As the real estate crisis sweeps across America, homeowners who are facing foreclosure are hoping to find a solution before they lose their homes. For many, especially those with subprime adjustable-rate mortgages who suddenly find themselves being asked to pay a higher interest rate and more money every month, the only hope is to change the terms of their mortgage by either refinancing or getting a loan modification. But for how many homeowners does this really work? Is loan modification a solution, or just a way to put off the inevitable foreclosure. Loan modification is different from refinancing. When you refinance your mortgage, you take out a new mortgage loan and close the old one. It’s almost as if you are applying for a new mortgage, with all the same fees and credit checks and application process. A loan modification is when one or more terms of your existing mortgage loan are changed. There are several ways that mortgages can be modified to the benefit of the borrower including reduction in principal, reduction or change in the interest rate, reduction in late fees or other penalties, a lengthening of the loan term, or capping the monthly mortgage payment to be a percentage of household income.

If you go online you will find hundreds companies that claim to be loan modification specialists. They state that they will renegotiate the terms of your mortgage with your lender in order to reduce your interest rate and even your principal amount. Of course, the service is not free; they all charge a fee. But the loan modification companies claim that the fee is a fraction of the expense associated with refinancing, while providing equal benefits. A mortgage loan modification is supposed to provide the homeowner with immediate savings by reducing monthly mortgage payments. But consumers should beware because scams abound! Unethical loan modification companies ask homeowners for an upfront fee (often one month’s mortgage payment or more) in order to initiate a modification program. At best, the homeowner may end up paying for a service that could have been done for free by a non-profit organization or loan-modification assistance program. At worst, the homeowner writes a check and the scammer disappears.

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