You've finally reached someone at your mortgage company who has the authority to change your loan terms and offer relief from the payments you've been struggling to pay.
Congratulations. If you've landed a second chance with your mortgage lender, you've already accomplished more than the thousands of other homeowners who go straight into foreclosure.
Unfortunately, though, research shows that substantial numbers of distressed homeowners who had their mortgage modified last year fell behind on payments again.
Getting a mortgage "fixed," only to fail again, is another sad twist in this already heartrending housing situation. But experts do offer this hope: As the crisis unfolds, the government and lending companies are learning what works to give homeowners a bona fide second chance. Moreover, experts say consumers can also use some strategies to help negotiate realistic loan terms for themselves.
It's really not surprising that homeowners thrown a lifeline drown in debt quickly again, contends Alan M. White, professor at Valparaiso University School of Law. White studied subprime and near-subprime loans modified last November and found that in slightly more than half of the cases, the borrower's monthly payment remained the same -- and in some instances increased -- from what it had previously been. Since late fees and missed payments are tacked onto the loan amount and recalculated in new payments, borrowers often don't see a reduction in what they owe each month.
The new mortgage plan announced by the Obama administration on Feb. 19 aims to keep monthly housing payments, which includes mortgage principal and interest, the monthly property tax allotment and monthly homeowner insurance, at 31 percent of the borrower's pre-tax household income.
That 31 percent allotment may become a benchmark in modifications, regardless of whether a borrower receives a modification under the new plan or not, observes Geoff Smith, vice president of the Woodstock Institute, a Chicago nonprofit that studies housing issues. "Hopefully, this will make a difference," he adds.
But mortgage payments even more modest than 31 percent of income won't work for many individual families, says Michael van Zalingen, director of homeownership services at Neighborhood Housing Services of Chicago. "A lot of the families we counsel are working-class, making between $25,000 and $50,000 per household. Often, they are behind on their mortgage payment even when that payment is just 25 percent of their income. There is so much other debt, like credit card and car loans," he explains. That debt causes them to fall behind on all their bills.
Some households simply have too little income and too big a mortgage balance, adds Smith. Even if the interest rate or principal owed were cut, payments would still be too high to pay comfortably.
The best tactic for borrowers looking for a modification they can live with is to provide an accurate picture of their total expenses and income, and even suggest a payment that they think they can live with, says White.
"That's exactly what we are asking people to do," confirms Ed Delgado, senior vice president of government relations at Wells Fargo Home Mortgage. "That's how we can help them with a solution that might be best to their personal situation."
Delgado adds that the Web site, lists what consumers should gather to document their budget: wage receipts, recent tax returns, bank and financial statements, and information about any other liens which may be on the home. Similar information as well as a basic primer on the new modification plans aiming at a 31 percent payment is on The White House Briefing Room.