Loan Modifications Creating Need for More Counseling

The frenzy to participate in the Obama administration affordable home loan modification program is on. However, some market insiders say more borrower counseling is needed because the complexities of the loan modification process can create roadblocks that prevent consumers from getting a modification.

Consumer Credit Counseling Service of Greater Atlanta has taken a well- rounded approach to its homeowner assistance efforts. The agency's tips for borrowers looking to qualify for a loan modification and sustain it for the long-term start with demonstrating how borrowers can start living on a budget. Reducing living expenses in all possible areas can make up for a big enough difference for most borrowers to qualify. Educating and assisting borrowers remains the key component to a successful loan modification because many borrowers do not know by how little the balance can be tilted to their disfavor.

For example, according to Andy Firoved, CEO of loan modification services provider Homeowner Toolbox Inc., Irvine, Calif., data show that up to 80% of the homeowners who contacted Toolbox for a loan modification were denied the option because they were off by as little as $10. Currently only 20% of loan modifications are being approved, he said, as most homeowners are unaware that they can be denied for being off by even $10 from their lender's unique "sweet spot."

Toolbox has created a "Probability Meter" that assesses specific lender requirements, thus helping homeowners to calculate what is "their most attractive disposable income amount - the key factor used by lenders to determine eligibility for a loan modification." The tool also shows "that it is very possible to achieve a modification without being delinquent on mortgage payments - a popular misconception."

CCCS certified housing counselors are assisting many homeowners in their goal to reduce living expenses so they can apply savings to their monthly mortgage payments. Others are taking the same route to be able to qualify for a mortgage loan modification, which can be a lifeline for any homeowner faced with foreclosure, CCCS said.

"It's critical that homeowners understand exactly what they can afford because a loan modification that is ultimately unaffordable hurts everyone," said CCCS of Greater Atlanta senior vice president Michelle Jones. "We help consumers create a lean, sustainable budget that will support the family's housing costs."

CCCS guidance includes steps that may seem simple, but in the end add up and can help homeowners qualify.

Using less electricity by reducing air conditioning expenses, turning off lights, and unplugging appliances reduce power bills, for example. Temporarily decreasing contributions to retirement or a savings account "can provide a boost in monthly income" without hurting the ultimate goal of keeping savings a priority. Also, if it is possible to temporarily reduce personal withholding taxes and not receive a large refund, which may in fact be a better solution to meeting up monthly mortgage payment obligations.

Not always so obvious is the sell-it-if-you-don't-use-it option. Most people keep items in their home that they can live without, such as cars, pianos and furniture that can bring in large sums of money, along with smaller items that are marketable through yard sales or online. CCCS said its counselors have worked with clients that make difficult choices - such as a homeowner who had her car repossessed and started riding a bicycle to work to help make her mortgage payment. It all adds up, which is why borrowers need be reminded that avoiding new purchases or at least bargain shopping for clothes, furniture and other household items can help.

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