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 http://www.rescueforhomeowners.com/, 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 (http://memphis.earnbenefits.org/page.php?pageID=607) 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 www.malsi.org or (901) 523-8822.
You can also go to the FHA site at www.fha.gov or call HUD's housing counseling and referral line at 1-800-569-4287.