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The current credit crisis has caught the whole world by surprise. Loans, credit cards, mortgages and the secondary loans that they secured all trembled when the whole world got a reality check on the world economy. The prices of homes seemed to never stop rising and banks were fighting each other to lend out money without caring too much about credit rating and income / expense ratios.

Of course when mortgage securities failed, people couldn’t afford to pay their credit cards, loans and mortgages and homes started to lose value things got bad. Millions of families now face losing their home. Many would say that it is part of life. That owning a home is not a civil right, it is a privilege and there is no shame in renting. I wholeheartedly agree, I have rented most of my life and my parents at 67 still rent and they are the happiest couple you will meet.

However 9 million families facing mortgage foreclosure is a big number for any economy to face, even the United States economy. The effect on consumer spending, and the economy as a whole is huge and there is also a case for the government to try and stop some of these foreclosures for the greater good.

This has caused the government to start a number of loan modification programs to try and alleviate the situation. However the progress has been slow and some feel that the measures taken are simply not what the economy needs. Some have pointed out that the we are facing a credit crisis not a housing or mortgage crisis. You could compare it to giving away water to people in a sinking boat. The water is going to help but what they really need is a raft and some water.

Loan modifications help home owners that tied themselves to a bad interest rate to have access to premium interest rates and reduce monthly payments. It also provides bonuses to borrowers and lenders when the loan modifications are successful. This is useful and has helped many. However if you are financially underwater with other debts and loans, getting help on one of these debts might not be enough to make a difference.

Debt consolidation can provide a more suitable lifeboat for those that are crushed by numerous debts that drain their monthly income. Debt consolidations consist of a large loan that pays for all the debts a borrower has.  Debt consolidation loans typically have a lower interest rate than car loans and credit cards although generally higher than premium mortgage rates. The new debt consolidation loan helps to put all debts into one manageable monthly payment that can provide real help to borrowers. The only problem is that they can be very expensive and cause borrowers to re-mortgage their home sometimes putting their home at risk for loans that did not have a home as security.

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Loan Modifications have caused an awful lot of spin in the last year. They have been portrayed as the only hope for cash strapped homeowners, as the Devil incarnate out to rip off desperate debtors. It is also the single largest investment the Government is backing in order to fend off the black clouds of the current Housing and Construction Industry crisis.

So what is the truth?

Are Loan Modifications great news for debtors or a risky business that can leave you in a worst state than when you started.

The answer is both, either or non of the above because it all depends on your personal circumstances and the way you deal with your loan modification.
Loan modifications are different to loan refinancing in that there is not a  change of contract. When you refinance your mortgage or loan you have to start the whole contractual process with all the expenses for the debtor and lender that it involves. Loan modifications keep the old contract with some variations. These variations can reduce the interest rate, principal (the amount you borrowed) reduce the monthly payments and increase the length of the loan. The Government is investing trillions of dollars to encourage banks to get their act together and help borrowers in trouble to modify their loans.
This of course is not an easy task as Banks are not geared to modify loans, but to provide loans and collect payments. The whole structure of a bank is designed to do pretty much the opposite to modifying loans.

However the alternative to a home loan modification is a mortgage foreclosure which is a costly operation for the bank that is rarely the best option, certainly not for the borrower who loses his home. Having said that in extreme cases when the borrower really can’t afford the payments and the price of the home has not dropped considerably it can be better for the homeowner to sell the house and foreclose the mortgage. This means that banks generally open to negotiating a loan modification as long as they are certain that the borrower can afford the modified monthly payments or that the customer can really not afford the current payments. Convincing your bank that this is actually the case is vital. The way you do this is by providing accurate information in the format and portrayed in the light your bank wants to see.

Presenting the information you are asked for and still portraying a picture that will help you get the loan modification you need is not a simple task. It does require an understanding of how loans work. You can do this yourself but you will need to spend some time researching the forms you are asked to fill and decide how to present the facts.

Loan modifications can also be expensive procedures that cost you money you don’t have and don’t provide you any benefits. This is the case of borrowers that do not qualify for loan modifications but are still made impossible promises by dubious loan modification consultants that ask for outrageous fees upfront for their services.

Loan modification companies can provide accurate advice and help you understand the intricacies of loan modifications, helping you decide how to present your case to the bank. However it doesn’t take a rocket scientist to do this if you are willing to spend some time researching your loan and the options you have.

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Desperation seems to be the mother of invention in the Mortgage Modification department.

Over 3 million people are 60 days behind in their mortgage payments with little hope of finding a quick solution. This has caused many borrowers look for somewhat imaginative measures to save their home, one of these has been declaring bankruptcy to avoid a mortgage foreclosure. Does this work? Is it legal?

Chapter 13  bankruptcy does not get rid of your mortgage payments. However one in five people that went through pre-bankruptcy credit counseling claimed they were doing so to avoid losing their homes to foreclosure according to the Consumer Credit Counseling Services of Greater Atlanta which provides credit counseling throughout the United States. Is there some kind of genius in this madness? There seems to be.

Debt-collection stay.
According to the American Bankruptcy Institute filing a bankruptcy petition automatically creates a stay against debt-collection efforts which effectively stops a mortgage foreclosure even though it may be only temporarily. Obviously if the borrower continues to withhold payments the mortgage will foreclose.

Bankruptcy can create debt relief.
What bankruptcy can allow is to free resources from a household budget by reducing other sources of debt and allow a homeowner to pay for their mortgage. Can this work for you? That is something you can ask when you undergo pre-bankruptcy counseling.

There are two lessons we can get from this.
First don’t give up, find any possible solution to losing your home even if it means using creative methods.  Too many people fall into desperation and don’t search for what options they have to overcome the current financial crisis. The government is opening a variety of options to save the millions of homeowners that are facing foreclosure from losing their homes. The measures are slow to come into action and you can guess who are getting the best results, the ones that are pushing the hardest.

There is a Spanish saying that doesn’t translate that well but gives a good idea of the point I am trying to make: “The baby that doesn’t cry doesn’t suckle”, meaning that the baby that cries the most has the biggest chances of getting fed. Something similar occurs with debtors and borrowers.

Second, before you do anything, especially file bankruptcy to save your home, find quality counseling from an unbiased and qualified source.

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Loan servicers will "significantly" increase the pace of mortgage modifications under the Obama foreclosure prevention program, the Treasury Department said Tuesday.

Sometimes the things that scare us the most are the subjects we know less about, death, darkness, losing someone we love and foreclosure are just a few examples. There is a reason we know little about the things we fear, not knowing is often worse; we always imagine things are worse than they really are. Learning about our fears and finding ways to deal with them is the best policy. This article will aim to shed some light on the issue of foreclosures and what they really are, that way we will hopefully fear them less and learn how to avoid them.

Foreclosure is a legal term to describe the termination of a mortgage or loan. Foreclosure occurs when the mortgagee (the lender) gets a court order that terminates the mortgage and allows the mortgagee or lender to redeem the mortgage’s security, nearly always the home itself. This occurs when the borrower fails to pay the mortgage principal and interest payments; the lender has then the right to force the borrower to either pay the payments he is behind in plus costs or sell the house or some other asset to meet his responsibility of paying the mortgage. When the borrower sells the property and uses the proceeding to pay the lender it is said that he has foreclosed the mortgage.

This rather dry definition we worked through provides some interesting points.

1) A foreclosure is a legal process that must be approved by the courts of equity. 2) Losing the house is not the only way to deal with the situation. The government is trying its best to avoid foreclosures and is willing to help most people that are willing to work hard to find a way around a foreclosure through loan modification and other types of financial aid. Do your homework and make it your job to jump through the necessary hoops to save our home.

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