Suze Orman
Photo: Robert Trachtenberg
I'm going to be blunt: The federal program to help financially stressed homeowners reduce their mortgage payments has been a bust. Just over a third of households enrolled in a trial modification through the Home Affordable Modification Program (HAMP) had been granted a permanent modification as of November 2010, and until June 2010, banks were enrolling homeowners without verifying whether they qualified—meaning people who didn't qualify were enrolled, and then turned down when someone finally checked their eligibility. If you're considering applying for a modification, make sure you grasp the stakes:

Your credit rating will drop. If you're offered a trial modification, the fact that you're paying less than your full mortgage will be reported to the credit bureaus. That hurts your score.

It will take longer than three months to learn if you've been approved. HAMP's goal was to put homeowners in a three-month trial before making a decision. But the trial period can stretch to six months or longer.

Timely payments during your trial period will not guarantee you a permanent modification. Don't start a trial modification unless you know the bank's criteria for eligibility—and get them in writing.

If you're turned down for a permanent modification, the bank will demand that you repay the difference between your regular mortgage and your modified mortgage for every month you were enrolled in the trial. If you're unable to make that payment, you could face foreclosure. So if you enter into a trial modification, you must set aside the monthly savings in a bank account. Otherwise, like the Cartwrights, you may be forced to walk away.

Next: What to do when facing foreclosure

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Suze Orman's most recent book is Suze Orman's Action Plan: New Rules for New Times (Spiegel & Grau).

Please note: This is general information and is not intended to be legal advice. You should consult with your own financial advisor before making any major financial decisions, including investments or changes to your portfolio, and a qualified legal professional before executing any legal documents or taking any legal action. Harpo Productions, Inc., OWN: Oprah Winfrey Network, Discovery Communications LLC and their affiliated companies and entities are not responsible for any losses, damages or claims that may result from your financial or legal decisions.

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