Getting mortgage relief is an uphill battle

John W. Schoen Senior producer • Profile • E-mail

Our story last week on the slow pace of mortgage relief for millions of struggling homeowners generated a flood of mail from readers. Many reported lengthy, frustrating ordeals that went nowhere. Others were looking for tips on how to get lenders to let them out of a bad mortgage.

Do I have a better chance of getting a modification if I quit paying my mortgage? I have to take money out of my retirement every month in order to make it this year!
— Colleen P., Address withheld

This question is one of the biggest sources of frustration for homeowners who are trying to get their lender to modify the terms of their mortgage. The reason is there are no hard and fast rules. Policies seem to vary from one loan servicer to the next. We’ve heard from readers who have gotten conflicting advice from different representatives of the same lender or loan servicer.

It’s true that lenders have less motivation to work out new loan terms with you if you haven’t missed a payment. But skipping payments to get their attention may make things worse. First, you may trigger a default, which will begin the process that puts you at risk of foreclosure. Stopping that process — even if you can get the lender to agree to modify your loan — can be a nightmare. And you’ll still owe the missed payments.

But you may have trouble getting your lender’s attention if you keep making payments. One reason the pace of loan modification has been abysmally slow is that lenders are hoping borrowers “self-cure.” As long as you can keep making the payments, this thinking goes, you don’t really need a new loan.

That’s not what the government had in mind when it set up the Making Home Affordable program spelling out guidelines for lenders to modify loans. To be eligible, your mortgage has to be: 1) on your primary residence; 2) worth less than $729,750; and 3) written before Jan. 1, 2009. You also have to show you’re having trouble making payments — for example, because the payment increased or your income dropped — and that your payment is more than 31 percent of your income.

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The problem with this program is that it’s voluntary. It also won’t help you if you owe more than your house is worth. A recent report by Deutsche Bank estimates that half of all U.S. homeowners will be “underwater” by 2011. So while you may be able to get your payment reduced, getting your lender to accept less than the full amount you owe is highly unlikely.

Just trying to get your monthly payment reduced is a long and frustrating process; readers report spending hours on the phone talking to multiple representatives, often getting conflicting advice and information. So far, not many homeowners have succeeded in getting lenders to agree to new terms.

To get started, call your lender, find out which company services your loan, and ask to speak to someone in the “loss mitigation” department. You can find out more about the process from LoanSafe.org, a Web site devoted to helping people with bad mortgages

You may be better off working with a professional housing counselor, but you need to choose very carefully. The Web is crawling with scam artists preying on people with mortgage trouble. You should seek a HUD-approved counseling agency, which you can find on HUD’s Web site or through the National Foundation for Credit Counseling.

You may also want to find a good lawyer who specializes in fixing bad mortgages. Some of the loans written during the peak of the lending boom were prepared so sloppily you may be able to find errors that force the lender to rewrite the loan.

No matter what route you take, keep in mind that the decision to modify a loan is entirely up to the lender. If your mortgage was bundled with others and sold to investors, the lender also has to get those investors to agree to new terms as well. That roadblock is one of the biggest reasons so many homeowners are still stuck with bad mortgages.

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