The TRUTH about loan modifications

Unlike a refinance, where you negotiate a new loan, a loan modification is a change in one or more of the terms of your EXISTING mortgage.

Right off the bat, let me say this ... a THIRD-PARTY or so-called "loan modification company" cannot modify your loan.  If one solicits you and tells you it can ...IT CAN'T.

I'll tell you who can help a little lower in this story.

But first, here's what a loan modification can do for you if you qualify for one or more of these:

LOWER YOUR INTEREST RATE.  Translation:  lower your monthly payment, but only temporarily.  The typical time is five years on a 30-year loan, according to Roshun Austin of GMAC RESCAP.

* FIX YOUR INTEREST RATE.  It might be able to land you a fixed rate if you had an adjustable rate.

* CAPITALIZATION.  For those in deep trouble, they may qualify for what's called a capitalization.  After a 3-month trial period where you make a payment based on a budget, the lender takes your delinquent balance, then negotiates a payment plan you can afford.

* DEBT FORGIVENESS.  In extreme cases, a loan modification may wipe out part or all of your mortgage debt.  Austin uses the example of an elderly woman who lost her spouse, is on a fixed income of Social Security and still owes a significant balance on her mortgage.  Austin says she might be someone would qualify for a debt forgiveness loan modification.

Now, WHO can modify your loan...

NO THIRD-PARTY "LOAN MODIFICATION COMPANIES".  You must deal directly with your current lender and no other lender.  Otherwise, you're just trying to refinance.

Both Austin and Eric Tishaw, a Huntsville, AL, lender who also manages the consumer advocacy site, do not recommend you try to do it yourself.  You'll just get a run-around.

Instead, you should have an advocate, preferably an ATTORNEY or a HUD-CERTIFIED HOUSING COUNSELOR to negotiate a loan modification.

I recommend the Memphis Housing Counseling Network ( at 901-725-8361.  The network offers FREE housing assistance and numerous options to help keep at-risk borrowers from losing their homes.

Memphis Area Legal Services may also be able to advocate for low-income people seeking a loan modification.  You can reach MALS at or (901) 523-8822.

You can also go to the FHA site at or call HUD's housing counseling and referral line at 1-800-569-4287.