A relatively new phenomenon in the home loan foreclosure crisis is the trending toward loan modifications. Not exactly a refinance, loan modifications are when the bank determines they will work with a mortgage holder in distress (usually, in foreclosure proceedings) to find payment terms that are more manageable to the borrower.

The reasons for the borrower being in distress can be many: ARM adjustment that goes beyond the borrower’s repayment potential, loss or drop in income, illness or divorce are among them. What the bank would prefer to do – as does any neighborhood in the vicinity of the property in foreclosure – is stop the foreclosure. A bank stands to lose as much as $50,000 on average when a homeowner loses their house. Why? Legal fees, staff time spent on property management and reselling the property in a depressed market all add up to costs to the bank. They’d rather keep the customer paying for years into the future. The neighbors don’t want a foreclosed property either because it devalues their home values too.

Home loan modifiers, third party intermediaries, can smooth the process for the homeowner and get them a better deal. They work on a one-time fee basis, generally a month’s home mortgage payment, to review documents and then approach the loan officer with an offer. They have industry insider information that enables them to project with good confidence (90 percent accuracy) if a bank will deal, and at approximately what amount. If the modifier is unsuccessful, that fee should be refunded.

All in all, it’s a win-win-win for homeowners, lenders and neighborhoods.