Nearly a year after the Obama administration unveiled its ambitious housing rescue program, foreclosure tallies continue to break records. Foreclosure filings were reported on more than 2.8 million properties in 2009, up 21 percent from the previous year and 120 percent from 2007, according to RealtyTrac. With nearly 10 percent of mortgages now delinquent–which is also a new record–even more homeowners appear headed for foreclosure this year. “A massive supply of delinquent loans continues to loom over the housing market,” RealtyTrac CEO James J. Saccacio said in a statement. “Many of those delinquencies will end up in the foreclosure process in 2010 and beyond.”

Homeowners have found themselves in foreclosure for a number of reasons. Some purchased properties they could never really afford. Others lost their jobs–the national unemployment rate remains in the double digits–and had no way to make mortgage payments. But as the crisis rumbles forward, an additional driver of home foreclosures has become clear: Many borrowers have the means to keep paying the mortgage but are simply walking away because they believe it’s best for their finances.

The number of so called “strategic defaults” more than doubled, to 588,000, from 2007 to 2008, according to a study by Experian and Oliver Wyman. A separate 2009 survey found that more than a quarter of all existing defaults were strategic. Meanwhile, a growing number of academics are touting the financial benefits of walking away. “Homeowners should be walking away in droves,” Brent T. White, a University of Arizona law school professor, said in a recent paper. “The financial costs of foreclosure, while not insignificant, are minimal compared to the financial benefit of strategic default.”

PROS:

• The Majority of Home Owners Will Be Approved By Their Bank For A Loan Modification Most lenders do not want to lose your money, so they will generally work with you. But, you have to be proactive in contacting them and be persistent. Do not wait until the last minute. The quicker you contact them and explain your circumstances, the quicker you can get your application under way. Try to lock in an interest rate before your rates increase. Loan modifications are a good option, and you could save your home from foreclosure.
• Help is Available! President Obama’s $75 billion Making Home Affordable (MHA) plan was introduced on the 4th March 2009. Loan modification involves adjusting the terms of a mortgage agreement to make house payments more affordable. A mortgage modification may consist of extending the term of a loan, a reduction in the rate of interest, changing the loan type or even reducing the outstanding balance. Qualifying homeowners will receive assistance until January 31, 2012.
• Change Is Good! This process is a change in the terms of a home loan, meaning lowering your interest rate, lengthening the term of your mortgage, or a different loan entirely. If like many, you are unable to refinance your ARM loan, this is a viable solution.
• Lower House Payments. Extending the term, reducing interest rates, switching loan type or reducing the outstanding mortgage balance will help reduce house payments.

CONS:

• Loan modification companies tend to charge high fees. New Loan Modification Regulations prevent companies from charging high upfront fees, making a Do It Yourself Loan Modification the homeowners best chance for Foreclosure Prevention. With the Obama Administrations HAMP (Home Affordable Modification Program) failing to successfully get lenders to modify home loans, and in light of the new heavy restrictions imposed on companies, it is recommended that Homeowners take charge of modifying their loans with the lenders themselves.
• Loan modifications are time-consuming. Typically, your lender will make you wait 30-45 days before your ARM is up in order to even submit an application. And, just because you submit an application does not mean you’ll qualify for a loan modification. Loan modifications take a long time to complete, and you may end up falling even further behind on your payments. This could seriously increase the threat of foreclosure and disqualify you from a loan modification. If the lender feels they will take too big a loss, they won’t approve your proposal.
• Must Have A High DTI! You must have a high debt to income ratio. Your mortgage company will need records showing your monthly expenses as well as you income. Do keep in mind that a request for a loan modification will not always be granted.
• Credit score.A mortgage modification reduces house payments, but reduces a FICO score. However, the majority of homeowners will have already missed repayments and the effect on a credit score is better than the majority of short sales and is always better than mortgage foreclosure