Good News In The Horizon For Those Who Have Problems Paying Their Loans

The Federal Housing Finance Agency -- overseer of Fannie Mae and Freddie Mac - has one of the most ambitious mass-market "loan modification" programs. Along with the 33 banks and mortgage servicers that make up the private-sector Hope Now Alliance.

The program, scheduled to start Dec. 15, is aimed at borrowers who are seriously behind on payments -- three months or more -- and are slipping fast toward foreclosure. To be eligible for intervention, owners need to document that they can handle mortgage payments with up to 38% of their Monthly Gross Income. They also need to demonstrate that they have experienced some form of financial reversal that made them delinquent on their payments, and prove that they did not intentionally go into default just to get better terms.

Borrowers may qualify for sharply reduced interest rates, deferrals of principal payments or extended loan terms -- whatever combination is necessary to get them an affordable payment with their current income.

Even though the formal kickoff isn't until next month, participating lenders say they want to hear as soon as possible from potential beneficiaries. If homeowners can't connect directly, they can work through the Hope Now Alliance (http://www.hopenow.com) or through the Department of Housing and Urban Development (http://www.hud.gov/foreclosure). Hope Now also has a toll-free hot line -- 1-888-995-HOPE -- staffed by counselors.

The same day the new federally assisted mass-modifications effort was announced, one of the largest lenders and servicers, Citicorp, unveiled a program designed to catch at-risk homeowners before they fall behind. Beginning this month, Citicorp will reach out to an estimated 500,000 customers who are not currently delinquent but who appear to be at risk -- either because their credit files show telltale signs of financial stress or because their homes are in markets Citicorp classifies as facing serious economic strains and job losses in the coming year.

The bank said it expects to complete up to $20 billion in "pre-emptive" mortgage modifications in the next six months using rate reductions, term extensions and even reductions in principal debt balances. Citicorp also intends to halt all foreclosures in the coming months for owners who have sufficient income to handle modified monthly loan payments at some level, and who are working in good faith with the bank to save their house.

Get a loan modification if you qualify and need one. But talk with your servicer to make sure that the revised terms you're signing up for are realistic for your long-range economic situation and not likely to be just a temporary patch.