In case you haven’t heard, the Obama administration has asked major lending institutions to commit to doing at least 500,000 loan modifications before then end of 2009. Is this a viable solution for your home?

Have you lost your job? Has your income declined significantly since you first purchased your home? Has your mortgage readjusted to a higher interest rate that you can’t afford? If so, there’s a good chance that you may be eligible for a loan modification.

One of the most common questions on many real estate message boards is, "Do I have to pay an attorney to obtain a loan modification?" The answer to that question is, "Only as a last resort."

The loan modification industry is packed with charlatans who are ripping off consumers. If a company is charging upfront fees for its services, look elsewhere. There are plenty of places where you can get help, and much of it is free.

An excellent place to start is with the Making Home Affordable program, which provides two different solutions for troubled homeowners. The first is the Home Affordable Refinance Program (HARP) for borrowers whose mortgages are owned by Freddie Mac or Fannie Mae. To qualify for this program you must meet the following criteria:

1. "At the time you apply, you must not have been more than 30 days late on your mortgage payment in the last 12 months. If you have had the loan for less than 12 months, you must have never missed a payment."

2. "The amount that you owe on your first-lien mortgage does not exceed 125 percent of the current market value of the property." If your property is worth $200,000, your first mortgage cannot exceed $250,000."

3. "You must be able to demonstrate your ability to make the new mortgage payments."

4. "The refinance must improve the long-term affordability or stability of your loan." …CONTINUED

Even if you have a second mortgage that can’t be modified, you can still refinance your first mortgage provided that you meet these criteria and that the second lender is willing to stay in second position after the refinance is completed.

The second option from Making Home Affordable is a loan modification program. A loan modification can take a number of different forms. For example, the lender may reduce your interest rate from 7 or 8 percent to 3 or 4 percent. In some cases, the rate may be reduced to 1 or 2 percent. In rare cases, the lender may reduce the principal. The goal is to help you stay in your home rather than going through foreclosure.

To determine whether you qualify for the program, the first step is to take the quick online assessment to see whether your situation fits the Making Home Affordable loan modification criteria. As you take the assessment please note that like the HARP program, you do not have to be behind in your payments. Lenders are looking for people who are able to pay their mortgage back after the loan modification. In fact, many people approved for loan modifications go through a three-month trial period where they must make their payments on time. If they fail to do so, their loan modification is denied.

The site also has a calculator that allows you to determine how much the loan modification will change your monthly payment. The system uses your "gross monthly income" (i.e., how much you earn prior to taxes and expenses.) The lower your income is, the lower your payments will be. For example, I entered one number where the mortgage payment was 53 percent of the gross monthly income. I used the same mortgage payment and increased the monthly income to where the mortgage payment was 38 percent of the gross monthly income. At 38 percent, there was no savings. At 53 percent, there was a $1,211 savings.

The site also provides valuable information about how to avoid the numerous mortgage modification scams that plague today’s marketplace. Some of the most common scams involve charging upfront fees; asking the owner to deed his or her property over to the company, which can then negotiate on the owner’s behalf; or making payments to the scammers, who say they will pay the lender but instead pocket the money.

Another company I saw was running a membership deal where you pay $500 to join and then pay a monthly fee of $200 per month. Over the course of a year, you would pay them $2,900 to have access to their "free help" with your loan modification. While the company may be legitimate, there’s no point in paying for something that you can probably get from your lender or through a U.S. Housing and Urban Development Department counselor at no charge. As the Making Home Affordable site states, "There is never a fee to get assistance or information about Making Home Affordable from your lender or a HUD-approved housing counselor."

Bernice Ross, CEO of, is a national speaker, trainer and author of "Real Estate Dough: Your Recipe for Real Estate Success" and other books. You can reach her at and find her on Twitter: @bross.


What’s your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story.

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