Because unemployment rates have reached unprecedented levels in the United States, and because more than eight million mortgages are at risk for default and/or foreclosure, the banking industry has had to reassess the entire concept of foreclosure all together.

$75 Billion in Funds
Additionally, the United States government has provided $75 billion in funds to support what are known as “loan modifications”. This is, quite plainly, a renegotiation of a mortgage in order to make it payable by the borrower. For example, a borrower may have received a sub-prime loan for $400,000 with an adjustable rate over fifteen years, to purchase their home. They would have done this without any documentation of their ability to re-pay the loan (hence the sub-prime label) under these terms. Once the loan’s rates began to climb and the monthly payments became too high for the borrower to repay, they may have fallen into default.

Will I Still Face Foreclosure?
Luckily, they may not face foreclosure thanks to the government bailout which will support their efforts to adjust the loan to a term and interest rate they can actually repay. Unfortunately, it is not so easy for someone is also currently unemployed. Interestingly, as part of the government’s bailout plan, a borrower and a bank can discuss lowering the total amount of the loan all together.

Some consumers are surprised to hear that the bank would assume a loss on the loan, but the real fact of the matter is that most banks would rather take this sort of loss than to assume ownership of the home. Industry statistics prove that a bank will lose at least 30% of the entire cost of the venture if they foreclose, and then they will have to find a way to rid themselves of the burden of maintaining and paying taxes on the home as well.

A currently unemployed homeowner will still have income and financial documentation that can demonstrate to the bank what their financially capabilities will be for the coming months. With this in hand, the banks will work with their clients to renegotiate the entire sum of the loan and see if some sort of arrangement can be reached.

Working with a Loan Modification Company
For a short while there was a moratorium on all foreclosures, but now that the bailout funds are available, any homeowner can visit a loan modification company or expert to help them approach their bank or lender to see if any sort of arrangements, other than foreclosure can be worked out. Many people are incredibly surprised at how flexible their banks become when contacted in an honest and professional manner.

As always, thanks for reading this post and if you enjoyed it be sure to comment below. Also, check out our FREE 2009 Loan Modification Guide: Saving Your Home From Foreclosure.