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.

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).

It’s funny thing (in a non-laughing kind of way) that it’s homeowners who are saddled with the responsibility of fixing their distressed mortgage situations. The lenders created loan documents that were difficult to understand and often lent to people who would have trouble making terms, particularly when an out-of-control ARM consumes more than 50 percent of the borrowers’ income – and that’s in good times.

Now that there are millions of homeowners with home loans dangerously close to foreclosure, the banks are suffering the fallout. Regardless of who gets blame for the past, the savvy borrower is learning to negotiate with the banks. This wins them better mortgage rates and lower monthly payments to keep the borrower in the house.

It’s actually possible to do this negotiation, called a loan modification, on one’s own. But professional loan modifiers are lawyers and finance people who are likely to do better – in fact, more skilled loan modifiers can predict with 90 percent accuracy in advance if they will be successful. Professional loan modifiers have industry insider information on what a lender will be willing to give in the modification process.

It’s important for any borrower to receive a money back guaranty, a 100 percent refund if the loan modifiers do not achieve favorable terms. Fees charged overall should be approximately one month’s mortgage payment.

No homeowner currently “underwater” with a loan that may be larger than their home’s value, or, who simply has trouble keeping up mortgage payments, should consider what they did a “mistake.”  There has been a flurry of media attention on financial TV programs about the economic crises being the fault of underqualified borrowers. That is flat-out wrong: the message for generations has been that everyone should try to own their property. The banks were more than happy to provide everyone with a loan.

The problem is the turn taken in our economy since 2007. Jobs have been lost, people have gotten sick with inadequate healthcare, and other problems arose. The banks were mismanaged in so many deep, demonstrable ways. To put the blame on anyone with an exploding ARM or simply a mortgage that is no longer affordable is invalid and unproductive.

The individual homeowner facing possible foreclosure has an underreported option. It is to get a loan modification. This essentially is a way to clean up the mess of a mortgage with bad terms, such as a high interest rate. A loan modification company will act as an intermediary or third party, approaching your lender on your behalf. This is key, because a loan modification firm has far more knowledge of how the industry works and what terms are morel likely for the bank to accept.  

Anyone considering the hire of a loan modification firm should check their success rate (more than 90%?), and their money-back guaranty of your fee if they are not successful. If it checks out, go with that firm. For the cost of about one month’s mortgage payment, you may get tens of thousands of dollars in savings over the life of the loan.

At its best, a challenging economic situation such as a home foreclosure is a minute-by-tense-minute adventure in the world of Economics 2009.  When your life is a lot like what’s being reported on the news, you at least know it’s a drama being played out in homes all across America.

Of course, a home mortgage foreclosure can have tragic consequences for anyone who bought a house or condo in good faith that ownership was laudable and affordable. But things changed rapidly in the past two years, such that illness, divorce, income loss or reduction and ARMs blown up out of sight are factors that may seem impossible to overcome today.

There are solutions, however, but they’re probably too boring to make the news. Certainly, the solutions wouldn’t make it into a screenplay. These solutions come in the form of loan modifications – a recast of the loan terms that help homeowners keep their properties at lower monthly payments.

To engineer a loan modification is daunting for most individuals who are not real estate lawyers or mortgage experts themselves. Bank loan officers are busy handling hundreds of cases and thus don’t have a lot of time to talk to individuals to explain the process for them. But a loan modification firm handles it for them. For the price of about a month’s payment, a loan modification company can use industry insider information to know what new mortgage terms the lender would agree to.

If considering working with a loan modification firm, check their policies, features and success rates – all usually published on their websites.  Look to see if they provide a money back guaranty if they are not successful. I particular, see if they offer an installment payment plan for their services. This is crucial to any financially strapped homeowner.

For anyone with an out of control ARM, perhaps in danger of losing their home to a home loan foreclosure, the quest for better loan terms is like a page out of Goldilocks and the Three Bears. The trick is to get the new loan terms just right.

But first some background: Banks don’t like foreclosing on home loans. They would rather keep a homeowner paying off the mortgage for the full term, usually 30 years. That’s a lot of time to not only receive a monthly flow of funds, but also to sell that customer on other financial products. Foreclosures cost money to execute, cut off that income flow and then saddle the bank with tainted property that’s harder to sell in any market, particularly the current housing meltdown.

Consequently, mortgage lenders are amenable to adjusting terms of the mortgage lower if they can still make a profit. But how low is too low? And at what rate is the borrower still spending too much?  Too little, too much, searching for “just right” is a Goldilocks’ journey.

This is where loan modification companies help holders of distressed home loans. The average borrower doesn’t know enough about the industry and specific lenders to negotiate to this point of “just right.” Most borrowers are so distraught they are lucky if they can manage the process of cutting through lender bureaucracy to even get a bank officer’s attention.

Loan modification companies operate on a fee charged to the homeowner, such that their only objective is to get the best deal for that borrower. They can examine a case before taking it on, such that they can predict a favorable outcome with high (90%) accuracy. Better firms offer a money back guaranty if they fail to deliver as promised.

To be clear, this is no children’s tale. Loan terms can be modified, but a professional is likely to achieve the best success for borrowers.

This economy is definitely in a rough patch. But it doesn’t have to be the end of the road for homeowners currently facing unmanageable home loan mortgages due to loss of income, divorce, illness, ARMs out of sight or other difficulties. There is a way to get better terms on a mortgage if the borrower is savvy enough to deal with their lender.

The path thousands are pursuing is through loan modification firms. These are experts in law, financing and specifically mortgages, specialists who take on cases they know they can win.  Underpinning this is the fact that banks don’t want to own houses. They are most interested in keeping mortgage payments coming in. When they foreclose on a property, they lose because they then must maintain it, suffer its liabilities, and then sell it – likely, at a loss in this historically down market.

A homeowner could negotiate this themselves, but few non-specialists have the inside industry knowledge to pick the terms that will be satisfying to the bank. It’s about knowing that point between the costs of foreclosure and the possibility of keeping a profitable client. Loan modification specialists have the necessary information and calculations for doing this. They charge about a month’s mortgage payment and provide a 100% money back guaranty, so it’s basically a no-lose proposition for the homeowner  – a rough, rocky road made smooth for the duration of the trip for anyone who wants to keep owning their home.