The traditional advice given by financial experts is for a troubled homeowner to contact their lender as soon as they begin to fall behind on their mortgage. After all, it’s assumed that the lender wants to do everything they can to avoid an expensive foreclosure. Does this assumption still hold true in today’s real estate market? The experiences of many troubled homeowners seems to indicate that this is no longer the case. They’ve found the path to obtaining a lower interest rate or more manageable payment to be very frustrating.

The cause for this is really rather simple, there’s no financial incentive for a lender to offer a loan modification to most homeowners. As it turns out, many lenders aren’t really lenders at all. What they actually are is a loan servicer. This means that they essentially take the mortgage payments and distribute these payments to the actual investors.

Most home loans over the past 10 years have been bundled and sold as an investment instrument. This has created a market for loan servicers, companies or divisions at banks, which simply manage the accounts and are paid a commission for doing so. They don’t have the legal authority to modify conditions of the loan. All they can negotiate are repayment in full plans or forbearance plans.

The actual owners of the home loan are the hundreds or even thousands of investors who own a part of many loans. They would all have to agree to change the terms of a mortgage contract and this is unlikely to happen. Thus, the loan servicer has a strong incentive to stall or delay any kind of loan modification. Why? Because they get paid a commission to do it. They get paid by the investors for their collection efforts up until the actual sale or foreclosure. However, they will not profit if a loan is modified.

The first step to avoiding frustration in the loan modification process is to determine who your mortgage holder really is. If your mortgage has been sold as part of a security, the chances of you being able to get a loan modification is rather low. In this case, you should prepare yourself for other options, such as a short sale, deed in lieu of foreclosure or a foreclosure, or find a way to bring your mortgage current and continue to keep it current.

There could be changes in the law that would remove the financial incentive for mortgage loan servicers. Several have been proposed in Congress, the Obama administration and the SEC. However, until the law is changed troubled homeowners, their communities and the actual mortgage investors will continue to have a no-win situation on their hands when it comes to mortgage loan modifications.

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First of all, you will want to gather up your financial documents. This should include your mortgage statements, both your primary mortgage and secondary mortgage if you have one. You will also need information that documents your income such as your current pay stubs and most recent income tax return. Additionally, you will want your recent bank statements and investment statements. Lastly, you will need to have other financial information such as amount owed on car loans, credit cards and any other consumer debt.

Now that you have all of your financial information together, go to the Making Home Affordable website and click on the “Find Out If You Are Eligible” link. Next, select the program type that best fits your situation, either loan modification or refinancing. You may want to review both your options to see which you’re most qualified for. If you don’t qualify for either program based on their web application and still feel that you need assistance with your home loan, don’t get discouraged. You may still qualify for other programs or for lender based loan modifications.

After you’ve determined your qualifications for the Making Home Affordable you will want to get in contact with a HUD-certified housing counselor. You can find one by calling the HUD information line at 1-888-995-4673 or going to the Department of Housing and Urban Development Foreclosure Avoidence Web site. You should be prepared to take notes when you speak with a housing counselor on the phone. Jot down the names of the people you talk to, the date and time as well as the basics of the conversation such as promises that were made or if your were denied. You should also receive a case number. I recommend keeping a notepad handy for this purpose because staying organized is quite important in this effort.

If your current lender gives you a hard time in your refinancing efforts, a new rule change may help you. This new rule allows homeowners who have a mortgage that is guaranteed by Freddie Mac to refinance with any Freddie Mac affiliated lender. You will also be able to roll a larger percentage of you closing costs into the refinancing as well. This additional flexibility in the program should help those who’ve had frustration in obtaining a home loan modification under the current rules from certain lenders.

It is important to remember that you must be current on your mortgage loan to qualify for a government-sponsored refinancing plan. Should you be behind on your home loan you may still qualify for a loan modification under the Making Home Affordable program.

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First of all, it’s important to understand that there is little a lawyer can do to help you save your home. None of the laws governing home mortgages, even the ones passed recently like the Making Home Affordable program, force lenders to offer lower interest rates or make other concessions to troubled homeowners. Not even a bankruptcy judge can modify or ‘cram down’ the interest rate on a mortgage loan without the agreement of the mortgage lender. Only a very few give their agreement though. While the laws offer incentives, fewer than expected mortgage lenders are offering modification programs or they’re making the process difficult. Plus, the current programs were designed to assist people with sub-prime mortgages. Due to high unemployment or underemployment, more and more conventional mortgages are falling into default and there are no programs for these loans and lenders are less willing to negotiate these loans.

What you will primarily want from a loan modification lawyer is their ability to negotiate and navigate the often tricky world of mortgage loans and real estate law. Often the troubled homeowner is overwhelmed by the amount of paperwork involved as well as the emotionally draining threat of losing their home. A good attorney can assist the homeowner in the process. This will be based on the particular situation of the homeowner. In some cases, bankruptcy, either Chapter 7 or Chapter 13, will be the best option. Others may require some negotiation and speaking with the right people. Often an attorney calling can get more attention than the homeowner calling.

But, how do you find a good and reliable loan modification attorney that can really assist you and not rip you off?

Unfortunately, the current economic situation has created a number of fraudsters billing themselves as “foreclosure rescue specialists.” These organizations, which may or may not be tied to a law firm, seek out desperate homeowners. They will often tell the homeowner that they can save their home but they want a large upfront fee to do so. Others use other legal trickery to scam troubled homeowners. You need to be very wary of any loan modification attorney or foreclosure rescue organization that makes vague promises of saving your home while demanding a substantial upfront fee.

However, there are a few good loan modification lawyers that have been successful in challenging foreclosures based on the lack of a good paper trail due to the way mortgages were repackaged as financial instruments. Others have challenged the mortgage based on evidence of predatory lending. These legal maneuvers don’t work in every case and take specialized legal skill so it is important to find a lawyer who is well acquainted with these methods.

In order to locate a good attorney you will need to find one that specializes in bad mortgages and consumer law. One of the best ways to find such an attorney is to consult your local HUD-approved housing counseling agency. They can give you a referral. Always ask for multiple references. Check out the references and make an appointment to discuss your case. This meeting should be free of charge and should clearly describe the legal process they will use and what the fees for their services will be. If they ask for a big upfront fee, be prepared to walk away. Also be wary of high pressure sales tactics as well.

Sadly, there are many more troubled mortgage loan cases than the number of available loan modification attorneys can handle. Plus, most families that are having trouble paying their mortgage are very short on money and will find it difficult to pay for a lawyer. Sometimes though, local legal aid organizations can help put troubled homeowners in touch with an attorney that will take their case for low or no cost.

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Perhaps you are at the point where you are certain that you will lose your home simply because you can no longer afford it. Maybe you have already been considering a short sale in order to avoid a foreclosure. Unfortunately, if you’re like many people, you may have found it difficult to get the mortgage lender to agree to sell your home for less than what you owe.

This situation has become common since the housing meltdown began. Often it takes months for an overwhelmed mortgage lender to respond to a short sale request. By then, it’s often too late because the buyer has gone elsewhere and the lender’s foreclosure department, or worse yet, their attorney or foreclosure legal services firm, may have started legal proceedings. What’s more, there have been no clear guidelines as to what types of short sale offers were acceptable. Beyond that, many borrowers also have second mortgages that further complicate the situation.

During the current housing crisis only about half of short sale offers have been accepted nationwide. In some hard hit regions, this number is less than 20%. As a result, many real estate agents have stopped listing short sale homes. This inability to close on homes in the short sale process has resulted in most of these homes winding up in foreclosure anyway. This is what the new Government Short Sale Program, the Home Affordable Modification Program, is supposed to correct.

Under this program, when a troubled homeowner decides to list their home as a short sale, mortgage lenders are required to respond to any short sale offers within 10 days. Additionally, the Home Affordable Modification Program also provides a number of incentives to both the homeowner, mortgage loan servicers and secondary lenders.

Under the program, homeowners get $1,500 to assist with moving expenses and cannot be charged any administrative fees for participation. Most importantly, borrowers are released from all legal obligations associated with the loan. This provision prevents mortgage lenders from seeking a deficiency judgment against the homeowner. These judgments can result in wage garnishment and other financial punishments in many states.

Loan servicers get $1,000 to help cover the cost of paperwork. Plus, the home is sold so they don’t have the additional overhead of maintaining a vacant house and trying to resell it, which can become very costly in some areas. For secondary lenders, there are up to $3,000 in incentives to encourage them to participate in the short sale offer.

To qualify for the Home Affordable Modification Short Sale Program you will have had to have unsuccessfully tried to get a mortgage modification through the program. Naturally, the property in question must be your principal residence. The mortgage loan must have been made prior to January 1, 2009 plus it must be guaranteed by Fannie Mae or Freddie Mac.

Additionally there are financial requirements. First of all, you must be behind on your mortgage. Your total monthly mortgage payment has be be more than 31% of your monthly income before taxes. Lastly, you cannot owe more than $729,750. Remember that lenders will check for any hidden income and/or assets and the tighter application process allows lenders to have greater access to a borrower’s financial information.

The Home Affordable foreclosure alternative program will expire on December 31, 2012 unless Congress decides to extend it. Let’s hope that the economy and real estate markets improve significantly by then, thus eliminating the need for the program.

Will the new Home Affordable Modification Short Sale Program help you get out of a home you can’t afford with as little financial and credit damage as possible? Maybe, but the results of the government loan modification program haven’t been that great since it was launched over a year ago. However, it is worth a try if you qualify for it.

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