In the days of the housing boom, it was hard for any homeowner to be underwater on their mortgage, owing more than the house was worth. Now, though, nearly a quarter of all homeowners are in exactly that predicament. New programs from the government and lenders are supposed to help, but of course they only help people who qualify.

The mortgage lenders resisted mortgage modification programs, but perhaps bowing to the inevitable, some lenders are now embracing them. Reports say that Wells Fargo and GMAC have begun to reduce mortgage balances, defer payments or offer programs for subsidized refinancing.

JPMorgan Chase says it will open thirty new "help centers" this year where homeowners can apply for loan modifications. The federal government has extended the period for underwater homeowners to refinance in a way that was not available via standard commercial refinance programs.

The rate of underwater mortgages is increasing after a brief period of decline a year ago. The third quarter of 2010 saw 22.5 percent of mortgages underwater, and the fourth quarter saw a rise to 23 percent.

An additional 2.4 million homeowners are teetering on the brink, with less than 5% equity in their home. Prices dropping 10 percent from where they are now would leave many homeowners with negative equity. Unfortunately, a 10 percent price drop is not at all unlikely in the next year.

The banks have finally caught on that in the long run, foreclosures are costing them more than loan modifications. The lenders also want to prevent a situation where discouraged homeowners walk away from their mortgages. Of the people who default on their mortgages while owing 50 percent or more above the value of their homes, half of them walk away intentionally, due to the negative equity.

Fort Lauderdale mortgage modification attorneys point out, though, that the modification programs don't help homeowners who are suffering due to falling home prices. To qualify, homeowners have to prove their reasons for falling behind on payments. They have to document a job loss or medical expense. If they qualify, they could get a 2 percent reduction on their interest rate, or an extended pay period.

Source: SmartMoney "Hope for Underwater Homeowners" 3/30/2011