Second Chance for Loan Modifications

Turned down for a mortgage modification? You may now have a second chance.

To stem a new wave of foreclosures, the federal government is spreading the safety net to catch home loans in trouble. The latest move comes from mortgage giant Fannie Mae, which now requires all of its loan servicers to consider "Alternative Modifications" to borrowers who have applied for help under the federal Home Affordable Modification Program (HAMP), but who have not been able to qualify for permanent modifications, according to the mortgage giant.

The program has long been plagued by delays and red tape, with servicers complaining that borrowers failed to provide the required documentation, and borrowers and community groups accusing servicers of losing or mishandling the information.

Fannie Mae's alternative modification is effectively a second chance for borrowers to permanently modify their loans and reduce their payments for up to five years, even if they've been mired in disputes with the mortgage companies over their paperwork.