By Marilyn Kennedy Melia
March 13, 2009
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.


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 mortgages modified last year fell
behind on payments again.

Getting a mortgage "fixed" only to fail again is another sad twist
in this already heart-rending housing situation. But experts 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, says Alan White, professor at Valparaiso
University School of Law.

White studied subprime and near-subprime loans modified in 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. Because 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 Feb. 18
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

That 31 percent allotment may become a benchmark in modifications,
regardless of whether a borrower receives a modification under the new
plan, says Geoff Smith, vice president of the Woodstock Institute, a
Chicago nonprofit that studies housing issues. "Hopefully, this will
make a difference," he says.

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," he says.

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,
White says.

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