Home Loan Modification is still possible!

We applied for a "Making Homes Affordable" home loan modification last June. This is the program where they will give you an obscenely low interest rate and stretch the term of your mortgage loan in order to bring your payments down to 38% of your income, if you meet certain qualifications like at least a 10% decrease in income during the last year. It's designed to keep people from going into foreclosure because of the economy affecting both income and the value of their homes.

Today I called about trying to avoid a late fee and get back on track with our mortgage payments. Tons of car repairs and missed work in the last few months caused us to eat through our emergency budget and then fall behind on mortgage payments. While we were talking, he asked about this program and I said that we applied, but never heard back and that it sounded like our situation was too bad to qualify. He assured me that this didn't make sense, took a look at our file, and found that they had made some mistakes about the requirements and never notified us that we needed to send some more paperwork before our case could be reviewed!

To be reviewed properly for the Home Modification, we need to gather some documents and fax them. Getting the modification will have the following effects for us:
(1) Our mortgage payment will be decreased by about $1K per month
(2) We will pay far less interest over the lifetime of our loan
(3) The length of our loan will likely be extended somewhat (assuming we don't pay ahead)
(4) Our credit score will be damaged (I guess we'd better get debt-free so that doesn't matter!)
(5) We will need to attend debt counseling, which we can probably get for free from the HUD. It will be a bit of a hassle to arrange and attend, but it's a sensible requirement and we'll undoubtedly be able to make good use of the counseling time.
(6) Our "realistic worst case" scenario goes from missing 2 to 3 housing payments over the next year (when my contract ends and I can't work at MS for 100 days) to being able to save ahead so that we have what we need to at least break even during that period. The "realistic worst case" scenario, BTW, is that I finish my contract and DH still isn't working, I get unemployment for 100 days without finding another job, and then return to my old job at the same pay. This is what we assume the future will look like when planning and budgeting. Odds are that things will actually work out better than this, but we aren't counting on it.

So the Home Loan Modification isn't without a downside, but it's a very useful tool for where we are right now.