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Renting versus owning is both a financial decision and an individual one. Arguably, renting provides more flexibility and freedom, the freedom to move when one wishes (depending upon lease terms of course) and where one wishes. As a Renter, one has little or no real responsibility for repairs, maintenance, and other costly and time-consuming aspects that home ownership can bring.

Renter has little control over the property. While home ownership has its costs, it has its advantages as well. Owning a home provides the opportunity to gain equity in the property, which historically has contributed the largest portion of a families net worth. Consider that as a Renter, one is essentially paying the landlord’s mortgage without the benefit of increased equity. Costs of ownership are potentially countered by tax benefits, depending on an individuals financial situation. While home ownership typically requires a large initial investment, significant responsibilities, and ongoing maintenance costs, for some people it can provide a feeling of stability and can help to strengthen one’s credit profile.

In a rational market, mortgage interest plus property taxes plus maintenance costs will roughly equal rent. However, with the impact to housing markets over the past few years, many experts cite that housing has dropped so much that the debate of renting versus owning is currently leaning toward home ownership. When housing prices are suppressed and interest rates low, it bears mentioning that while rents can typically increase year after year, the mortgage costs of a fixed-rate mortgage will remain unchanged over the term of the loan. The financial considerations are simply an analysis of the related cost of renting versus owning. One of the considerations that needs to be factored into the decision is the value of alternate investments that a Renter may be able to put any excess funds into. If money spent on maintenance and paying down equity is invested wisely, can an alternative equity be created, and if so is it greater than the equity gained via the real estate market and home ownership?

To determine a preferred scenario, one should evaluate the local rental market to establish current rental rates, and also compile the estimates to consider the complete cost of ownership. Far too often, people neglect to include all the cost associated with a house and just focus on the mortgage. Remember that an ownership cost can be any expenditure associated with the possession and maintenance of property. Once the data is in hand, it is more likely that an informed decision can take place. Remember that the financial and emotional magnitude of the decision to rent or own is a highly personal one. It is important to analyze the costs and financial benefits of both renting and owning to determine which is best for one’s own situation. The emotional benefits of either, be it the flexibility of renting or the stability of owning also need to be weighed, and in fact, may be the more critical factor for many.

The housing bust has made owning a home a lot more affordable -- but in some places, prices are extraordinary; you can buy a nice condo for less than the cost of a new family car.

Obama’s loan modification program can be seen as a failure, if you focus on the millions upon millions that are benefiting, or as a modest success with over 650,000 borrowers on trials and 375,000 on the fast track to getting permanent modifications by January 2010.

As reported earlier the government is in the process of sending special task forces to win over, bully or cajole, depending on your point of view, the big lenders that decide how well the loan modification program goes.

The big question is why are loan modifications not working better with all the money, over $75 billion, being thrown at it. This article will look at some of the main problems that are creating the loan modification minefield borrowers are currently suffering.

Problem 1. Lack of information

Government firms like Freddie and Fannie are contracting the services of outside companies to go house to house providing accurate information on how to go about getting a loan modification.

This is a reply to lenders complaining that the main reason loan modifications are slow is that borrowers are really bad at filling in forms and providing the information required. Of course, the media is littered with counterexamples of model borrowers that provided all the information and battled with the conflicting instructions that lenders requested.

Problem 2. There is a lot of people that need Loan Modifications.

Around 7.5 million households in the U.S alone are delinquent on their mortgage payments. 25 percent of all borrowers are underwater in their mortgage, owning a home that is worth less than what the mortgage is worth.

Those figures are huge, to deal just with the paperwork, information and mechanics of dealing with so many people on a subject that so few of us understand is a big job that even if all the players wanted Loan Modifications to work it would be hard to do faster.

Problem 3. Banks are nearly as lost as the rest of us.

The simple truth is that even when lenders want to modify a loan it is not a smooth road because they are not used to dealing with this volume of modifications. Banks are already understaffed due to the recession and their mitigation departments are in no better shape. Add to this under-information about government programs, lost paperwork, changing fax and telephone numbers and you start to see why it is so difficult to process a loan modification.

Problem 4.The NPV test

The NPV test stands for Net present value. This test compares the money a loan is likely to generate if it is modified (and the borrower keeps the house and pays the mortgage at the modified rate) and what it is likely to generate if the modification is not carried out. The logic behind this test is not bad. Making loan modifications a profitable exercise for banks is good news, if you make it profitable your chances of making it happen grow exponentially.

However the actual formula to calculate the Net present value is according to many commentators unrealistic and allows lenders to shelve loans they should modify.

Problem 4. Banks often benefit from delinquency.

Banks often are not the actual lenders behind a loan but take on the job of loan servicers. Loan servicers collect payments and deal with borrowers but don’t own the mortgage. Loan servicers profit from delinquent borrowers and the late fees and higher interest rates they generate.

Many go as far as saying the loan modification trials are simply a trap loan servicers use to get three more monthly payments from borrowers that are beyond help and would not pay otherwise.

The problems that borrowers face when trying to work out their loan modification are pretty scary, our next post will deal on how we can face these problems and increase our chances of loan modification success.

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1. Loan Modifications Short Guide To Success Part 2 – The Guide
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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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1. So What Is A Debt Consolidation And Is It A Good Idea For You?
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There are things you need to be careful you choose right, your spouse, your health insurance, your home and mortgage. If you got the wrong wife, husband or health insurance there’s not much help to be found here.

However if you are struggling to pay your mortgage, the value of your home has dropped to the basement or your bank is ignoring your calls then there might be something we can help with.

In a perfect world loan modifications would not be necessary. We would get things right the first time. Inflation wouldn’t cheapen money, workers wouldn’t lose their jobs, houses wouldn’t lose value and we would all have perfect credit rating. That of course is not the real world. Unfortunately those or only a few of the many things that can go wrong when owning a home and a mortgage.

Loan Modifications seek to remedy some of the problems that can sour a mortgage and make it impossible for home owners to pay monthly payments. Loan Modifications are not a financial holy grail that can solve all problems; it is a tool that if used wisely can help some borrowers in difficulties.

The U.S government has made an effort to make loan modifications available to as many home owners as possible by creating incentives both for service providers (lenders) and home owners (borrowers). The incentives include bonuses for paying your mortgage on time and for borrowers and cash per loan modification for banks and service providers.

However even the Obama Administration has made it clear that loan modifications are not for everyone. They are not for home owners that have no chance of being able to meet their financial responsibilities. Foreclosure is the only way for them. Loan Modifications are for those that are going through hardship but can find a solution with the right kind of help.

You will hear a lot of information on loan modification and how to take advantage of the opportunities the Government is offering we are going to look at three things you very probably don’t want to do.

Pay Someone To Do The Loan Modification For You.
It might seem counterintuitive to say it is best not to get a professional to do it for you and some loan modification consultants do provide a good service. However loan modifications are not that complex you can’t do it yourself. Loan modifications can be very expensive if you get a third party to do them for you. Besides there are so many scammers out there it could spell disaster if you choose the wrong company.

Ignore Your Bank Or Service Provider
Whether you choose to do your Loan Modification by yourself or get a “professional” it always pays to contact your bank and explain your situation before you become delinquent on your mortgage. It might seem strange but banks like to be told when they aren’t going to be paid. Negotiating a loan modification or any other option is much easier if you are still not behind in your payments.

Fall Into A Spiral Of Debt
Many actually see loan modifications as a way to get some extra cash or to allow them to borrow more. The main problem people have with their debt is not that their mortgages are too high but that they have so many other debts to pay. Learning how to save and avoid unnecessary debt is one of the most valuable financial lessons we can learn and that so many of us have to learn the hard way.

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The Government is making all kinds of efforts to help home owners modify their loans so that monthly mortgage payments are more affordable. Forecasts predict that upto 9 million home owners will end up losing their homes when their mortgages foreclose.

For the last year I have been reporting on the different measures the government is implementing to extend loan modifications to as many people as posible. For instance, now you don´t even have to be behind in your payments to qualify.

However some feel that this is not enough. For example one of the requirements to apply for a Home Affordable Mortgage Program is that your mortgage is over 31% of your income. If your mortgage is 31% or less of your monthly income then you will not qualify for a mortgage modification. This requirement makes it imposible for home owners is trouble that have other loans besides their mortgage and cannot afford to pay their debts.

There are at least to school of thoughts on government sponsored modifications. One group, which we will call the ¨Who cares” group will say that owning a home is not a right but a privilege. The other group we could describe as the ¨Poor Borrowers” suggest that protecting home owners that have overspent or fallen in financial dificulties is the Government´s responsibility.

Last week one blogger commented on an article I wrote explaining how many borrowers cannot benefit from HAMP, the Obama Administration Loan Modification Program because their mortgage payments are too affordable to qualify, while their total debts make it imposible to get to the end of the month.

The bloggers comment was that it was bad enough we are bailing out home buyers at all and that suggesting we should bail out home owners whose mortgage payments are less than 31% of their income and that have still found a way to get in the red with other debts was a travesty. I could easily agree with him. I have made bad financial decisions in the past and nobody offered to bail me out. It is only right that we pay for our own bad decisions just as we profit from our good choices.

However the side of the store is the overall effect to the economy if 9 million people foreclose on their mortgages. What would be the effect on construction, credit and related services if such a large percentage of home owners foreclosed in one year. Viewed from this perspectiva bailing out home owners is more about helping the economy as a whole than specific individuals.

Of course many of us disagreed when massive bank corporations recieved bailouts to save them from the credit crisis. It would seem reasonable to allow the market forces to take their course whatever the consequences for a particular company is.
I couldn´t agree more, but what would have been the effect on the World economy if dozens of the world´s biggest banks had fallen into bankruptcy at once?

That is the paradox goverment policy makers have to deal with. To let market forces deal with people´s mistakes and problems or bail them out.

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1. Struggling Home Owners Loan Modifications Turned Down Because Too Affordable
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3. Loan Modifications Only Hope For American Dream

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1. Struggling Home Owners Loan Modifications Turned Down Because Too Affordable
2. Loan Modification or Debt Consolidation, what are the choices?
3. Loan Modifications Only Hope For American Dream