The announcement of President Barack Obama's Making Home Affordable plan took the mortgage industry by storm but, so far, it's been slow going to actually get consumers help.

So slow, in fact, that Treasury officials last week disclosed how many eligible mortgages had been modified by major banks—seen as an attempt to shame the laggards, such as Bank of America and Wells Fargo, into moving more aggressively.

"This is a big problem—3.1 million people are 60 days past due. The pipeline of troubled borrowers is still very large," says Faith Schwartz, executive director of Hope Now, an alliance of housing counselors, mortgage lenders and other industry professionals.

Why has the plan not been more of an immediate success?

Part of the answer is that many homeowners who need help are confused. Also, many servicers weren't ready to deal with the influx of people needing modifications.

Here's how to figure out if you're eligible:

You have to meet a litany of requirements. You must be the occupant, you can't owe more than $729,750 on a one-unit home, your first mortgage must have originated before January 1 and your monthly payment has to be more than 31 percent of your pretax income. You're also going to have to prove financial hardship.
If you qualify, your loan servicer will reduce your interest rate until your monthly payments are less than 31 percent of your pretax income. They can bring the interest rate as low as 2 percent to make that happen.

If you're unemployed, you may not get a loan modification. You have to be able to make the payments, and there is only so much your lender can do to bring those down. They'll first try to lower the interest rate, then they may extend the life of the loan so you're paying it off over a longer period of time (and paying more interest over the long haul as a result). They could even defer a portion of the amount you owe until the loan matures. But if you don't have sufficient income to make any of these options result in an affordable payment—or your servicer doesn't want to go to these lengths—you may be out of luck. That means painful options, such as a short sale or foreclosure, become more likely.

Know that a loan modification hurts your credit score. Your lender has to report the fact that your loan was modified; the formula used to calculate your score regards a modification as a negative. How badly you're hit depends on how high your score was in the first place. 

"Borrowers need to stay very focused on working with their servicer by calling them and, if they're not getting a status update, they should contact a third party like Hope Now," Faith says. "You will get help, and the servicers have agreed not to foreclose on anyone without looking through the alternatives." Having guides as you move through this process is priceless because they'll explain your options in plain English.

How big of a mortgage can you afford? Do the math.


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