If you are thinking about applying for a mortgage modification, your first step should be to contact your current lender. The new government sponsored refinancing programs are designed for people that are having trouble making their payments.

If you are not having trouble, but would like to take advantage of lower interest rates or you wish to finance for another reason, you might not qualify for the government programs. In order to qualify for those programs, you would be required to sign an affidavit of financial hardship.

The programs are not designed for investors. People that bought houses hoping to resell them for a profit or planning to rent them out do not qualify for refinancing under the plan. The plan was created strictly for owner occupied residences.

It has been estimated that as many as nine million homeowners will be able to obtain more affordable loans with the government’s help. If you are one of the four to five million homeowners with a Fannie Mae or a Freddie Mac loan, you qualify for refinancing, even if you have a “solid” payment history.

If you are currently in default, your bank may be willing to work with you to obtain a mortgage modification. Your new interest rate could be as low as 2%. Banks are more willing to work with their existing customers for several reasons.

At one time, foreclosing on a property was a good idea. The bank could auction off or resell the property for more than the balance owed. But, with home values falling and a lack of qualified buyers, it usually makes more sense for the bank to keep you in your home. In many cases, they are unable to get enough at auction to pay off the existing balance. They retain ownership of the property, but it could be years before they can sell it.

If you are able to obtain a mortgage modification, the terms that you originally agreed to will be changed permanently, but that doesn’t necessarily mean that your payments will stay the same for the life of the loan. Some banks are offering a reduced payment only for five years or so. Remember to think about it carefully, before you sign up for that deal.

One of the contributing factors to the high foreclosure rates seen over the last few years were loans that were written with the 5-10 year low monthly payment. After the 5-10 years passed, the homeowners were unable to pay the new higher payment.

In addition, the amount that they paid for those first few years was only enough to cover the monthly interest on the loan. So, the original principal was still the same at the end of the introductory period as it was when the loan was originated.

It would probably be in your best interest to try and get a permanent mortgage modification, with a fixed interest rate, not a variable rate. We all hope that we will be making more money in years to come. But, that is not always the case.

To qualify for the government programs, there is no minimum or maximum “loan to value” ratio. So, regardless of your home’s current value, you could qualify. That’s an important point, because bank refinancing guidelines normally require that there is equity in the home.

So, what’s the downside? The biggest complaints that people have had since the new guidelines were created has to do with the bottleneck created by the huge number of customers that are applying for mortgage modification.

Some people have waited for months only to find out that they do not qualify for refinancing. The best suggestion for anyone that is applying for a mortgage modification is to keep in contact with the bank.

Some of the customer complaints indicate that the bank did not contact them, but the banks say that they attempted to contact the customers. So, call them on a weekly basis. Make a note of the day and time that you called, as well as the person that you spoke with.

If you are not satisfied with the way that your deal is handled, you can file a complaint with your state’s attorney general. Filing a complaint won’t help you get your mortgage modification, but it might make you feel a little better.

Obtaining a loan modification is one way that a consumer can avoid foreclosure. Not everyone qualifies and not all banks are participating. But, if you are having trouble paying your mortgage, it is worth your while to call your lender and find out what programs they offer.

A loan modification can take several forms. It is a permanent change in the original agreement made between you and your bank.

The items that can be changed include the interest rate, the length of the mortgage, the amount of the monthly payments and the amount of the principal, but only in rare cases is the principal reduced. Usually, adjustments are made that increase the principal in order to cover any past due amount or other charges that could result in a lien being placed on the property.

Banks all have waiting periods. Some lenders seem to take longer than others to get back to their customers. Bank of America, for example, has been mentioned in hundreds of complaints to the Florida state attorney general for failure to act promptly when contacted by homeowners.

Typically, a bank will offer the customer a “trial period.” If you are offered a trial, you will be asked to make your payments on time for three months in a row. Some banks allow you to make the modified, lower payment. Others ask for your current payment, whatever that may be.

You may be asked to provide proof of income, as you did when you obtained the original loan. Whether or not things have changed with your income is one of the aspects of your current financial situation that the banks will look at.

In normal refinancing, a lender will usually deny applications when the home’s value has fallen below the loan amount. This is one of the things that the government was able to change. It was an important change, because home values have fallen across the country.

So, even if you have tried and failed to obtain refinancing in the past, you may qualify for a new loan modification. The government program is called the Home Affordable Modification Program. Some half a million mortgage holders are currently in the trial process for the program.

In order to qualify for the program, your original loan must have originated on or before January 1st, 2009. Two recent pay stubs and the most recent tax return must be submitted and you must sign an affidavit of financial hardship.

In addition to the loan modification, which will be available only until December of 2012, unless changes to the current program are made, there is a refinance program that ends in June 2010. There are other options that can help you avoid foreclosure, as well.

Several companies are offering to buy properties from homeowners that are facing foreclosure. That could save your credit rating from the damage that a foreclosure can do.

There are also foreclosure prevention services that help homeowners with the negotiations, which can sometimes be lengthy and confusing. The companies charge various fees for these services. So, it’s a good idea to do a little comparative shopping before you sign up for the service.

You might be wondering how much lower your payments will be with a loan modification. While that depends largely on the original interest rate, the principal and the length of the loan, some homeowners have had their monthly payment reduced by nearly $100.

Temporary modifications are another suggestion made by some banks. Instead of getting a fixed rate for the life of the loan, the bank could reduce your payment for a period of five years or more.

A temporary mortgage modification is a good idea for someone that expects their financial situation to improve over the next few years. If you or your spouse is currently unemployed, for example, you may be able to afford a higher payment in five years.

The goal is to get the payments down to around 30% of your monthly income. That is considered affordable by financial experts. If your income is not sufficient for even a reduced payment, then you will have to consider other alternatives, such as selling your home. But, with the loan modification and refinancing programs, as well as other available options, you should be able to avoid foreclosure.

Did you know that many lenders are making efforts towards mortgage modification for some home owners that are experiencing troubles? Mortgage modification is a term used when a lender changes the terms of a loan in order to help the home owner make their payments.

The types of modifications being made are unique to each situation though. And each home owner will need to find out what their options are. What kinds of modifications can be made on a mortgage to help the struggling home owner?

Adjustable rate mortgages were at one time seen as a good way for many people to get into owning their own homes. It was great while the interest rates remained low. But when rates began to rise, the payments went with them. A typical adjustable rate mortgage starts out with a low rate that is guaranteed for a year or two.

Then after the freeze time is over, the payments begin marching up. For each percent rise in the rate of the mortgage, home owners could see their monthly payments grow by $200 or more. This puts even the most generous of budgets under great strain. One mortgage modification that is very common is making an adjustable rate fixed. This helps the home owner to budget their payments and keep them current.

With the economy in trouble, millions of people have been laid off from work. Some are lucky enough to have a cushion to fall back on until they get a new job. Some do not have a cushion to fall on and even if they do, the cushion will run out at some point. Mortgage payments get behind when providing food becomes the number one priority.

A few are lucky enough to find a job after a few months, but find themselves in a hole with their mortgage lenders. They are making enough to start making their mortgage payments again, but they are behind on their monthly payments. And the lenders are adding penalties on to the amount they owe.

What do they do? Another type of mortgage modification is when the amount that they are behind is absorbed back into the loan. That way, with a steady job, the home owner can make their payments and keep their homes.

In some areas, the value of homes has dropped significantly in the past couple of years. For anyone that bought their home when prices were at their highest, they often owe more than their house is worth. That is called being upside down on their loan.

If they find themselves without a job, they are stuck between a rock and a hard place. When they try to sell their homes, they cannot get enough out of the sale to pay off their mortgage. And the lenders want the money back that they lent for the purchase of the home.

One mortgage modification that can be used, although it is rare, is when the amount owed on a home's principal balance is reduced. It is rare because the lender is going to lose a significant amount of money. But it has happened, and it may be another option for borrowers.

Loan modification may be just what many home owners are looking for. A lot of people are behind on their mortgage payments. Some may only be behind 30 days. But 30 days can become 60 days or 90 days very quickly.

And then the lender starts sending the dreaded notices that if the payments are not brought up to date, they will begin foreclosure proceedings. The home owner begins feeling trapped and has no clue where to go or what to do. Let’s see what loan modification is and how do you start.

What is loan or mortgage modification? Loan modification means that the home loan is going to be changed so that the home owner can afford the payments better. This can involve adjusting the interest rate, the duration of the loan or other factors. Circumstances around each mortgage modification determine what changes to the loan can be made.

If the rate of a mortgage has jumped because it is adjustable, then one option would be to make the rate fixed. If the home owner has been out of work for a long time but now has a job, then the amount that is past due may be absorbed back into the loan.

Now how do you start? The first factor of how to start is when. With the current government programs, it is often best for the home owners to contact their mortgage lender as soon as there is trouble. Some lenders will wait until you are 30 days behind before they want to talk. But it never hurts to try sooner.

Another thing you need to do is find out who actually holds the mortgage on your home. Just because you make your checks out to ABC Company does not mean they actually own the loan. They may only be the mortgage servicer. Call the company and ask for paperwork on who actually owns the loan.

Once you know this, you know who you need to be working with. Be honest with the person you are working with. They will ask for a bunch of paperwork to show your current financial circumstances. Lying or exaggerating can get you into hot water and will end your chances of actually getting a modification of your loan terms.

How do you bring your personal situation home with the mortgage lender? Write a letter explaining how you actually got to this point. Again, be honest. In a brief concise letter, explain the full chain of events that has led you to this point.

And make sure who ever you are talking to is the right person. You need to be speaking with someone in loss mitigation, not collections. Collectors are there to hound people into paying. Loss mitigation is there to help reduce or prevent losses for the company. Be patient. What has taken you months to get into is not going to be reviewed and resolved in a day or two. Maintain contact with the person you are working with, but keep your cool.

And at the end of the day, be realistic. You are in a deep hole before you get to the point of loan modification. The hole may be deeper than the lender is willing to help you out of. But keep asking. If one person says no, another may say yes.

Obtaining a loan modification is the latest magical solution to foreclosure. One new government program after another has been released to help borrowers modify the terms of their mortgages to make them more affordable, and thousands of private companies have begun to offer assistance in qualifying for a loan mod. Obviously, if everyone who can make a payment was given such a program, the foreclosure crisis would have been solved before it began.

Unfortunately, though, the real world has foiled many of the designs of the mortgage industry central planners and regulators. All of the government programs have failed for a variety of reasons, including voluntary participation, lack of clearly defined rules for compliance by the lenders, and unaccountability. Even for the few mandatory participants, the same problems keep creeping up.

Homeowners should expect to run into at least three major issues when attempting to qualify for a loan modification. These problems should be considered before the borrowers decide whether to apply for a modification or not, as they may not apply to other solutions to foreclosure. Of course, some of them will apply to alternative plans to save the house.

First, homeowners will have to deal with unresponsive mortgage lenders and servicing companies. Loss mitigation departments of these large financial institutions have not dedicated the resources necessary to assist all of the borrowers attempting to apply for various solutions. This means that collection departments may call owners tens times a day, but any call made back to the loss mitigation department will not be answered in a timely fashion, if at all. Faxes containing personal financial information and application documents are routinely lost, as well.

Second, the documents governing the securitization process for the mortgage may restrict the number of loan modifications that can be offered. The pooling and servicing agreements (PSAs) may only allow a certain percentage of loans in a pool to be modified. Even if the borrowers can show financial ability to pay a modification plan, they may have to be turned down by the servicing company, unless the loan is moved out of the securitization pool.

A final consideration homeowners should make before applying for a mortgage modification is if they would require a principal reduction. Many loan mods would not be affordable for the long term without decreasing the amount the borrowers owe in total. However, any reduction of principal may be considered by the IRS as taxable income to the owners. This may result in a large, unaffordable tax bill that will cause the modification to fail is the borrowers can not make the monthly mortgage payment and pay the taxes for the forgiven debt.

While loan mods can be a great way for homeowners to modify their mortgages so they are more in line with the borrowers' current financial situations and market conditions, there are also a number of drawbacks. If the servicer takes too long to respond, the foreclosure will proceed anyway. If the PSA does not allow for any more modifications, qualified borrowers may be turned away. And if there is a large tax bill due to the modification, it may be impossible to pay the mortgage and the taxes.

For mortgage lenders, there is every incentive to negotiate with homeowners for a mortgage modification or other solution that will prevent foreclosure. Thus, the very few number of borrowers who end up receiving any help should surprise everyone. If banks and servicers have so many reasons to offer loss mitigation options to homeowners, why do so few of them end up with a reasonable plan to save their homes?

In many cases, the pooling and servicing agreements (PSA) that cover mortgage securities and the servicing of payments require companies administering loans to engage in loss mitigation. Furthermore, the negotiations have to be meaningful, as foreclosure of the property should only be used as a last resort and should be avoided unless there really are no other options. But servicers often engage in entirely worthless negotiations.

In fact, a large and increasing number of loans are covered by such requirements to engage in meaningful negotiations with borrowers in default. The following is a list of mortgages that should be mitigated:

• FHA loans
• Fannie Mae and Freddie Mac loans
• Loans where mitigation is required under the PSA
• Lenders which took bailout money under the Financial Stability Act

The fact that so few homeowners end up with any reasonable solution to repay their loans, even when they are financial able to do so, indicates that servicing companies are either negligent or malicious in continuing to pursue foreclosure in some cases.

Banks and servicing companies also change the guidelines for a completed loss mitigation package from week to week, it seems. There is always someone else who has to be sent the paperwork, a new fax number for the loss mitigation department, a lawyer who has to be contacted for updated numbers, and so on. What homeowners go through just to ensure their package of personal financial documents has been received by the lender is often an exercise in patience and frustration.

It is not just homeowners that become frustrated at the process. Even judges and regulatory authorities are hearing more often about cases in which banks drag their feet, never return phone calls, refuse to offer solutions, and simply proceed with the foreclosure. This is despite many security or servicing agreements requiring loss mitigation, and banks receiving money from the government to do modifications.

With all of the money that has gone to the banks, supposedly to provide foreclosure help and stabilize markets, it is astounding that there is such a high level of incompetence in working with borrowers. If the problem all along has been a weak housing market and too many foreclosures, the simple act of providing loan modification plans to borrowers who can pay back their loans should be relatively easy to accomplish.

Of course, not every homeowner will qualify for a modification, repayment plan, short sale, or other reasonable solution, but every homeowner should be given the opportunity to explore options. If foreclosure is considered a last resort to satisfy a mortgage loan, and servicers are required to negotiate with borrowers, then the cases of lost paperwork or confusing guidelines should be far fewer.

Over the past months, foreclosure rates have kept going up, which points to the fact that the green shoots in the economy have not yet begun to help average people. Obviously, homeowners want to avoid foreclosure, as do the banks. Lenders do not want numerous, low-value foreclosed homes on their books, due to the growing risk of the bank failing. Homeowners usually do not want to lose their homes. This means if the two work together early enough, a solution should present itself.

Most of the foreclosures are due to bad lending practices at the start of the lending process. Not too long ago, people considering buying a home had to show a significant down payment, as well as one year of work pay stubs and other proof of income and asset. This proved that they did have financial resources, were good at money management, and would likely keep up with loan payments over the long term.

Equal opportunity in lending laws meant that banks began offering loans to people who could not afford to pay them back under the banner of diversity. At the same time, loan originators were getting paid large commissions, based on the size of the loan. So with those two factors combined, it was much easier to get a loan, as borrowers did not have to prove their financial situations and large loans were given out to people that could not afford them. These loans were commonly referred to as “liar loans.” Most of the bank failures today have come from banks leveraging mortgage driven securities that were run into the ground because of these bad loans.

Millions of new homeowners were not totally informed on what they were signing when getting their loans. They ended up getting adjustable rate mortgages, usually with interest only introductory periods, even though they were informed before the closing that they were going to be put into a fixed rate mortgage. When the rates adjusted or the interest only period ran out. their housing bill could triple and most homeowners could not keep up with the payments.

If you are a homeowner and find yourself in this situation a loan modification may be your best solution. A loan modification is a negotiation technique, were you can get various terms of your loan changed. Think of it as a refinance option through your current lender, where you can start affording the payments on your home again. As direct lending to consumers has dried up due to the recession, modifying existing loans is becoming more popular.

Most mortgage loans are built around two items -- the interest rate and the time period over which the loan has to be paid off. The interest rate is the percentage of the remaining balance that the bank takes as a profit on each payment. If a loan's interest rate is too high, homeowners will find that they end up paying much more to the bank than the house is worth. Most interest rates are compound interest, as well, and over the lifetime of most mortgages, that can add up to a very large amount.

Loan modifications will either help reduce the interest rate or extend the repayment period of the loan. To get a loan modification package, homeowners will have to prove to the bank that they have run into financial hardship and difficulties that have lowered their monthly income significantly. They will also have to show that this situation has prevented them from having the financial means to keep making their monthly payments.

Borrowers may want to get help from a loan modification specialist to do the negotiating with the lender or servicing company. Especially these days, when the banks are so overwhelmed with people calling in for help, they usually just tell victims that they are “working” on the file, or it is in “processing” and they are waiting for an answer. When homeowners are in foreclosure, if the lender does not help or answer questions immediately, it may be best to find help elsewhere as quickly as possible.

Working with a loan modification specialist can help speed up the process of getting a modification approved because these people work with the banks all the time and the bank employees know them and will speak to them and get a plan worked out more efficiently. In a foreclosure situation, homeowners do not want to be stuck sitting around waiting for the lender to “approve” a loan mod, while it is also actively working on selling the home through a sheriff sale. Having a professional negotiator is often the way to go, if the owners want to get a loan modification before their home sells at auction.

The most recent news of the Obama administration's Home Affordable Modification Program (HAMP) has not been good. Although more modifications are being accomplished on a cumulative basis, less than 10% of the homeowners who qualify for a workout solution under the terms of the program are offered one by the mortgage servicers and lenders. While this seems like a poor performance, it should have been expected.

One big roadblock for any loan modification plan is the pooling and servicing agreement (PSA). This is the agreement that dictates terms regarding how mortgages are pooled, securitized, sold to investors, and then serviced by other companies. And one of the terms many of these agreements contains makes it almost impossible for certain homeowners to be offered a modification.

In fact, some pooling and servicing agreements state that no more than 5% or 10% of the mortgages contained in the pool can be offered loan modifications in the case of default. So the US Treasury Department, in reporting that 9% of homeowners who qualify for plans have been given modifications, is simply reporting information that could have been estimated just by examining the structure of the mortgage industry.

These PSAs set a limit to how many mortgage modifications can be offered by servicers, and these companies may face liability from the trusts or investors that own the underlying loans if they offer too many workout plans to borrowers. They may find themselves in breach of the servicing terms they agreed to, even if it would allow more homeowners to avoid foreclosure, and they are not willing to take this risk.

This is one of the problems of the government getting involved in the mortgage markets. While it can appropriate $75 billion to effect more modifications, it has not changed or interfered directly in the PSAs that limit the number of such programs that can be offered to defaulted borrowers. Thus, the government is encouraging lenders to offer more plans than the legal, agreed-upon limit in the PSA.

If the lender has hit the limit in the number of loans it is allowed to modify, the mortgage may have to be removed from the pool in order to assist the borrowers. If this is the case, the owners may have to get a copy of the pooling and servicing agreement to find out what the servicing company is instructed to do for loss mitigation and how the mortgage security is constructed.

Especially in cases where the borrowers are having difficulty negotiating a loan modification or other solution to foreclosure, it may be helpful to examine the PSA. These agreements sometimes outline how companies are supposed to proceed in cases of default and where loss mitigation efforts would allow the borrowers to keep their homes. Having a competent attorney review the PSA could be extremely effective.

For securities that have been sold publicly, as many have, the PSA will be available through the Securities and Exchange Commission. Searching the SEC's website can provide the actual language of the PSA for homeowners to examine. What the borrowers must find out is the name of the trust in which their mortgage loan is located. This information may be found by submitting a request to the mortgage servicer.

When these limits are placed on servicing companies, both homeowners and investors in mortgage securities suffer. Of course, not every loan will be modified and not every modification will be successful, but it makes little sense for borrowers to be shut out of the process just because other homeowners defaulted first and the limit imposed by the PSA has already been reached.

The government was to have saved us all from the housing crisis. They were going to stabilize high prices, make housing affordable for low income borrowers, and help foreclosure victims stay in their homes. Nearly half a dozen plans were put into place to make sure that borrowers could not only avoid foreclosure but keep on borrowing money to purchase or refinance properties. What went wrong?

According to a new report by Fitch Ratings, between 65% and 75% of modified subprime mortgages may redefault within twelve months of the modification agreement. This is despite efforts by the government and the banks and the servicing companies to provide assistance (some of it by taxpayers). But what is the real problem with these modification plans -- why do homeowners fall behind again so soon?

One of the main reasons, of course, is that the properties whose loans are modified are still worth less than the total amount owed on the mortgage. Homeowners who get a reduced payment on a house that they still owe far more on than it is worth still have little incentive to reward the banks with so much money for homes they feel they were tricked by the mortgage and real estate professionals into purchasing in the first place.

Reductions of principal balances are exceedingly rare for lenders when working with homeowners. The lenders do not want to write down the value of a significant number of loans as well as reduce payments for the borrowers, because this will drastically reduce the value of the mortgage on the bank's balance sheets. But many homeowners seem to be choosing foreclosure over paying hundreds of thousands of dollars to the banks.

Another reason that loan modifications fail so often is that homeowners do not work out beneficial ones with their lenders. In fact, most are offered repayment plans instead of true modifications, which can actually increase the monthly payment while not reducing the interest rate or principal due on the loan at all. It is no wonder that borrowers facing financial hardships fall behind on more expensive mortgage payments.

In an economic climate defined by rising unemployment and underemployment, even families that originally qualify for a modification agreement may find that the mortgage is unaffordable after a layoff or cutback in hours. While one foreclosure may motivate borrowers to try to save their homes any way possible, a second one may convince them that renting is a better option after all.

The fact that the government has been appropriating so much money to propping up failed financial institutions and other corporations means that fewer resources can be used by successful companies to hire or expand business. And the $12 trillion in new money created by the Federal Reserve has ensured that prices for consumer goods are remaining stable or rising, not falling as they should during a depression.

What homeowners' goal should be when negotiating for a modification is a mutually beneficial plan that is both affordable and a reasonable price for the property. While this is often easier said than done, with the right amount of persistence and advice (although preferably not from a failed government plan's bureaucrats), it is possible to end up with a modification without a 75% chance of being defaulted on.

This weekend on the radio, there was an interesting discussion among a handful of financial and mortgage experts about the banking industry's current fascination with loan modification programs. The participants in the discussion came up with some very good points about the modifications that lenders are currently offering to homeowners in foreclosure trying to lower their monthly bills and how banks use lawyers to pursue foreclosure but do not want to deal with a homeowner's legal representation.

First of all, the banks are beginning to get into the loan modification game because of simple survival concerns. On a mortgage with a high interest rate, they may initiate negotiations with borrowers to lower the rate from, for example, 8% to 5%. Most borrowers who are behind in payments and facing a financial hardship may view this as an exceedingly good deal and not hesitate to take it.

However, the banks' willingness to begin modifying some mortgages is based only on short-term survival concerns. Lowering the rate by only a couple of percentage points is just not helping many homeowners. Within six months of a loan modification, borrowers are falling behind again and may even end up right back in foreclosure.

This gives the financial industry all the ammunition it needs when it goes before the United States Congress, states it has been attempting to help homeowners, the modifications are just not working as borrowers fall behind again, and it would be great if the Congress could just give the banks a few billion dollars more to see them through the economic depression.

The lawyers in Congress, of course, acquiesce to the banks' demands, hand them over several billion more dollars of money taken from taxpayers -- the very people the banks are supposed to be modifying loans for -- and send the lenders back to the foreclosure drawing board. The lenders, in turn, go right back to making bad modifications and then sending their lawyers in once the homeowners redefault.

This is one more reason why banks love their own purchased lawyers but simply hate dealing with a lawyer who has the morals and ethics to help borrowers in financial distress. Some banks are now even recommending that borrowers do not get legal representation when attempting to work out a solution to foreclosure.

Banks are pushing this line on homeowners for the same reason they originally pushed subrpime, stated income, and no documentation mortgages -- it works out for the banks over the long term but hurts borrowers. Originally, the foreclosure process used to have just a couple of steps:

• Homeowners fall behind on payments.
• Foreclosure process begins.

Now, bowing to political pressure, banks have added another step, although the end result is the same:

• Homeowners fall behind on payments.
• Banks offer inadequate mortgage modification.
• Homeowners fall behind on modification.
• Foreclosure process begins.

By offering the bad loan modification deal to borrowers, banks can claim political cover later on when the plan fails. Homeowners are not aware of their rights during foreclosure, so therefore fall for the bank's offer of a reduced interest rate, even though they know they will not be able to make the payments for the long term.

The lenders have always counted on the inability of borrowers to understand the complicated mortgage documents they sign to purchase their home. Banks themselves do not understand the documents, but they know that they can create enough money out of thin air to purchase lawyers and judges who will interpret the loan paperwork in the interests of the mortgage companies.

In conclusion, banks are beginning to offer loan modifications they know will later default for two primary reasons. First, it gives them political cover when they ask for more bailouts from Congress later on. And second, offering a modification preempts the homeowners' search for a company or lawyer who can help them negotiate a much better deal or determine what lending laws the bank has violated. But this almost always ends up as a good deal for banks and a horrible one for borrowers.

The Boston Federal Reserve Bank has examined two of the leading causes of foreclosures across the nation, and neither of these causes are the often-cited "unaffordable mortgage payments" due to adjustable rate loans. The two main causes of the high foreclosure rate and failure of loan modification programs are declines in home values and job loss.

The real estate bubble encouraged speculation and buying of homes (or second and third homes) as investments. Now that prices have fallen in the most inflated markets, homeowners are more than willing to walk away from a losing investment than to keep making payments, whether they can afford them or not.

The fall in prices has always been a drawback of government plans to address the foreclosure crisis. Many of these plans have required banks to mark down mortgages to be in line with current property values, forcing the banks to recognize huge losses just to unload a home that may face foreclosure. But the banks have been unwilling to acknowledge these losses, opting for foreclosure and bailouts instead.

Also, the government plans to help borrowers can not address the problem of speculators who took out mortgages hoping for 20 or 30% price increases in a year who never had any intention of living in or improving the property. Homes were seen as little more than expensive, low risk, high reward stocks, and now these investors are just walking away from losers.

Without the huge appreciation rates experienced during the boom, these homeowners do not want to keep paying for their properties. A loan modification to a lower monthly payment will not change the fact that the value of the property has fallen and that it will be difficult, if not impossible, to sell it for a reasonable price. Walking away is seen as a better, quicker option.

The issue of job losses due to the economic recession is also a change in a family's financial situation that may lead to a foreclosure that mortgage modification will not help with. Banks are notoriously difficult to negotiate with for a reasonable modification, and a significant change in income is almost a guaranteed way to get turned down without professional help.

Unfortunately, the redefault rate on government assisted modification programs is extraordinarily high. This may be due to the fact that the programs are meant to address "unaffordable mortgages," but are being used by borrowers to stay in their properties for a few extra months before falling behind or deciding to walk away.

Real estate speculators may be able to obtain a modification from their bank in the hopes of the market improving over the next few months. When property values remain stable or decline even further, continuing to pay for the overvalued property (even with the payment lowered) is still a losing option for investors.

For homeowners who have experienced a job loss but qualify to modify their loan, they may discover that they can not keep up with the payment because their income has dropped too far. In fact, selling the home at a short sale and renting may be a better option at this point, instead of throwing scarce money at an expensive negotiation plan.

While rate adjustments have caused serious harm to homeowners, it is not the main cause of the foreclosure crisis. The fall in housing values and the recession are taking more out of borrowers than a subprime mortgage. Thus, the plan to address the foreclosure rate by modifying "unaffordable" loans will not be nearly as effective as politicians seem to believe.

Many homeowners facing foreclosure but who have nowhere else to go if they lose the house tend to take any solution that presents itself. The latest popular alternative to foreclosure is the loan modification, an agreement where the bank and borrowers reduce the cost of the loan for a period of time to allow payments to be made on time.

While this seems like a good idea for a large number of borrowers, some may not be in a financial position where changing the terms of the mortgage makes sense. Although the government has created several programs to encourage more lenders and borrowers to engage in modification programs, the redefault rates are surprisingly high.

In fact, nearly half of the homeowners who utilize government services to work out mortgage modifications with their banks fall behind once again, with even fewer options to save the home than before. And without a reduction in the principal amount of the loan, once borrowers default again, selling is not even an option.

Obviously, loan modification is not a panacea to the foreclosure crisis and, for a disturbingly large number of homeowners, it is not even much of a temporary alternative to losing the house. And the main reason that the modification programs tend to fail is that borrowers are caught in longer term financial hardships caused by the recession.

For people who are laid off or have their hours reduced, they may be able to qualify for a loan modification based on their decreased income, but it is not a sustainable financial plan. One large financial setback that occurs after a reduction in income, without an emergency fund to cover it, can push the borrowers right back into default.

An unaffordable mortgage due to an adjustable interest rate rest is far different from an unaffordable mortgage due to a significant change in a homeowner's financial position. With the former, a modification of the payments may help keep the borrowers out of foreclosure. With the latter, it may only prolong the inevitable.

Economic reality is fighting with the government's program to modify millions of mortgages for people who may not be able to afford the payments for the long run. And the more money that is allocated to helping borrowers who will ultimately fall into foreclosure anyway, the longer the recession will be drawn out.

Unfortunately, because the politicians embarked on the path of bailing out financial institutions instead of refusing to give them money and creating the incentive to work with borrowers to avoid foreclosure, now everyone wants a federal bailout, banks and owners alike. But this political course is only causing the depression to worsen.

New government programs are not working to help stem the foreclosure tide, and even old government programs are just exacerbating it. Nearly 10% of FHA loans made in the first quarter of 2008, even after the initial declines in real estate prices and collapse of the subprime mortgage market, are already in default by the tenth month of payment.

Having 10% of a government insured mortgage market in default will just contribute further to the stagnant economy. Home prices will be lowered and borrowers will be kicked out of properties -- unless they obtain a government mortgage modification, of course. As far back as August of 2008, the FHA was indicating it may need its own bailout due to bad loans.

Can this really go on any longer? Can we expect the government to determine which borrowers should get loans and then determine which defaulted borrowers should get loan modifications? So far, it seems that bureaucrats have done a terrible job of it. Can we really expect politicians and lawyers to solve such a serious economic problem?

Loan modification is the process where the terms of a mortgage are modified outside the original terms of the contract agreed to by the lender and borrower (i.e mortgagor and mortgagee). Many American homeowners today are behind on payments or facing foreclosure. Banks more than ever are offering loan modifications to help restructure loans in default. Many homeowners are not qualified or capable of keeping up with the payments as property values have fallen and adjustable-rate mortgages have increased payments.

Loan modification can be one option that can help a homeowner keep their property while providing time to rebuild credit if it has fallen, and also bring the loan up to current. Typically between 3-6 missed payments can initiate foreclosure proceedings with most banks and mortgage companies. Not everyone can qualify for refinance while involved in a loan modification. It is most likely up to your primary lien holder or mortgage holder. If you are looking to consolidate your home equity loan into one payment you will need to apply for refinance. Depending on how long ago your loan was modified and what kind of credit you have, you may be able to refinance the property into one consolidated payment. You can contact your lender directly with borrower authorization and have someone walk you through your current options at your bank.

If the request for a loan modification is rejected, you may want to try it again in a couple months. Some lenders do not document the loan modification attempt you make. They are often motivated by changes in the housing market and their intent changes as more and more loans go into default. It does not hurt to try again. It is smart to work with a loan modification specialist, a seasoned loan officer or an attorney who specializes in real estate, mortgage lending and loan modifications. They understand how to speak to loss mitigation department, personnel and can get a general idea of the mood and trends of your lenders loss mitigation department.

Many homeowners do not learn the basics of the foreclosure process, instead trusting the first person who offers assistance. There are literally thousands of pages contained in books, magazines, and on the internet that describe what to expect when borrowers miss a mortgage payment. It would be wise for homeowners to take advantage of these cheap or free resources.

Usually, reading through a little bit of information about the foreclosure process and other lending laws, homeowners will have a good idea of what the process is, as well as possible legal or other defenses against losing the home. Any option is more favorable than going through foreclosure and having it recorded against your credit score. Loan modifications are becoming more attractive for not just homeowners but banks and lenders as well. Because of the high rate of foreclosures that lenders are currently dealing with, more and more they are turning to alternative solutions to avoid the foreclosure process just as much as the average homeowner.

Yesterday when I was in the car listening to the radio, I heard an extremely interesting commercial advertising loan modifications for homeowners who are unable to afford the current monthly payments. What made the commercial so strange, though, was the fact that these modifications were being offered by a former mortgage broker.

The commercial went something like this. "My name is John Doe and I owned one of the largest mortgage lending companies in the country. I was written up in various trade journals and recognized to be one of the best brokers in the country over the past eight years. Now, after all this experience, I have moved into the mortgage modification industry and am helping people lower their monthly payments by $300, $400, sometimes even $500 a month."

Two questions immediately came to my mine while listening to this seemingly farcical advertisement. One, if this person ran one of the largest mortgage brokerages in the country, why is he still not lending money to homeowners? And two, why would homeowners who were put into bad loans by this mortgage broker trust him far enough to pay for his loan modification services?

Most of the lenders who have left the mortgage industry have done so because the products they were offering are no longer available. In most cases, these loans were subprime mortgages, and no financial institution or investor is willing to buy any more of these. And most of the largest brokerages in the country over the past decade have specialized in subprime loans, many of which have subsequently gone into default and foreclosure.

So it may be safe to assume that, since this radio advertiser admittedly used to own a large brokerage company, it was probably engaged in lending money to people who could not afford to pay it back. Many people who obtained subprime mortgages were never even able to afford the payment on the teaser rate, let alone when the payment adjusted higher after a few years.

But now this individual, after having run a mortgage company during the real estate boom and bubble years, has gotten into the foreclosure help business! First he helps push people into foreclosure, lets go of his mortgage lending company, and rides to the rescue of all the poor fools that he tricked into buying mortgages in the first place in order to help them modify their predatory loans.

Any one who made large numbers of subprime mortgages during the past decade should probably not be trusted to help homeowners suffering from foreclosure negotiate with banks for loan modifications. Borrowers need to consult with an attorney to help them determine the best route to stop foreclosure and if the loan was even valid in the first place. Trusting the same crooks who helped set up and profit from the housing market bubble is not the answer.

Even when homeowners are negotiating with their bank, they are often surprised to find that they are still getting collection calls from customer service representatives threatening foreclosure. It seems a bit contradictory that a lender would both put the foreclosure on hold to negotiate, but still call and threaten borrowers with the loss of their homes if they do not get the payments back on track.

The bank will not threaten foreclosure just because homeowners are negotiating for a loan modification or other solution to the problem. The negotiation process is not why they would mention foreclosure as one of their potential options if the workout agreement fails to go through. There are reasons, though, why the bank would keep threatening to foreclose even while negotiating with owners.

In fact, the lender can and will continue to threaten foreclosure if borrowers are behind on their mortgage payments. Even if they had just missed their first month, they could probably expect collection calls to start coming in with bank representatives threatening foreclosure if the borrowers do not pay up in time. If they later are approved for the modification program, the collection calls will cease, but if the owners are turned down then the foreclosure will proceed.

Most homeowners would be doing the right thing, though, in keeping in contact with the bank and attempting to qualify for a loan modification or any other of the bank's programs to stop foreclosure. Banks do not always approve loan mods, but it is better to try to qualify for this option than just lose the home or pursue options with other companies, of course.

When homeowners are in the middle of negotiating with the mortgage company, then the bank has not approved any final program yet and the owners are still behind on the regular monthly payments. So the lender will keep threatening foreclosure until the mortgage modification goes through and the borrowers begin making the required payments on the plan.

Until the modification is approved, accepted, and homeowners have begun making payments on it, foreclosure is an option for the lender. But borrowers should not worry too much about the bank's threats, as long as they are still moving ahead with the negotiation process. Keeping in touch with their representative at the bank and keeping on top of the foreclosure lawsuit process will help them avoid any surprises, like a judgment being ordered or a sheriff sale scheduled.

However, homeowners do need to make sure they know exactly where they are in the process of negotiating with the bank, to be on the safe side if anything goes wrong. There are far too many instances of borrowers thinking they were applying for a modification when, in fact, the bank had already turned it down and was moving towards foreclosure.

With all of the talk about the US Treasury bailing out the financial industry and now potentially the auto industry, everyone has seemed to forgotten the actual homeowners who are suffering from foreclosure. Simply stealing from Americans to paper over losses at large corporations does not address the disastrous monetary policy the government has been engaged in for years. But can we even expect that the government will really do anything to stop the rising tide of foreclosures?

The answer is that they can never save over twenty percent of all delinquent mortgage loans. The recent announcement that Fannie Mae and Freddie Mac will modify many more loans is little more than another good "sound bite" that looks good but means almost nothing. In fact, there is a much better chance the government will make the situation worse than it is right now, and then attempt to address its own problems with more of the same solutions later on. Does anyone else expect numerous future bailouts?

But for homeowners to qualify for the Fannie Mae and Freddie Mac programs, the loan can be no more than ninety percent of the home's present fair market value. Since values have dropped somewhere between twenty and forty percent from just two years ago, and those values were improperly inflated by at least ten percent or more in some areas, and most of these loans were ninety percent or more of supposed (inflated) value at the time made, the question begs to be asked: how many loans of this nature could possibly be helped? The answer is an amazing low figure of about 5 to 10 percent of the loans owned by Fannie and Freddie may qualify for a mortgage modification under these guidelines.

After the destruction of the subprime lending industry, the freezing up of credit for borrowers who were once desirable candidates for mortgages, and a foreclosure crisis that has dumped tens of thousands of homes onto already flooded markets, property values could do nothing else but decline sharply. Do you really think your loan is ninety percent of your home's present value after the market has been destroyed and home finance has dried up for all but the most credit-worthy buyers?

And even if your loan is eligible, then the Government Sponsored Enterprises will only reduce payments down to 38 percent of gross income. This is almost never enough of a reduction to make a lasting impact on a family's financial situation, especially in the case of a job loss or severe medical emergency. And finally, why would any homeowner even want to continue paying on a house that is declining in value, even if the payments are slightly less? The government's modification program is another ill-conceived plan coming on the heels of previous ill-conceived plans, and its eventual failure will result in more equally destructive bailouts and programs.

Many foreclosure assistance companies in the private sector have negotiated many, many loans with Fannie and Freddie, as well as all of the other large banks and mortgage servicing companies. And many of these properties have been much worse off than having a loan at ninety percent of the present value of the house. As well, they have also modified payments closer to twenty-five percent of gross income, thereby freeing up more of a family's income for more important uses after a financial hardship.

When homeowners attempt to work with a mortgage company or servicer on their own to put together a plan to pay back the arrears on the loan, many find that they are offered a bad to impossible deal by the lender. Too often, though, borrowers take anything they can get, even when they know they will not be able to afford the payments for longer than a month or two. There is a far better way to negotiate, however, which can result in a more reasonable modification or payment plan.

Step 1. Homeowners should realize that the plan offered by their bank can be negotiated. When lenders offer a forbearance agreement, it is not a take it or leave it deal, and it is usually the most profitable plan that the bank can propose for itself. But if it will be impossible for the borrowers to make the payments on time for the length of the agreement, then it is no plan at all. Such proposals should be taken as a starting point for negotiating the most mutually beneficial plan to stop foreclosure, rather than the bank's final word. But once the homeowners and borrowers agree on a workout, the lender will not allow it to be changed, which makes it even more important for homeowners to have a reasonable plan.

Step 2. In order to begin the process of negotiating a defaulted loan, homeowners need to have all of their loan documents handy, as well as financial forms and documents that prove they can make a reasonable mortgage payment every month. Otherwise, it will be an uphill battle persuading the lender that it should offer any mortgage modification or other plan. This step is also important because it gives the borrowers a chance to find any errors or violations of law that the loan origination or servicing company committed that would make the foreclosure illegal if challenged in court.

Step 3. If any violations are discovered, such as loan terms that do not follow guidelines set forth in the Truth In Lending Act or local foreclosure notification rules, the homeowners need to outline these infractions. Then the bank must be made aware of them and made to understand that, if the owners pursue the issue in court, it will potentially drag out the foreclosure process for years. A loan modification, on the other hand, would only take a few days or weeks to negotiate and would save the lender untold sums of money in legal fees and lost revenue on the loan.

Step 4. Homeowners must also delay the foreclosure for as long as possible. This might mean having a sheriff sale delayed, requesting the bank put the process on hold in the courts, or even filing bankruptcy in self-defense as a last resort. This gives the bank and borrowers the time necessary to negotiate without the threat of an impending auction or court hearing, and will make the entire situation much less stressful on the owners, as long as they are actively working on the final solution to foreclosure.

Step 5. Homeowners need to construct their own plan based on the amount of money they can put down right away and how much they can afford on a monthly basis. This proposal must also meet the lender's underwriting guidelines and appear reasonable for the bank to accept. A permanent change in monthly income and a lack of available cash on hand may make this part of the negotiation process much more difficult, but the bank will create its own proposal that is often the exact opposite in terms of affordability to that of the homeowners' proposed workout plan.

Step 6. Finally, once both the borrowers and the mortgage company have a proposed plan, it is up to the owners to begin negotiating with someone higher up in the company than a lowly loss mitigation representative. This might mean contacting the manager of the division or a vice president of the company. Most customer service reps only have the authority to give homeowners a take it or leave it plan, whereas higher ups can make decisions to make the proposal more affordable and meet somewhere in the middle of the bank's and borrowers' plans.

Following the steps listed above, most homeowners who have the time and resources to dedicate to the process can end up with a vastly superior loan modification program than the typical ones banks propose. Forbearance agreements and modifications occasionally receive bad reviews from owners who received expensive ones and were unable to make the payments consistently, but these are often plans involving only the mortgage company's idea of what borrowers should have to pay. Any method to save a home is negotiable, and the more homeowners become involved in the process, the better the deal they will receive.

Homeowners who fall behind in their mortgage but recover from a hardship and are able to get back on track often attempt to work with their lender to qualify for a plan to make up the missed payments. But often, they are disappointed in how poorly the mortgage company responds to their requests for help, even when the borrowers have cash on hand to pay down the arrears.

But the bank never returns phone calls, no matter how many voice messages are left, yet collections calls may continue unabated. It would almost seem illegal for lenders to act this incompetent, but they do it every day and pass up legitimate chances to allow financially stable borrowers to get back on track and stop foreclosure before the house is auctioned off or an eviction date is set.

But of course, failing to work with homeowners who are behind on their mortgage is not illegal. A family was paying, then it stopped paying. The mortgage contract says that if the borrowers stop paying the loan on time every month, the bank can take the house into foreclosure and attempt to have it sold at a public auction to satisfy the debt. There is nothing illegal about enforcing a contract that both parties entered into voluntarily and with all the terms in writing.

So foreclosure and refusing to work with a homeowner is not illegal, per se. Regardless, though, it is almost always a bad idea on the part of the bank not to try and work with the borrowers, especially if they can get caught up again in a reasonable period of time. Banks lose money on foreclosures, and if a homeowner has actually recovered from a financial hardship, then there is no reason why the lender should not at least make an attempt to resolve the situation.

But with so many foreclosures going on right now, if the loan is with a big bank or servicing company, self-represented borrowers are often pushed onto the back burner while those represented by foreclosure help companies, government agencies, or attorneys can get through to the lenders more easily. In fact, it might be worth asking for some help from a reputable assistance provider in this situation and requesting a mortgage modification or other workout plan through the help of a professional.

Unless a borrower is able to sit on hold for multiple hours throughout the workday in order to make sure the bank gets faxes and for status updates, the mortgage modification may find itself on the bottom of the pile, while others are worked on more that are receiving calls every day from the interested parties. It can take days just for a lender to acknowledge that it has received a fax giving a third party authorization to speak with the lender about the loan, and even longer for it to acknowledge receiving a completed loan workout package and reviewing it.

Unfortunately for homeowners, banks are completely incompetent at helping people solve foreclosure in a timely manner unless they are forced to do by legal threats or given a deal that it would be certifiably insane to turn down. Servicing companies and financial firms that have securitized mortgages into bonds can actually make more money by letting a house go into foreclosure, so they have no incentive to make a loan work and decrease their own profits.

Finding a legal defense to foreclosure can seem like trying to locate a needle in a haystack. Although there are tens of thousands of pages of regulations on the lending industry, and thousands more on the procedures that must be followed even to begin a foreclosure lawsuits, finding which laws the bank violated during the term of the mortgage may seem an insurmountable task for the average homeowner. But banks do make these mistakes all the time, and rely on the inability of borrowers to figure them out.

But any fraud, mistakes, or violations made during the origination of the mortgage loan have been quickly covered up through the mortgage securitization process. Loans are packaged into mortgage-backed securities (MBS) and sold to holders which then use trustees to administer the loans. The trustees can not be held accountable for many claims that homeowners have against the company that originated the mortgage.

Trustees, although they may administer the loans, do not lose money when a property goes into foreclosure, as they are paid their fees in any event. The holders of the mortgage securities will lose money as homeowners stop making payments, but one property or another going into foreclosure is a small matter when even one mortgage-backed security may be comprised of hundreds of different loans spread throughout the country. This illustrates the concept of spreading risk around, but it also makes it less worthwhile for MBS holders to care about one or another borrower.

Even further removed from the origination company, MBS holders, and trustees are the mortgage servicing companies, which are hired to collect payments and perform the day-to-day operations necessary to administer the loan. These companies will also be compensated regardless of the success or failure of the loan, and so have little incentive to help homeowners apply for loan modifications or otherwise save their homes.

But homeowners are unable to get at the end holders of the securities or the trustees in order to negotiate a deal if they fall behind on payments. If the origination company is not already out of business, all the rest of the parties are protected from legal responsibility and loss in case of default. Only the investors that purchase parts of the securities and the homeowners themselves suffer monetarily as a result of a foreclosure, and they are unable to speak with each other to modify a mortgage.

Thus, no one at the servicing company cares terribly much if the homeowners are pushed into foreclosure or not. This is one reason why most companies offer only a forbearance agreement, keeping the original interest rate and payment the same but giving borrowers the ability to pay extra every month to get caught up. Even if they offer a modification, though, it can be expensive and nothing more than an elaborate set-up for the borrowers' inevitable failure.

Servicing companies are also paid a flat fee for administration of a mortgage, so it is quite a bit easier to push the loan to a local law firm to pursue foreclosure. It is also less expensive than spending the time and hiring the personnel necessary to work with homeowners on a solution that will help them stop foreclosure for the long term. Although mortgage holders lose more money on a foreclosure than a modification, servicers that actually work with the loans every day lose more money in a modification.

If a mortgage servicer even offers mortgage modification programs at all, they are usually taken care of by the least-paid help in the country, if not the world. How much a customer service representative from India or Sri Lanka understands the problems of the American housing market is yet to be determined, but this is really not even that important. Some of these outsourced loss mitigation departments are not even given the authority or knowledge to modify a loan for a qualified borrower.

Thus, working with a mortgage servicing company, for many homeowners, may simply be a dead end, as the companies have no reason to care about making sure the loans have the best chance to succeed. The executives and attorneys for the servicing companies and the trustees, however, are required to care about these mortgages and mitigate the losses to the end holders of the MBS and property owners. When a trustee is involved, mortgage servicers are often forced to negotiate and negotiate a deal that works out in the homeowners' interests.

This is why borrowers must use their legal defenses against those responsible for the mortgage, rather than the parties who are just paid flat fees to push homes into foreclosure when they fail and force them through the courts as quickly as possible. The important point to remember is that mortgage holders suffer more from a foreclosure than a modification, whereas the profits of servicing companies suffer more from modifying a loan than just dumping it onto a local attorney to foreclose quickly.

Many homeowners would be able to afford their mortgages if not for a temporary financial hardship or an inopportune interest rate reset. They are not facing a serious long term change in their income, but were only temporarily unable to make a payment. Interest rate resets on adjustable rate mortgages may be even more unfortunate, as it is clear so many borrowers did not understand and were not made aware of the fact that the cost of the mortgage would drastically increase a few years after they bought their home.

For families in this situation, it would seem easy enough to identify the goal that would allow them to keep their home; namely, they must lower their monthly mortgage payment. Of course, this is much easier said than done, but there are a number of routes that borrowers can take to try and obtain a more affordable payment, even if they have bad credit or they have recently changed jobs. While using a foreclosure lender is a viable option, in times of a credit crunch and lower property values, it may be wise to consider other solutions first.

Before they try anything else, all homeowners should call their lender and ask the loss mitigation department what is needed to qualify for a mortgage modification. Borrowers will probably have to send in a number of financial documents and fill out bank forms proving they can make a reasonable payment every month. This solution may significantly lower the payments but will typically not lower the total amount owed on the loan, as a modification is usually just about reducing the interest rate in order to make the monthly cost more affordable.

Borrowers may also want to consider the use of a foreclosure help company to do the services listed above. If they do not have the time to spend on hold with the bank for hours a day, then they might want to unload this part of the process to professionals. The owners can do pretty much everything else to qualify for a workout solution on their own, but banks currently have so many foreclosure cases that they need to be called almost everyday until the homeowners are given an answer to their application. If the borrowers can not make that call everyday, the should seriously consider paying someone else to do it on their behalf.

Another, more speculative, option is for homeowners to default on their loan completely and hope that the bank sells their mortgage to the government. The government will probably step in and negotiate the balance down and reduce the borrowers' monthly payment before selling the loan back to some other bank to collect the payments. Wall Street banks are being bailed out for hundreds of billions of dollars of foreclosure victims' money -- homeowners behind in payments might as well get in line to get a piece of their own money to save their homes.

Finally, as one last option to lower monthly payments dramatically, homeowners can try to fight the foreclosure in court for as long as they can get away with. It may take years for the legal process to be over, if borrowers answer the initial complaint and demand that the bank show proof that it can foreclose on the house and has been in compliance with all the applicable laws. There are so many regulations that banks will have violated some clause in a state or federal law, or lost the original mortgage note. In any case, some homeowners have lived mortgage free for nearly a decade while they file motions in court, wait for hearings, and file appeals at every step of the process. Even if they lose the house in the end, they will have a long period of time in which to save money and pay down other debt.

Families who experience a temporary setback in their income may find it almost impossible to get back on top of their mortgage payments, with little help offered from the mortgage company itself. The banks make it difficult to do so, as they begin accelerating fees and interest in an attempt to eat up as much equity from a house as possible, if it goes to a foreclosure sheriff sale. But homeowners do have options to lower their payment, either through modification of the loan, a potential government bailout, or fighting the lender in court, not to mention refinancing with a specialized foreclosure lender.

One of the sad facts about the experience many homeowners have in regards to foreclosure is that, no matter how hard they work at keeping on top of a repayment plan or modification agreement, they inevitably fall behind again and face foreclosure a second time. Unfortunately, this can make it all but impossible to work with the mortgage company for another agreement to prevent the loss of the house.

In fact, for homeowners facing a second foreclosure on their home in a short period of time, they will probably find it very difficult to convince the bank to modify their mortgage again. The lender will not be too interested in helping this type of borrower out of foreclosure again, since they fell behind on the original modification agreement or repayment plan.

When a bank grants a loan modification or similar workout agreement, it is making what it believes to be a reasonable offer for a second chance to help foreclosure victims get back on top of the mortgage. It is really a last ditch effort on the bank's part for it to give homeowners the benefit of the doubt that the hardship that caused them to miss payments in the first place was temporary.

But once the borrowers that received help have fallen behind again, the bank can see a pattern that the owners just may not be in a stable enough financial position to maintain an on-time house payment for the long term. And the mortgage company may not be willing to give up any more interest income by changing the terms of the mortgage to make it more affordable for the homeowners.

This is not to say getting another modification from the lender is impossible, as it is not and has been done before in similar situations to this. But homeowners who have fallen behind in one plan must be prepared to work a little harder this time in convincing the bank that whatever caused them to fall into foreclosure was only a temporary setback. A well written, detailed hardship letter will be important for this.

Also, it would be a good idea for the borrowers to save up some money to make a large payment to the bank to start the plan, and make sure their personal finances are in as good of shape as they can make them right now. That means no frivolously spent money at for clothing or online music stores, especially as the bank will be asking for bank statements to verify the borrowers have not just been blowing all of their money every month instead of making the mortgage payment.

One thing worth considering for homeowners who have fallen into foreclosure twice is if the house is even worth keeping at all. And if they decide can not afford the house anymore, it would be better to focus their efforts on dragging out the foreclosure process in the court system for as long as possible. That will give the homeowners an opportunity to save up extra money and pay down any other debt to make the transition from one house into another a lot easier.

For many reasons, mortgage companies are unwilling to provide much assistance to homeowners to stop foreclosure a second time on a property. Homeowners should keep this in mind when agreeing to a modification or forbearance agreement, as their failure on the plan would make it much more difficult to qualify for any other workout solution. Although it can be done, it is not easy to qualify for, and may be much easier to seek out other options to save the house or decide to sell.

Recently, a rumor has popped up online about the largest mortgage lenders in the country halting any more loan modification programs and beginning to take a much harder line on foreclosures. Although it seems hard to believe, when the actual process of modifying a mortgage is considered, it is even more difficult to understand how banks can keep offering this solution at all to homeowners. The trends of corruption and deception that were exhibited so plainly during the housing boom are still on display as the bubble collapses into a foreclosure nightmare.

Unfortunately, with the amount of greed and deception that was spread around as homeowners lied to get loans, appraisers inflated values, and bank lending compliance officers looked the other way, too large a percentage of borrowers in foreclosure could never have afforded their homes under any circumstances. But now after living in these properties for a few years, they have gotten attached to them and will be willing to go through the same cycle of lying to stop foreclosure.

And with many homeowners who were not qualified for a mortgage now facing foreclosure, the applications for workout programs and mortgage modifications are flooding into the lenders. Homeowners who used fraud to obtain a mortgage in the first place have not suddenly straightened out because their home has declined in value by 30%. On the contrary, many of them will be quite willing to engage in more lying to qualify for a lower payment or just to stay in their homes for a few more months.

In such an environment of corruption and entitlement, the banks have also played a large part (in fact, probably the primary part). As the bubble bursts, lenders have realized that they have stuffed their client bases with people who took advantage of the loose money policies as much as the banks themselves did. But the banks' mistakes in giving loans to deadbeats may lead to severely negative consequences for the honest families who have done all they could but experienced a financial hardship anyway.

Many times, lenders accomplish very little even when they qualify homeowners for a modification or other arrangement. Besides the lying on the workout plan application, many homeowners will not have the required down payment to begin a program. Too often, they will agree to a plan anyway, never make the initial down payment, and just end up right back in foreclosure within weeks, having wasted potentially months of time promising they have enough resources to get back on track.

But even when homeowners can afford the down payment to begin a repayment plan, banks typically raise their monthly payment by a considerable amount. Loan modifications that actually lower the bill are much more uncommon than simple payment plans where the regular payment is due, plus a portion of the defaulted amount. Inevitably, this is a set-up for failure, and many borrowers will miss a payment within months and the bank will start foreclosure again.

Offering workout arrangements to homeowners in foreclosure, for the most part and especially due to the subprime debacle, is probably just not profitable for mortgage companies. They spend money and resources to staff a loss mitigation department just to see homeowners never make a payment on the modification, and experience high turnover rates of customer service employees who refuse to deal with another hundred calls from the same handful of tenacious clients. The fact that slowly impoverishing much of the country was the plan all along is never mentioned, of course.

Thus, loan modifications seem more like a PR stunt by greedy banks and a way to keep the foreclosure crisis at as slow a burn as possible and grab as many real estate assets for as long a time as circumstances allow. Of course, some borrowers would make it through an entire workout arrangement, but too many end up defaulting again in a few months, as the payment plan just set them up for failure. The only good that comes of it is slightly less bad press for the lenders, but even that small amount of goodwill has almost entirely evaporated as trust in the banking system has fallen.

If the banks really have begun to take a much harder line and go after homeowners more aggressively, this can only mean more bad news for Americans. Unfortunately, this may not be such a huge overreaction by lenders, who have padded their books with fraudulent buyers who will lie as much as they can to save their homes and live free for a few more months. Many innocent homeowners will lose their properties because of such a decision, but at least the banks can line up for taxpayer-funded bailouts while the rest of us suffer homelessness, higher prices, and rewards for institutional corruption.

When facing foreclosure, one of the most commonly suggested methods to save the home is to work with the mortgage company, either to set up a forbearance agreement or loan modification. A mortgage modification can often be the perfect solution in situations when homeowners can not afford a standard repayment plan, refinance out of the process, or save up enough to pay off the arrears. Working with the lender to modify the terms of the loan, though, can give them the fresh start and second chance they are seeking, and allow them to begin making an affordable monthly mortgage payment again.

Due to its strong-arm tactics, lenders are often perceived by homeowners as the enemy. Just a few of these practices include numerous daily phone calls, harassing letters demanding payment, and hiring a local law firm to begin the foreclosure lawsuit; all to persuade the family facing the loss of their homes to send in one more payment, even if they can not afford it. Many homeowners simply give up, and seek a way out of foreclosure that does not involve dealing with the lender. But working with the bank can often result in positive solutions.

Working out a solution to the foreclosure problem is a mutually-beneficial result for homeowners and the mortgage company, especially in the case when the homeowners have no other option besides losing the house. Due to market conditions or personal finances, putting the house for sale or qualifying for a foreclosure bailout may be simply impossible. In these situations, the lender and owners will have to work together to stop foreclosure.

A loan modification is defined by HUD as "a permanent change in one or more of the terms of a mortgagor's loan, allows the loan to be reinstated, and results in a payment the mortgagor can afford." Some of the more commonly used methods of modifying a loan include extending the term and putting the missed payments on the back of the mortgage and spreading the defaulted amount over a period of several years. The most positive consequences of this will be that the homeowners quite often experience a decrease in the monthly payment and they prevent foreclosure.

Some larger mortgage companies and mortgage servicing companies do not allow their clients to modify the terms of a loan, however. This is one persuasive reason that new loan applicants should consider using only local banks that do not sell their loans. Small banks are often engaged in the life of the community, and are thus more willing to work out a solution in the interest of the foreclosure victims. But in any foreclosure situation, even if the owners can not afford to get back on track, a mortgage modification may be an appropriate option. Obviously, there will be numerous qualifications to be met and financial documents are needed to prove that the homeowners have recovered from their financial hardship and have a stable income. But a loan modification, in the right situation, can provide the best solution to foreclosure.

One of the more commonly discussed methods of saving a home from foreclosure is working with the lender, either for a repayment plan or a mortgage modification. Many foreclosure victims try hard to get back on track but can not afford it, refinance but can not qualify for the loan, or establish a repayment plan but not afford the higher cost. For them, a successful modification will allow them to negotiate with the lender and alter the terms of the loan, which can give them the second chance they need and allow them to benefit from more manageable payments based on their current financial situation.

The lender is often seen by homeowners falling behind as their worst enemy, due to persistent, threatening phone calls, numerous mailings from the collections department, and the bank's hiring of a local law firm to sue for foreclosure. These are just a few of the tactics used by lenders to cajole homeowners into making a payment, even if they can not afford it. After missing a few months, many homeowners just want to end the foreclosure process any way possible in order to get some freedom again. However, it is usually more appropriate for homeowners to fight for a mutually beneficial solution.

The lender and homeowners both have very good reasons to work together and establish a plan to get out of the foreclosure process, especially if no other solution is available. Selling the home or refinancing the loan may be out of the realm of possibilities, depending on the circumstances leading up to the foreclosure. Thus, if the home is to be saved, in many cases the lender and owners must work together and modify the mortgage.

The Department of Housing and Urban Development (HUD) defines modification as "a permanent change in one or more of the terms of a mortgagor's loan, allows the loan to be reinstated, and results in a payment the mortgagor can afford." Lenders, according to common mortgage modification plans, may be able to extend the term of the loan and amortize the missed payments, or spread the defaulted mortgage payments over several months or years. The owners of the property will likely experience more affordable loan payments and be allowed to avoid foreclosure.

A number of banks, however, do not offer loan modifications to their clients. Because it is mostly larger banks and mortgage servicing companies that refuse to do this, homeowners can consider using local mortgage companies exclusively to obtain a mortgage. They are often more willing to work with families in the community and come to an agreement to keep the home from being foreclosed. Even when homeowners think they are unable to afford their home any longer, they may want to consider requesting a mortgage modification. The programs have numerous qualifications that must be met, of course, but as long as the homeowners have recovered from the original financial hardship and can prove a stable income, a loan modification may be the perfect solution.

Although it is not a widely known area in the subject of foreclosure, one of the many programs that homeowners can use to stop foreclosure is a loan modification, also known as a mortgage modification. Many homeowners first attempt to pay back the lender, but can not catch up, refinance, but can not be approved, or ask for a simple repayment plan, which they can not afford. In a successful modification, however, the lender agrees to change the terms of the homeowners' defaulted mortgage, which usually results in more manageable payments and a second chance for the foreclosure victims.

When the homeowner first begins to fall behind in payments, the lender may seem like the worst enemy. Constant phone calls, letters from the collections department, foreclosure department, and the lender's attorneys are some of the main strong-arm tactics that banks use to attempt to collect on the loan. By the time they are more than a few months behind, many homeowners just want to do whatever they can to get away from their lender. This feeling, however justified, may not help the homeowners save their home, though.

In the event that no other viable solution to stop the foreclosure is found, the homeowners may have to work with their lender to put together a plan to keep their original relationship. Refinancing and selling may not be options for the homeowners, depending on the specific circumstances of the hardship situation that caused the foreclosure. When the lender and their clients work together, though, they may be able to put together a loan modification.

A loan modification, as defined by HUD, is "a permanent change in one or more of the terms of a mortgagor's loan, allows the loan to be reinstated, and results in a payment the mortgagor can afford." This means that the lender may extend the term of the loan to take back the missed payments, or they may spread out the defaulted amount over several years or the entire life of the loan. The homeowners may see their payments increase in a mortgage modification, or their loan's life extended, but they will be able to remain in the property.

Some lenders, usually larger banks or servicing companies, refuse to modify any of their mortgages. This is another strong reason to have the mortgage through a local bank that does not sell its loans. Many smaller banks are more willing to work with their clients, since they both exist as parts of the community. But before ruling out saving the home at all, most homeowners should examine this option with their lenders. A loan modification program has certain requirements to qualify for it, but as long as the homeowners have overcome the original hardship that caused them to face foreclosure, and now have a stable income, they may want to ask their lender what they need to do to stop foreclosure through a mortgage modification.