Homeowners having difficulty with their mortgages are told they must be in arrears on their payments before the lender will consider a mortgage modification or other foreclosure relief. This means that...

Homeowners having difficulty with their mortgages are told they must be in arrears on their payments before the lender will consider a mortgage modification or other foreclosure relief.

It is difficult to advise clients to stop making mortgage payments, but sometimes that is the only way to get the lender to listen to pleas for mortgage relief.

At the beginning of the year, lenders were telling borrowers they wouldn't talk to the homeowner about a loan workout payments were four months in arrears. During the course of the year, the required number of months of missed payments has decreased. Now some lenders are talking about loan modifications after just 1 missed payment.

Why ask for any missed payments?

The lender is worried that borrowers who are not in financial difficulty will seek loan modifications in order to escape a bad property investment. The proof the lender seeks is actual arrearages.

Another reason: the mortgage lender reports to investors who loan money to the lender with an expectation of a certain investment return. When the lender modifies the terms of a mortgage or deed of trust, it negatively impacts the investors return.

Lenders are becoming increasingly flexible now because of the overwhelming number of homeowners facing foreclosure. They probably realize they need to get ahead of the foreclosure curve by becoming proactive--heading off foreclosures before they are recorded on the books. A foreclosed house, afterall, has a much worse impact on investor returns than a short-term forebearance on mortgage payments.