If you are a homeowner facing a possible loan foreclosure because you can’t meet the terms of your mortgage payments, there may be an answer for you in a loan modification. 

A mortgage loan modification is when the bank agrees to lowering monthly payments, a recast of the whole mortgage in terms that are friendlier to a homeowner in a distressed situation. “Distress” can come from a variety of sources: loss of income, illness, divorce and other factors (including an ARM loan that blew up significantly). The borrower who can successfully present his or her case to the lender will get better, more manageable monthly terms.

But bank loan officers are very busy these days; in fact, the average loan officer handles no less than 700 cases at a time. They can’t spend too much time with any single borrower. This is why thousands of homeowners with a mortgage loan foreclosure looming have wisely engaged the services of professionals, namely a loan modification firm. Loan modifiers are lawyers and financial consultants, people who have industry inside information on what a bank will tolerate.

For background, banks lose in foreclosures in a variety of ways, especially when they have to resell a property in this particularly bad housing market. Banks also have to pay staff and even outside lawyers to process a foreclosure, and that’s after several months of receiving no payments on a mortgage. It’s a lose-lose situation all around. 

The loan modification companies know the calculations. They can figure out how low a lender will be willing to go to keep a borrower in their homes. It’s a mathematical equation, in the end, and few homeowners have the numbers or financial analysis tools to determine this.

What to look for in a home loan modification firm: they should charge a one time fee, about a month’s mortgage payment, offer a 100% money-back guaranty if they are not successful, and have a high success track record (90% or higher). The good ones know their numbers and how to put them to work.

An interesting development in the mortgage crisis is how banks are willing to negotiate with borrowers on the terms of their mortgage. Distressed homeowners are actually getting lower monthly payments, more favorable terms for their situation that enables them to retain ownership of their homes. It’s a situation that challenges the concept of “the big bad bank.”

Why? It’s actually pretty simple. A home loan foreclosure means the bank has to take care of a physical property and resell it. In this housing market they are quite likely to lose money in such a transaction. And that’s after managing it for weeks or months, and after engaging lawyers, accountants and other office support in the foreclosure and resale process.

Bottom line: a bank would much, MUCH rather keep a homeowner paying their monthly mortgages. Even if that is a lower amount.

Loan modification companies are the homeowner’s best friend in this process. Because most borrowers are perplexed, often emotional about their situations. Understandably so. The loan modifiers are finance and legal experts, people who know how to go about the process, and just as important, they have industry information that gives them negotiating power. They know the point at which the banks win or lose, so they shoot for the lowest point that a bank will tolerate. 

What to look for in loan modifiers: A savvy, even if distressed, homeowner considering the loan modification route should check to see if loan modification firms charge about a month’s mortgage payment (no points, no recurring fees), can predict with a high degree of certainty (90%+) if they will be successful, and they should offer a 100% money-back guaranty if they are not successful.

A person’s home should not be a point of stress. Home is refuge, a place to escape the other stresses of the world. But when a mortgage is distressed, when a home loan foreclosure is a real possibility, that place one calls home is stressful on a very high level.

So, those are the headlines we see in the news every day. But buried in the news, perhaps because it doesn’t fit the trend of economic chaos and collapse, is that loan modification is possible, even if a borrower is several months behind in their mortgage payments. 

How so? Banks do poorly when they foreclose on properties. It’s not the way for them to make money. When they foreclose on a mortgage, it’s a business loss: the monthly stream of payments is cut off, they have a property to manage and insure, and they then have to resell it, likely at a loss (given current market conditions). They want you to present them with a new plan to keep it.

Loan modification firms are now able to help homeowners in distress. When an ARM or drop in income or illness or divorce or any other stressful events reduce a homeowner’s ability to keep up with monthly payments, there may be a way to still make smaller payments. The loan modification firm knows how low a bank will be willing to go – in fact, they can predict success in a loan modification negotiation in advance, based on clear, objective data. A loan modification firm will ideally charge about one month’s mortgage payment from the borrower to pursue the modification (perhaps on an installment plan). If they are surprised and fail to achieve a favorable outcome, the fee should be refunded (reputable firms offer this).

It’s about reducing stress in a significantly meaningful way. Because it’s about preserving one’s home, perhaps the most de-stressing place a person should have in their life.

The picture of a distressed mortgage, perhaps due to a bad ARM (adjustable rate mortgage) or loss of income or other factors, is that of a home and family out of control. This is unfortunate, because in fact even a home in foreclosure proceedings is something the homeowner can wrest back to control if they understand the position of the bank.

Banks don’t want to foreclose on properties. It’s bad on their balance sheets and affects the overall value of the bank. It costs them legal fees and staff time to go through foreclosure. And, once foreclosed upon, a property becomes more liability than asset to the bank. They have to manage it physically, and they have to resell it. In the current real estate market, that is a dim proposition.

A homeowner feeling out of control may not know this, and is far less likely to approach the big bad lender about working out a deal. But if the homeowner knows the cost/loss situation on the bank side, that homeowner might be able to negotiate better terms. Yes, a loan in foreclosure can still be recast. For example, back due amounts can be rolled into the principle and the interest rate can be lowered. The bank wins by keeping a customer, continuing to receive monthly payments (albeit, lower), and no property to sell. The homeowner wins by keeping the home at a lower monthly rate.

Home loan modification firms are a smart way for a homeowner to pursue this option. Emotionally detached from the situation, the lawyers and financial experts in loan modification companies know the industry numbers such that they can project in advance the likelihood of a better set of terms for the borrower. A homeowner only needs to pay a one time fee - usually, about one month’s mortgage payment - to the loan modifier. And if the loan modification firm is unsuccessful, they should refund that amount in full.

Control is very important to anyone in financial distress. This is one route that is a lot cheaper than therapy for reducing stress, and, it keeps the homeowner a homeowner.

While it may seem only the Wall Street fat cats get a break in this economic crisis, there is one corner of the loan foreclosure situation that actually enables homeowners to get a break as well.

It’s called a home loan modification. These are deals, negotiations with a lender on behalf of the homeowner who is facing possible loss of a home due to foreclosure. A lender will consider a recast of the mortgage to a manageable, affordable set of terms if the borrower can demonstrate some ability to pay, even if compromised from the past.

What’s required is documentation of income. This is looked at in relation to the monthly mortgage payments the individual is making. In many cases, those payments have ballooned due to a bad ARM (often, the borrower was unaware of the ARM terms and possibilities when the mortgage was first contracted).

But what most homeowners don’t understand is how low a bank is willing to go on the terms. Banks are in business to make money, but they also lose in a foreclosure situation because the process is costly. Not only do they have to engage their own lawyers and other staff in the proceedings, but they then are stuck managing a property and its sale. In the current housing crunch, the chances of them selling the property at a profit are slim. So, bottom line, banks don’t want to own the property. But only industry insiders know that point at which a lower-cost mortgage is and is not profitable to them. This is why thousands of homeowners are contracting with loan modification firms to do the negotiations for them. Home modifiers charge about a month’s mortgage payment in a fee (upfront, or in installments). If they are unsuccessful in achieving a loan modification, they then should (should, not all do, only the good ones) refund the fee in full.

It’s the only way to stop foreclosure for millions of homeowners. And, it works.

It’s a fact: loan officers at banks typically deal with 700 borrowers each. This means that they really don’t have a lot of time to deal with anyone facing possible home loan foreclosure or other financial distress due to a bad ARM, income loss, illness, divorce or other such situations.

Which is unfortunate, given the effects of the recession and housing market slump. Because if they had the time to look at each individual case, they may well be able to determine ways for the mortgage to be recast, to settle in at a favorable rate that will enable that homeowner to keep his or her house and continue making payments.

Why would they bother if they had the time? A home loan is recurring, monthly income to a bank. Plus, they like to have loan customers over the long haul because those customers ultimately might do other business with that bank. And when banks take possession of houses, they ultimately lose. The process takes up staff time, and then the maintenance and sale of the house generally drives them into a net loss. Banks don’t want your home.

Loan modification firms are stepping up to the plate on behalf of homeowners. They are independent lawyers and accountants, finance experts who know what terms a bank will still find worthwhile — lower monthly payments don’t necessarily mean a loss to them.

For any homeowner to engage the services of a loan modification firm, it is essential that they check the terms of THAT arrangement. The firm should charge a flat fee – one month’s mortgage, approximately, and no points or recurring fees. They should also provide a money-back guaranty. This is because they usually know with a high degree of confidence that they will succeed on a case before taking it on. Better firms are also offering an installment plan, allowing the homeowner to pay the fee in more than one payment.

With a home loan modification firm working on your behalf, you’ll rise to the top of the loan officer’s 700 cases and get action relatively quickly.

Alright already. Everyone’s had enough of the doom and gloom of the economy. If you’re a homeowner with a distressed mortgage, perhaps because of a crazy ARM that has increased your monthly payments to an intolerable level, you’re probably sick of hearing about how bad things are.

Here’s the good news that gets little attention in the press: your mortgage terms can be changed. And it doesn’t take super stellar credit, as is required with a loan refinance. Loan modifications are for people who’ve faced difficult circumstances, such as loss of income, divorce, illness and medical bills, or other adverse situations. A loan modification is when a bank looks at an individual situation and decides that it would be worth more to them to NOT foreclose but instead work out a manageable plan with the borrower.

The trouble is most people don’t know about loan modifications. And of those who do, the whole process of approaching and dealing with a bank may be intimidating. Bank officers are harried enough with all that’s going on their industry. Typically, a loan officer has 700 cases to manage, many of whom are emotionally distraught people (and understandably so). They would try to help if they had the time to educate you.

A better path, one taken by thousands already, is to engage a home loan modification specialist firm. These are qualified experts in mortgage law and finance. Typically, a lawyer and a finance person will examine your existing loan and the rest of your situation, then look at who your lender is. They have insider industry information on what a bank may want to do.

When your mortgage is successfully renegotiated, you pay the loan modification firm a fee of about one month’s mortgage payment. If they are not successful, you owe no payment at all (check: only the better firms provide a 100 percent money back guaranty). In the end, it’s a no-lose quest for the homeowner who is worried about keeping their home.

There is a sense of powerlessness to any homeowner who is falling behind in their mortgage payments. It seems that the system and circumstances – big bad banks that want to foreclose on your home, because of a bad economy, ARM increase, job loss, illness or a lousy housing market – are all working against you.

But in fact banks and other lenders don’t want you to lose your house. They don’t want to own it and they don’t want to lose you, their customer. If you were able to keep paying every month, that’s a positive cash flow for them. And when stuck with a foreclosed-upon home in this depressed market, they will likely lose money in selling it.

This is why loan modifications are being worked out for thousands of homeowners. A loan modification is a recast of mortgage terms, generally resulting in a lower monthly payment that allows the borrower to stay in their home and continue holding title. But most borrowers are not familiar with this option, and much less don’t know how to negotiate it.

Home loan modifications help fill this gap. They are professionals – lawyers, accountants, home loan finance experts – who know inside industry information on what a bank will be willing to do. They know that point at which a deal is a winner or a loser for a bank. So their job, working entirely on behalf of the homeowner, is to hit the lowest, most affordable terms possible while still satisfying the lender that this mortgage will be good for them over the long haul.

It’s really rewriting a mortgage, always to the benefit of the homeowner. This is something rarely reported in the media, which tends to focus only on the negative.

Note: working with loan modification companies should carry no risk. The better loan modifiers know with high certainty what success they will find once they examine the specifics of a case. And they should offer a 100 percent money-back guaranty in case they are not successful. Fees generally are around one month’s mortgage payment, not points or a recurring expense. Many firms are allowing fees to be paid in installments.

While your home may be a much bigger asset, the loan on it when in distress is more manageable than most car loans. With a car loan, if you are unable to pay on the terms the car is repossessed rather quickly.  But home loan foreclosure laws require a process that allows the homeowner to work out solutions.

And there are options for managing a home loan, to recast the mortgage terms to a more favorable outcome for the homeowner. If a homeowner can prove an ability to keep up payments, even if less than the original terms, a bank will be amenable to working it out. Why? Banks don’t want to repo your house.  A car can be easily sold again, but houses are far more complicated. Plus, the bank has to spend money in the foreclosure process, only to lose a long term customer in the process.  They want to keep you in your home. Really, they do.

Still, many homeowners are unfamiliar with how to achieve a loan modification. The terminology is unfamiliar, and they don’t know who exactly to talk to at the bank. This is why many thousands of people in danger of home loan foreclosure are turning to professional home loan modification specialists. These are lawyers and mortgage finance experts who know how banks work, and what financial arrangements remain attractive to a bank even if the monthly payments from the homeowner are reduced.

If working with a loan modification firm, check their offerings. Do they have a high success rate, over 90 percent? And if they fail to succeed in negotiating your mortgage to more favorable terms, will they refund your fee? As far as fees go, it should be a set, one-time fee, not points or a recurring expense, perhaps offered on an installment plan. With these factors, the homeowner is in a no-lose situation.

In the past it used to be moral shortcomings that were associated with home loan foreclosures. Drunkenness, drug addiction and a general failure to keep up an income were what led to distressed loss of a home. But this is not your father’s housing crisis and economic meltdown. Today it is job loss, skyrocketing ARMs, illness not covered by insurance, divorce and a housing market where very little sells that leads to mortgages in trouble. The monkey on our backs is circumstance not asked for or deserved.

But it is what it is. The best way to manage the situation is to seek alternatives. The government mortgage plan might work, but might not work in time for millions who are facing foreclosure now. For those homeowners, a loan modification program might work best.

A loan modification program is basically where you approach your lender and say, “Look, I can’t make the payments I’m now stuck with. But I have some income, and can make lower monthly payments under different terms. Let’s make a deal.”

And banks will listen and deal, if approached in the right way with the right information. The problem for most people is they don’t know the financials on the bank’s side, what lower, recast mortgage terms they will agree to. Also, bank loan officers are managing hundreds of cases and thus are not able to help most homeowners with this process.

That’s why thousands of homeowners are using third party intermediaries, home loan modification specialists. These are home financing professionals, lawyers and accountants who work on the homeowner’s behalf. Their one goal is to get a better, manageable mortgage for the borrower. If they’re good, they will know with high certainty (90 percent or higher) whether a case will be successful, and if they still don’t succeed, they will refund the fee to the borrower (fees range from $300 to the monthly mortgage currently paid).