With companies downsizing and our economy at a standstill, many people are faced with financial difficulties that they did not prepare or expect. Unfortunately, some of them have loans to pay with their homes used as collaterals and that is adding more pressure to an already difficult situation. They find themselves lost and don’t know what to do. Well, there is hope yet.

Lenders, like banks, take another look at the changes in financial status of the borrower (when declared unable to make loan payments) and make a recomputation or, more commonly termed, modification loan. A loan modification allows a bank to make loan payments more affordable to the borrower. Banks may either temporarily or permanently change interest rates, loan terms, loan balances, or other parts of the loan agreement. The goal is to help the borrower reduce their monthly mortgage payments to 31% of their gross income. Currently, loan modifications will be standardized, with uniform loan modification guidelines used by Fannie and Freddie Mac which will be implemented on the entire mortgage industry. According to the Department of Treasury: “Anyone with high combined mortgage debt compared to income or who is “underwater” (with a combined mortgage balance higher than the current market value of his house) may be eligible for a loan modification. Only speculators (those who bought homes for investment purposes) are not eligible for loan modification.