What if you don't qualify for the new loan modification plan?

Just because many critics contend that the new & streamlined loan modification program announced yesterday will leave many other homeowners out in the cold, that doesn't mean they're out of luck completely. First, who does qualify for a loan work-out based on the new rules? From the Wall Street Journal:

Under the FHA plan, lenders will modify interest rates or forgive a portion of the principal, to bring the ratio of mortgage payments, including homeowners' association dues, to 38% of income. Among the requirements for borrowers:

• Must have a loan on a primary residence that was made before Jan. 1, 2008.
• Must contact loan servicers and cooperate on supplying need information.
• Must be at least 90 days behind on payments.
• Must not have filed for bankruptcy protection.
• Must certify that a hardship, such as job loss or illness, has affected their ability to repay, and that they did not purposely default to get a loan modification.

But what if you don't qualify -- say you can no longer afford the mortgage on a vacation home? From a WSJ.com story:

Here are some suggestions:

• Contact a reputable credit counseling agency to see what your options are besides foreclosure. The Department of Housing and Urban Development links to free or low-cost counselors. The non-profit National Foundation for Credit Counseling has an online tool for locating members nearest your home.
• Call your loan servicer to see who owns your loan; then call the lender to try to work out a deal. FHFA says that borrowers who don't meet the requirements for the new streamlined process can still be considered for loan modifications customized to their personal circumstances.
• Sell a family car, take a second job, ask relatives for help or do whatever else you can to raise enough cash to pay the mortgage until the housing market improves. If zoning laws allow it, think about renting out rooms or a finished basement.
• Consider a short sale, where a lender agrees to take less than the balance of the loan. You avoid foreclosure, though you may have to pay taxes on the shortfall. While short sales have become common in places where home prices have fallen precipitously, bear in mind that you must find a patient buyer, since many lenders are overwhelmed by short sales and are slow to respond to offers.

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