.S. real estate market. That was up from more than 45,000 repossessed properties in January 2008, but down from 79,000 in December.

Geithner and Shaun Donovan, the new secretary of the Department of Housing and Urban Development, met with officials from housing and other nonprofit groups, top bank executives and industry lobbyists Wednesday to hear proposals for how the new programs to fight foreclosures should be structured.

After the meeting, John Taylor, chief executive of the National Community Reinvestment Coalition, a consumer group in Washington, said he was optimistic the new administration would agree to use government dollars to buy up mortgages and remove them from complex mortgage-linked securities and restructuring them at more affordable levels.

He said support from government and industry officials for that idea was a “giant step forward” compared with opposition to such an approach by the Bush administration.

The Obama administration is also expected to back a push in Congress — opposed by the mortgage industry — to let bankruptcy judges alter the terms of primary home loans. Earlier this week, Obama said it “makes no sense” that judges are not allowed to do so. The mortgage industry argues that this prohibition allows lenders to charge lower rates.


Government May Subsidize Loan Modifications

February 26, 2009

capitol-hillIn an effort to boost loan workouts and their related effectiveness, a plan is reportedly in the works to give mortgage lenders a subsidy if they cut mortgage rates for troubled borrowers, according to the Washington Post.

The Obama Administration is apparently mulling over a proposal that would provide greater incentives for lenders to offer loan workouts to more borrowers in need, not just those close to foreclosure.

Under one possible scenario, the government would share the cost of lowering an at-risk borrower’s interest rate, which may promote the use of loan modifications as a loss mitigation tool instead of less effective repayment plans.

“For example, consider a homeowner with a $200,000 mortgage and a 9 percent interest rate who now pays about $1,700 a month, including taxes and insurance. Lowering the interest rate to 5 percent would reduce the payments to about $1,160. The government and industry would each chip in to cover the difference, about $540,” the Post reported.

The program will likely be financed with the $50 billion in Troubled Asset Relief Program (TARP) funds set aside for homeowner relief.

It’s unclear how such a program would be carried out, though sources close to the plan believe Fannie Mae and Freddie Mac will have some involvement.

Homeowners looking for such aid may be subject to an affordability test, as well as an appraisal of their home to qualify.

Of course, some critics have already argued that many homeowners are simply beyond help, and don’t belong in a mortgage.

Others question why we should subsidize mortgage lenders to do what’s in their best interest to begin with, as a loan modification is often cheaper than foreclosing.

Regardless, most seemed optimistic by the notion of the plan, which was evident in a late rally on Wall Street.

But with re-default rates expected to be in the range of 60-70 percent, it’s hard to get too excited about the initiative, especially with the giant pool of underwater borrowers left to deal with.


Prime Mortgage Crisis Looming

February 17, 2009

Mortgage modifications hit a record in December, 2008. The troubling issue is that many of these modifications are from PRIME borrowers who are attempting to avoid foreclosure. We have heard all about the subprime mortgage crisis, but now it seems to be flowing into prime borrowers as well. The initial problem was caused by subprime borrowers having the inability to pay their loans which caused the economy to head south fast. Now prime borrowers are feeling the pinch and are attempting to modify their current mortgages. Is this something that you should consider?

Now that layoffs are commonplace in America, many more “prime” mortgage borrowers have a reason to be concerned. It is almost impossible to make mortgage payments being unemployed and that is what many unfortunate Americans are having to cope with. Two areas of the economy that are going to feel this economic downturn very hard are print media and retail. Print media is a dying horse as the Internet has changed the way we access information. It is likely we will see many job cuts in this industry. Retail will struggle because consumers are only buying staple products like toilet paper and laundry detergent. Manufacturers and high end retailers are likely to shed jobs in the next six to twelve months as well.


Navigating The Mortgage Modification Maze

February 12, 2009

3Government-sanctioned counseling agencies, local community service agencies and private loan modification agencies concede they have been swamped by demand for loan modifications. The demand has opened the floodgates of loan modification services now offered by real estate agents, mortgage brokers, attorneys, government agencies, lenders, and other professionals.

The demand stems from a proliferation of federal, state and local foreclosure relief and bailout efforts from both government and the lending industry. Mortgage modifications have been around for years, but those recent efforts have raised the profile of the mortgage workouts as an alternative to foreclosures, short sales, auctions, and bankruptcy.

However, homeowners seeking mortgage modifications are at the mercy of lenders, because the workouts are voluntary and often without regulatory standards.

Caught in the lurch, homeowners are finding it tough to know when a modification will work and how to best obtain one.

What is a mortgage modification?

A home loan modification, granted only upon the existing lender’s approval, permanently reworks some of the terms of an existing mortgage in order to make the loan more affordable to the homeowner.

The strategy is typically designed for homeowners struggling to pay their mortgage, not for those who can pay their mortgage or are eligible for a refinanced loan.

Modifications are generally lender fee-free and involve the lender or loan holder lowering the interest rate and or changing an adjustable-rate mortgage (ARM) to a fixed rate mortgage (FRM) with a 30-year term. Some form of mandated homeownership counseling generally comes with the deal.

Less common loan modifications include adding missed payments to the loan balance and extending the term of the loan. Least common is getting the lender to reduce the principal or wipe out any second mortgages.

A mortgage modification is not a refinanced mortgage — a brand new loan written to pay off the old home loan.

“A mortgage is one of the most complex transactions there is. A loan modification is also a gray area for a lot of people. So of course people need someone to walk them through the process to tell them this is what you need and this is what you don’t need,” said Ginna Green, spokeswoman for the California office of the Center for Responsible Lending in Oakland.

Is a loan modification for you?

A loan modification may not be viable if:

• The modified loan comes with payments you still can’t afford.

• Your current interest rate is already low and there’s no room for the lender to lower it further.

• You can make the new payments, but the mortgage balance is greater than the value of your home and you don’t plan on staying put long enough to reverse the loan-to-value imbalance.

• You have not already missed payments on your mortgage or can’t show financial hardship due, say, to job loss, pay decrease, illness or interest rate increase.

• You have other properties, investments or assets that could be liquidated to cover your mortgage debt.

 A short sale (The lender forgives a portion of the debt owed if you can find a buyer), bankruptcy, auction sale, refinance or other approach, short of a foreclosure, is a better option.

“You can do a loan modification and not be aware of where you stand. You can get a loan modification for a home you don’t want to be in,” said Pennington.

A financial, housing or credit counselor can help you determine your best option. Just be prepared to hold down the fort for the 60 to 90 days or more it could take to complete the modification, due to potential complications and document processing times.

The private loan modification route

Because both nonprofits and lenders have been inundated with calls for aid, it may be prudent to hire a private loan modification service to get a foot in the lender’s door. Consider the following useful tips if you hire a private loan modifier:

• Make sure your choice has a clean record. Consider legal and real estate professionals offering loan modification services only if they have current, unblemished licenses. Also check their record with the Better Business Bureau and their respective trade or professional group.

• Get performance-related service. Never pay an advance fee if your lender has already recorded a notice of default. You could be throwing good money after bad. It’s illegal in California for “foreclosure consultants” or any real estate licensee to collect a fee after a notice of default has been recorded.

• Check your state for similar regulations. Make sure to familiarize yourself with any other rules governing private loan modification services and state rules specific to lenders granting modifications. You won’t know if the modification service is adhering to the law if you don’t know the law.

Carefully examine any contract or terms of service before proceeding. If you don’t understand the terms or aren’t satisfied with what’s promised, don’t sign. Get help. That could mean reconsidering waiting for a HUD-certified counselor.

Pay particular attention to what the service will or won’t do with your information, especially when it comes to sharing it with third parties. When information