If you go to your lender or bank and ask for a loan modification, you first need to meet certain criteria. Typically you need to be behind on your mortgage payments before they will even talk to you. The banks reasoning is that if you continue to pay you must not need a loan mortgage, whether or not that is sound logic is definitely debatable.

If you meet the criteria for a loan mod, the bank may offer you a short term solution. These short term loan modifications may only last 3 or 5 years and are designed to give you some breathing room so you can get your financial situation back in order and then resume paying the original terms of the mortgage. Your lender may cut your interest rate from 8% to 5% for 5 years which would help you save some money on your monthly payments.

As a borrower, you need to determine if this short term loan mod is really the right answer for you. In many situations it isn’t as you run some serious risks just qualifying for a loan modification. For example, if you choose to get behind on your monthly mortgage payments then you seriously run the risk of damaging your credit. Your credit score will take a hit and you still haven’t guaranteed that you will get the modification in the end.

You also need to calculate how much an interest rate cut will end up saving you over 3 or 5 years. Is $5,000 in savings worth 200 points on your credit score? For some people the answer might be yes, but not for everyone. At some point you will need to get things in order so you can make the full original payment so in essence you are only delaying the inevitable.

Has Obama done enough to fix the housing crisis? Is there more that he can do? The home loan modification program undoubtedly provided loan mods for a number of people that were underwater (but not too far gone) and helped them stay in their home. Should that program be extended and provide even more relief for troubled cities and homeowners?

In my opinion the broad based housing crisis, seems to have morphed into a region and city specific housing issue. For example Miami has over 2 years of unsold housing inventory on the books - even if no new houses were being built it would take over 2 years just to exhaust the existing supply. Las Vegas and Phoenix can’t be far behind, or Orange County for that matter. However in other cities in the Northeast, San Francisco and a lot of the Midwest (except for Detroit and a few other struggling cities with other inherent issues) home prices have stabilzed and even in some cases shown some gradual improvement.

So the question is do we need the federal government mandating any new housing programs in the near term future? With so many of our tax dollars flowing towards Washington DC, I suppose the federal government just loves the opportunity to come up with these mega programs so they can get their hands on more of your dollars, hire more people and really concentrate more power away from the states.

It seems to me that the worst of the housing crisis is over, even though we still have mortgage defaults now rising outside of just subprime loans. Prices fell far and fast enough that enough buyers emerged in these distressed markets to snap up real estate and proivde that floor that everyone was looking for.

What do you think? Are we need in of more housing bailouts?

Are you getting frustrated with your attemtps to modify your personal mortgage? There are a number of stories coming out in the press about people trying to get a loan modification done, but unable to get anywhere and they are getting fed up with the process.

The other day President Obama was given a letter from one of his staffers about a homeowner in Georgia. The man was trying to get a loan modification done, but was unable to get any traction and was completely upset about the long drawn out and painful steps he had to go through. Obama seems to be sensing that the Making Home Affordable Program isn’t making as much progress as he hoped and new oversight and auditing of the lenders will hopefully commences here in the next couple months.

Many people are finding that a loan modification may only extend the number of years you have to make payments for or you might get a slight and usually temporary relief in the interest rate. For people looking to cut their monthly payment, extending your loan term from 30 to 40 years could be a huge win. Granted you will end up chained to the house payments a little bit longer and end up paying a lot of interest over the life of the loan, but it can also help you weather the rough patches that many people are facing.

A loan modification is not a panacea for all your problems. If you’ve suffered a permanent medical disability or a substantial and prolonged decrease in your earnings, it may be time that you considered giving up your house. That is not an easy decision, but if things get too tough, moving to the rental market might allow you time to get your personal financial house in order and then consider owning 3-5 years down the road.

Working on the loan mod can be a frustrating experience, so try to take it in stride and reach out to other people in the community that are having a similar issue. Just know that you are not alone and thousands of other homeowners out there are trying to do the same thing and with a little luck and persistence you too might get it done.