Among the loopholes are the obvious hesitation of lenders to work out short sales because of the big gap between the loan amount and the short sale price, the difficulty in pinpointing the short sale price fair to lenders and the problem of second mortgages.

Nevertheless, the Obama administration is pushing through with the short sale program to help solve the foreclosure problem which has not been solved by earlier programs such as the Home Affordable Modification Program and the HARP and the HOPE programs.

Just like the HAMP and HARP, the federal government also gives incentives to the lender or servicer, to the second-mortgage holder and to the homeowner. The primary lender gets $1,000; the second-mortgage lender gets another $1,000; and the homeowner gets $1,500 for relocation expenses.

For troubled borrowers, this short sale scheme to stop home foreclosures has two advantages over foreclosures: less damage to personal credit ratings and the pledge that they will not be pursued for the deficiency between the final sales price and the loan amount.

For mortgage security investors, the advantage over foreclosure is the prospect of receiving a higher amount of money or the likelihood of posting less investment loss.

For lenders, the benefits of short sales are savings in terms of money and time spent for foreclosure proceedings and avoidance of maintenance costs or monthly fees for properties in multifamily buildings.

There are, however, analysts who are doubtful about the effectiveness of the program. Economist Thomas Lawler, for instance, contended that short sales can be easily used to carry out fraud. Lawler, a former top executive at Fannie Mae, questioned how the lenders can determine whether a homeowner is really troubled or only pretending in order to escape financial obligations.

At the start of the housing crisis, short sales were ignored by lenders, but the number of short sales worked out has started to rise, according to realtors. The number, however, is still not significant.

Fannie Mae reported that it has approved 36,968 pre-foreclosure sales in 2009, triple the number it approved in 2008.

Despite the fine-tuning of the short sale program, the major mortgage banks are still largely hesitant about approving short sales to stop home foreclosures. Besides, there are second mortgage holders and mortgage investors that they need to confer with before approving short sales.

Mortgage loan audits, oftentimes marketed as forensic loan audits, are supposedly examination of mortgage loan documents to identify violations of mortgage lending laws by the lenders. Unscrupulous mortgage consultants sell this idea to distressed borrowers, telling them that the lenders will more easily agree to loan modifications if they are presented with their lending law violations.

In reality, however, there has been no data or evidence to back the claim that mortgage loan audits can pressure lenders to speed up their loan modification efforts for borrowers who present possible violations of federal laws in their mortgage origination.

According to the office of California Attorney General Edmund Brown Jr., the for-profit foreclosure prevention industry continues to find creative ways to swindle money from desperate borrowers.

According to legitimate consultants, even if the mortgage loan audits are performed by licensed and trained auditors, lawyers or mortgage professionals, forensic loan audits are not sure-fire or guaranteed tools to stop home foreclosures.

The Mortgage Relief Law Center in California is one of the many foreclosure-relief companies marketing forensic loan audits to homeowners at risk of foreclosure. One mortgage borrower complained that he paid $2,795 to MLRC, which accepted the money but never updated him on the mortgage modification process and never informed him that he was not qualified for modification.

The borrower claimed that he came to know of his modification status only after his lender sent him a notification stating that he was not qualified for loan modification. He also claimed that MLRC refused to refund his money.

Under the law in California, all foreclosure relief consultants and loan modification professionals are required to register with the office of Attorney General Brown and post a bond of $100,000. They are also prohibited from collecting upfront payments.

Last year, California officials have investigated over 2,000 loan modification complaints and have sued almost 350 people involved in fraudulent foreclosure relief activities.

The office of Brown has issued advisories to homeowners looking for consultants to help them stop home foreclosures. Homeowners are advised not to pay upfront fees, not to transfer titles or pay mortgage payments to consultants and not to ignore letters from mortgage servicers and lenders.

According to Ken Wade, chief executive of NeighborWorks, the NFMC has counseled a total of 633,294 distressed homeowners through its network of 230 community organizations in over 4,400 communities across the states since the start of the crisis to the middle of November 2009.

The program has also provided 5,237 scholarships to foreclosure counselors.

NeighborWorks America is a congressionally chartered nonprofit which was created by the U.S. Housing and Urban Development Department and the Federal Home Loan Bank in the 1970s to revitalize older urban neighborhoods. It is also called Neighborhood Reinvestment Corporation, a national private-public neighborhood redevelopment organization.

Since 1991, NeighborWorks has aided 1.2 million low-income families through redevelopment programs.

Based on a study carried out by the Urban Institute, a significant number of distressed homeowners who sought help from NeighborWorks in 2008, the first full year of the NFMC, were able to stop foreclosed homes or to reverse current foreclosure proceedings. They were also able to have their mortgage loans modified to lower monthly payments.

The report, however, stated that NFMC was not a cure-all, particularly for homeowners already in foreclosure. Borrowers who were delinquent by only one or two payments were the ones getting the most benefit from the counseling program.

The researchers reported that 75 percent of homeowners seeking help were already in default on their home loans at the time they approached NeighborWorks, and 22 percent were already in foreclosure.

NFMC director Jeanne Fekade-Sellassie said that homeowners can get a better response from lenders if they receive good counseling. Counselors work as their advocates, explaining options for avoiding foreclosure.

Marietta Rodriguez, head of foreclosure prevention programs for NeighborWorks, said that without help from experienced counselors and national organizations, many borrowers are put on hold for hours when they call, made to wait for months for developments on their requests and oftentimes made to resubmit documents because of incomplete information or because bank representatives misplaced the papers.

Homeowners who receive free counseling from the NFMC were 62 percent more likely to save their homes from foreclosure than borrowers who do not seek foreclosure prevention help from reputable organizations.

All in all, the NFMC program of the NeighborWorks helped save $33 million in potential cost savings during the entire year of 2008 by helping homeowners stop foreclosed homes.

According to Treasury Department officials, mortgage firms servicing the 450,000 modified mortgages have until the end of the month to review all their trial modifications and check if homeowners have paid all their monthly amortizations and have completed submitting needed documents. Homeowners who have not completed the requirements are given one month to comply.

The Treasury Department said the review is needed to hasten the transfer of borrowers in trial modification to permanent status. Many homeowners have been paying their modified monthly payments for about eight months, but they are still waiting for their mortgages to be moved into permanent status.

However, according to Richard Neiman, head of the New York State Banking Department, many borrowers whose mortgages have been modified are at risk of losing their modified status because of documentation problems. They have been complaining that lenders and services are continuously losing papers submitted.

In response to the complaints, the Treasury Department has decided to issue new guidelines to preserve the initial gains achieved by the federal program to help homeowners avoid foreclosure homes. The guidelines will hasten the conversion of modified mortgages into permanent status and to relieve borrowers from excessive documentation requirements.

The Treasury Department has been continuously criticized for the slow implementation of its Home Affordable Modification Program. Only about 66,500 homeowners have moved their modified mortgages into permanent status and only about 787,000 borrowers are in trial modifications.

Qualified borrowers are put in trial modifications to ensure that they are able to handle the modified monthly payments and to provide them more time to complete the required documentation. Only after the modified loans become permanent that servicers, lenders and homeowners are given their incentive payments promised under HAMP.

Based on Treasury Department data, about 75 percent of borrowers with modified loans have been making their monthly payments on time.

New York banking superintendent Neiman said that the Treasury Department needs to hasten the standardization of documentation and the set-up of a website that will enable borrowers to track their paperwork. He added that servicers should also be instructed to accept alternative documents in cases where required documents take a long time to procure because of factors beyond the control of borrowers who are doing their best to avoid foreclosure homes.

The state attorneys said that the 60 percent are seriously delinquent, but they are not getting help from mitigation programs, like the Home Affordable Modification Program and state mediation initiatives.

According to Washington State Attorney General Rob McKenna, co-chairperson of the group, foreclosures will continue to accelerate this year because distressed homeowners are not getting help from prevention programs.

According to a report recently released by the U.S. Treasury, only 7 percent of homeowners who had their mortgages modified under HAMP last year were able to enter permanent modification status.

The report also said that mortgage servicers and lenders have been slow in processing and completing modifications, taking up more than 6 months on the average to complete one modification. A huge majority of modified mortgages are still on the trial stage several months after their modification.

A trend described in the report is the increase in prime mortgages defaulting, based on figures from 13 mortgage servicers. Delinquencies are no longer concentrated on exotic or poorly underwritten loans; they are now spread out to all types of home loans.

The attorneys general have called on mortgage servicers to suspend foreclosure filings on all homeowners involved in HAMP or in mediation programs to help them avoid foreclosure. They further asked that their loan modification programs should reduce principal amounts in areas where there are overwhelming declines in home values to make modifications viable.

They state attorneys also called on the Obama administration to improve HAMP, increase its transparency and reduce the required paperwork to help more distressed homeowners.

A large number of troubled homeowners have been complaining that they are not getting any attention from banks. Joel Bienvenu of Boca Raton, Florida said that he has been applying for loan modification through his lender Wells Fargo since the middle of last year, but he said he keeps getting excuses from bank personnel.

Nationwide, of the over 3.3 million delinquent mortgage loans, only 66,465 modified mortgages have entered permanent modification status and that another 46,056 modifications have been moved on to permanent status by lenders but not yet accepted by borrowers, according to the report.

According to housing analysts, the nationwide program to help homeowners avoid foreclosure is not working because of high unemployment rates and sharp declines in home values.

Attorney General Cordray allocated $1 million to several local agencies in Ohio providing foreclosure counseling services to homeowners. Local agencies were encouraged by the new funding as cutbacks in federal funds were slowing them down in their operations.

Among these local foreclosure prevention agencies is Empowering and Strengthening Ohio’s People, which has helped around 8,000 homeowners save their homes from foreclosure this year. According to ESOP executive director Mark Seifert, without additional funding, the agency would not be able to help the same number and might only help around 5,000 borrowers in 2010.

Another foreclosure counseling agency is Community Housing Solutions in Cleveland, headed by Andy Nikiforovs who said that the funding would prevent the agency from laying off staff.

Local agencies said that their counseling services need to be supported because they have been vital in helping a lot of distressed homeowners avoid foreclosures. According to a study from the Cleveland State University, more than 50 percent of mortgage borrowers in Cuyahoga County that received counseling from foreclosure prevention organizations were able to save their homes from foreclosure.

The study showed that the success rate in the county was twice the success rate reported by other foreclosure prevention programs in other areas. However, according to Paul Bellamy, head of Cuyahoga’s foreclosure prevention program, a drastic drop in federal funding for programs in Ohio will adversely affect their capability to provide needed counseling and assistance.

Since 2007, Congress has already provided two allocations of $180 million each for foreclosure counseling programs and a third allocation of $50 million. A fourth allocation of around $65 million is being considered.

In Nevada, Judge Dawson upheld a ruling made by bankruptcy judge Linda Riegle, preventing the Mortgage Electronic Registration Systems from foreclosing on properties they do not own. Riegle required MERS to show actual mortgage notes or documents proving that they are agents of the lenders before they can foreclose on defaulting properties.

In his affirmation, Judge Dawson stated that MERS, which was launched to help the mortgage industry record and monitor residential mortgages, must show evidence that it owns the mortgage or that it is an agent or legal representative of the lenders before pursuing foreclosures. Homeowners then in Nevada can use this argument to help them avoid foreclosures.

Wells Fargo has been promoting three schemes by which its troubled borrowers can get help, in addition to carrying out the Home Affordable Modification Program of the federal government.

One of these schemes is its participation in the Project Lifeline, which was designed to help borrowers who are already in default by three months or more and who want to save their homes from foreclosure. Wells Fargo said that it will delay foreclosure filings for up to one month for borrowers who can show that they can work with the bank to find a repayment arrangement viable for both the borrower and the bank.

Wells Fargo explained that the steps for the Project Lifeline begin when the bank sends letters to certain distressed borrowers considered by the bank as qualified for viable loan modification. The next step is for the recipients of the letters to call the toll-free hotline of Wells Fargo at 866-488-2028.

Recipients should tell the responding bank representatives they have in their hands the Wells Fargo letter describing its efforts to stop foreclosure homes, that they want to work with the bank to save their homes and that they will seek financial counseling if required. Recipients will also provide additional financial information so the representatives can look for an appropriate solution that can work for the borrower.

The bank will delay foreclosure filings for up to a month as representatives review the financial situations of borrowers and modify their loans. If loans are modified to craft viable payment plans and if borrowers are able to sustain paying the modified loans for three months, the modified payment plans will be turned into longer-term payment agreements.

Another scheme carried out by Wells Fargo is the adjustable mortgage loan fast-track program, which provides a freeze on teaser rates for 5 years for certain kind of borrowers. The loans must have been made between the first day of January 2005 and the last day of July 2007 and must have been scheduled to reset between January 2008 and July 2010.

According to Wells Fargo, it has been finalizing its list of borrowers eligible for its fast track scheme to stop foreclosure homes and has been making efforts to ensure that notices are sent about 4 months before the reset dates of the ARM loans.

According to law professor Michael Fromkin, head of the fellowship, he pursued the creation of the fellowship after he came to know of thousands of filings of foreclosures at courthouses in Broward and Miami-Dade counties.

In a recent foreclosure report, courts in Miami, Pompano Beach and Fort Lauderdale received nearly 54,000 foreclosure cases, representing 2.23 percent of all residential units in the metro area. The pace of foreclosures slightly slowed down compared to the previous quarter, but the foreclosures are still high compared to 2008.

Homeowners who cannot pay their home loans are also not able to hire attorneys to help them save their houses, according to Fromkin. He added that there are legal options under which homeowners can delay foreclosures or prevent foreclosures, but many homeowners do not know these options. He explained that the fellowship will enable them to obtain legal representation for free and take advantage of these viable options.

Among these new law graduates participating in the program to stop foreclosed houses is Barbeth Foster. Foster is one of six new lawyers working at the offices of the Legal Aid Service of Broward County and the Legal Services of Greater Miami providing court representation for homeowners whose homes are in foreclosure. They are also helping borrowers negotiate loan modification or short sale agreements with lenders.

The Foreclosure Project, meanwhile, is carried out by law graduates who are taking their master’s degrees and who are providing help to homeowners under the supervision of local lawyers.

Richard Burton, the Aventura real property lawyer who launched the project, is working with a group of local lawyers to supervise the new law graduates.

According to the advocates, the two programs help both parties – the homeowners and the lawyers themselves. The new lawyers gain useful work experience while helping homeowners save their houses or sell their houses in a short sale to prevent foreclosure.

Additionally, the lawyers who complete the 6-month fellowship are awarded $10,000 each. Foster, one of the participants, said that the fellowship program is a unique opportunity for him to develop his career and at the same time help stop foreclosed houses.

Among recent foreclosure prevention programs are those carried out by officials and community advocates in Idaho, South Carolina and Michigan.

While South Carolina is not as battered as foreclosure-hit states, it has been pursuing projects to prevent further foreclosures because of the rising foreclosure filings in the state, as seen in a recent foreclosure report for the third quarter. It had nearly 7,600 foreclosure postings, with one of every 268 of its houses notified of foreclosure.
Idaho, meanwhile, is fifth in the U.S. in foreclosure rate, with one in 97 of its residential units in foreclosure and Michigan is eighth in foreclosure rate, with one in 122 its houses notified of foreclosure.

One of Idaho’s programs is the one launched by Idaho Attorney General Lawrence Wasden. His office published two downloadable handbooks: Foreclosure Prevention and Foreclosure Scams: How to Tell the Difference and Buying a Home.

The handbooks are full of information but are easy to read. They are also comprehensive, including all programs to avoid foreclosure, such as federal foreclosure prevention programs and lender modification programs. They also provide information on the foreclosure process in Idaho, on common mortgage schemes and fraud laws in Idaho.

In Charleston, South Carolina, the nonprofit Homeownership Resource Center held an event called Hope for Homes in the city’s convention center to help homeowners manage their finances and save their houses from foreclosure. Homeowners presented their loan documents, bills and pay slips to lawyers and federal counselors so their situation can be analyzed and be advised on further actions to do.

Debbie Kidd, head of Family Services that run the resource center, said that the recent event resulted in fewer people seeking assistance, but the number of homeowners going to the resource center has been rising. She said that the center is handling around 1,500 active distressed cases and that they have been resolving problems within days or months, depending on negotiations with lenders.

In Michigan, distressed homeowners are being helped by the Michigan Foreclosure Prevention Project, the State of Michigan Save the Dream program and the United Way Project.

To get help to avoid foreclosure in Michigan, a troubled homeowner just needs to call a nonprofit housing counselor or a local legal aid officer.

Under the leadership of Judge Shepard, these trained professionals will work with the Indiana Housing and Community Development Authority to conduct and mediate foreclosure prevention conferences between lenders and distressed borrowers.

A new law passed through the efforts of Indiana Senator Karen Tallian will also help facilitate the mediation process. The law requires lenders to inform homeowners at risk of foreclosure that they have the right to have settlement meetings with lenders under the court mediation program.

Tallian explained that homeowners can obtain favorable settlements with their lenders if they are guided through the process by trained professionals. Face-to-face negotiations are much better than negotiations over the phone where documents cannot be studied immediately.

The senator also said that since the mediation notification law was implemented in August, over 300 settlement meetings to stop foreclosure process have been requested.

In 2008, more than 45,300 foreclosure actions were filed in Indiana, a sharp increase of 50 percent over 2004 filings.

In the third quarter this year, more than 12,100 housing units were notified of defaults or foreclosures and more than 5,200 units of these were already real estate-owned. Although the pace of foreclosures in the state slowed, Indiana still ranked high among states in foreclosure rate. In the third quarter ranking of foreclosure rates, Indiana was 20th, with one out of every 230 households getting hit with a foreclosure posting.

Judge Shepard said that he planned to train more lawyers, judges and professionals so more troubled homeowners can be helped. During the training sessions, participants are encouraged to provide legal assistance for free to homeowners asking for help.

Among the organizations and agencies that helped conduct more than 30 sessions were the Indiana Foreclosure Prevention Network, Indiana Pro Bono Commission, Indiana Commission on Continuing Legal Education and the Office of the Indiana Attorney General. Law firms and bar associations across the state also helped.

According to Indiana Attorney General Greg Zoeller, the settlement meetings were designed to stop foreclosure process more effectively. Before the meetings, the logistics are organized so the needed paperwork, the mediator, the homeowner and the authorized lender representative are all present at the scheduled meeting.