Too Many Modifications

• Many people took out subprime adjustable-rate loans in the early 2000s thinking that they could sell their home later if they couldn't afford the higher payments. When the housing market crashed, though, in 2008, many people owed more on their home than the home was worth. They couldn't sell, and they couldn't afford the payments, which led to more people applying for mortgage modifications than ever before.
  
  

Modification or Foreclosure

• President Barack Obama, in an effort to help stem the tide of mortgage modifications, implemented the Home Affordable Modification Program to encourage lenders to offer loan modifications to distressed homeowners. The problem is that, for the most part, banks are not set up with enough employees to handle all the mortgage-modification requests they receive. As a result, according to Market Watch, lenders would probably rather foreclose; it's cheaper and easier for them. Homeowner Sylvia Kambouris told PBS that when she tried to deal with the bank, "Nobody knew their right hand from their left hand."
  
  

The Dual Track Process

• Many people feel they are being strung along, like Kambouris, when getting a mortgage modification. What many people don't know and what Sheila C. Bair, chairwoman of the Federal Deposit Insurance Corp. testified to the Senate in December 2010, is that when you apply for a mortgage modification, oftentimes you are put on a "dual track" process. That means that the bank tells you that it is reviewing your paperwork for a loan modification, while starting the foreclosure process at the same time. If you stop making your mortgage payments in the belief that the bank is helping you get your loan modified, you very well could lose your house.
  
  

Damaged Credit

• Another result of not making your mortgage payments while waiting for a loan mod to go through is that the bank will report your missed mortgage payments to the credit-reporting agencies, which will damage your credit. While you are going through a loan-modification request, it's best to pay your mortgage. If you are denied the modification, you still may be able to avoid foreclosure by going through a short sale or finding someone to rent your house.