Unfortunately we are currently going through a very tough time - with real estate and stocks all at 5 year lows and now Ben Bernanke, the chairman of the Federal Reserve dropping the "d" word last week (deflation that is), we are surely in for a wild ride over the next year. So with things looking so grim for the time being, what exactly can a struggling homeowner do to get out from under a killer mortgage payment if they cannot refinance?

Call your Lender - The biggest way a homeowner can help themselves is by picking up their phone and pro-actively communicating with their loan servicers. If a homeowner feels that they will not be able to continue to make their mortgage payments they should ask their current lenders for help. And if homeowners feel intimidated to contact their servicers, then there are plenty of free resources available that can provide assistance.

Contact a Non-profit Organization or Local Mortgage Professional - The Hope Now Alliance is one place to turn, as well as their local HUD Councilors who can speak their lenders on behalf of the distressed homeowner. And if you still are not getting anywhere, turn back to the last mortgage professional that helped you with your current mortgage, or even look one up on-line or in the yellow pages, just make sure they are local and know how to help you.

So now that you've made contact with someone that can help you, what exactly are they going to be able to do?  There are several outcomes to a distressed homeowners situation - they can apply for a loan modification, ask for a temporary forbearance, they can sell their home, they can forfeit title to their home back to the lender, or they can do nothing and let the lender ultimately foreclose on their home. In this blog I am only going to discuss loan modifications because their is currently a great deal of confusion surrounding them.

Loan Modifications - Homeowners must qualify for most modifications, which is a written agreement between the borrower and the lender to temporarily or permanently change the terms of their mortgage. There is no standard" modification, each lender has their own policies when it comes to changing the terms of a mortgage - remember, when a borrower signs the mortgage note they are making a promise, which is secured by their home, that they will repay their loan based on the terms provided in the note. In other words, by allowing a loan modification, the lender is allowing the borrower to break their promise.

Types of modifications range from temporary payment reductions, to permanent interest rate reductions and even loan balance forgiveness (which may create a taxable event for the borrower).

Modifications take a lot of time and patience and can be very frustrating for borrowers to negotiate on their own. This is why there are some business that can provide services to distressed homeowners for a fee. In California, only licensed real estate brokers and attorneys may negotiate the terms of a loan for a borrower.

With the rise in defaulting borrowers and foreclosure brings a rise in foreclosure scams - so before a homeowner agrees to pay for loan modification services, it is important for them to understand who is offering to help them.

As mentioned above, some help is free to the borrower - all they have to do is contact their lender directly and try working out a loan modification with their lender's loss mitigation department. Although, a lot of lenders will not even consider a modification unless the borrower is behind on their mortgage payments - this does not mean that anyone should purposely fall behind on their mortgage though! In this situation, a distressed borrower may want to hire a professional to negotiate on their behalf.

I recently assisted a homeowner who had been desperately trying to negotiate their own modification for months prior to contacting me. After sending them through the Hope Now Alliance, within a matter of days that homeowner was offered a modification that allowed them to keep their home.

I you feel that you are struggling to make your payments or know someone that is in trouble, please feel free to offer them my contact information. 

Additional information just released -

Freddie Mac announced that it has ordered its national network of mortgage servicers and foreclosure attorneys to suspend all foreclosure sales and evictions involving occupied single family and 2-4 unit properties with Freddie Mac-owned mortgages between November 26, 2008 and January 9, 2009. The suspension will help servicers implement the Streamlined Modification Program recently announced by Freddie Mac, Fannie Mae, the Federal Housing Finance Agency (FHFA), HOPE Now and 27 mortgage servicers. The temporary suspension is also expected to give servicers more time to help borrowers avoid foreclosure.