Picking a loan modification plan

For more information on managing your largest investment, check out Gerri Willis' "Home Rich," now in bookstores.

ROAD TO RESCUE

• Home prices up for 1st time in 3 years
• New home sales: 'Really good news'
• Wall Street: Here comes the hard part
• 7 regional banks fail
• Banker: "TARP helped avert a global calamity"

NEW YORK (CNNMoney.com) -- Loan modifications for homeowners in trouble: there are a lot of proposals out there. But what's the best way to go about reworking your mortgage terms? Here's what you need to know.

Let's look at the programs that have been proposed. The FDIC has a proposal for mass loan modifications for troubled borrowers. Sheila Bair, the FDIC chair, said that program could potentially prevent 1.5 million foreclosures.

The Federal Housing Finance Administration, the agency oversees mortgage giants Fannie Mae and Freddie Mac, last month introduced a "streamlined modification program" that would apply to loans owned or guaranteed by Fannie or Freddie.

To qualify, borrowers must be 90 days or more behind on mortgage payments, demonstrate financial hardship and borrowers must not have declared bankruptcy.

A number of banks have also announced loan modifications, including Citigroup (C, Fortune 500), Bank of America (BAC, Fortune 500) and JP Morgan Chase (JPM, Fortune 500). Most of these mortgage modification programs cap payments at levels homeowners can afford through lower interest rates, longer repayment schedules or reductions in loan balances.

You want to call your lenders loan modification department and explain your situation. Keep detailed records of who you talked to, phone numbers, send a letter outlining your situation by certified mail to customer service and the loss mitigation department.

Now, keep in mind that this isn't an easy process. Lenders want to delay taking any loss for as much as possible says David Petrovich of Society for the Preservation of Continued Homeownership and author of "Fight Foreclosure."

In reality, the closer your home is to foreclosure, the more attention your case will receive. Make sure you investigate government programs too. You may qualify to refinance into an FHA insured mortgage through the FSASecure program.

You may also call Hope Now at 888-995-HOPE. There are also counseling agencies that can help you. Call a Housing and Urban Development counselor at (800) 569-4287. These counselors may be able to help you if your lender won't talk to you.

But Petrovich has another idea on how to bring your lender to the negotiation table: challenge the validity of the loan itself he says. That may speed your lenders to the negotiating table. Make sure you check your paperwork to see that there are no huge mistakes or details that were left out.

Mortgage delinquencies are set to double next year according to credit bureau TransUnion. And as more homeowners struggle with mortgages, there are even more scams that promise to "rescue" homeowners from foreclosure. These con artists are just charging outrageous fees in exchange for making a few phone calls or completing some paperwork that a homeowner could easily do for himself.

And according to the Better Business Bureau, other people - who aren't even close to foreclosure - are being solicited by companies offering to help them reduce the interest rate on their mortgage loan. These folks are being advised by these companies to stop making their mortgage payments and negotiate a lower interest rate.

Bottom line here: never follow advice that tells you to "stop paying a monthly mortgage payment." Modifying a loan is a process that you can do for free.