Foreclosure rates are still on the rise, leading some lenders to fail, and leaving millions of Americans without a home of their own. Fannie Mae and Freddie Mac needed a "bail-out" of themselves from the government. The foreclosures are still occurring, with another wave about to begin in 2009.

Most of these will be borrowers in the Pay Option Arm plan. This is the Negative Amortization loan that was very popular the last 5 years. It is likely that Congress will outlaw the sale of these loans to unsuspecting borrowers in the coming months.

The Pay Option Arm comes with 4 payment options each month. The "minimum" Negative AM payment, interest only, 30-year (interest and principal amount)

and 15-year (principal and interest). The minimum monthly payment is negative amortization and was based on a teaser rate anywhere between 1%- 4.25%. While a person may be able to get this loan, it is often the case that a qualified borrower may only be able to make the minimum negative amortization payment each month. The interest only, 30-year fixed and 15-year fixed payments are based on whatever index the loan was based on, such as LIBOR, COFI, CODI, MTA, etc., plus the margin giving you the fully indexed rate. The fully indexed rate is usually (index + margin) meant an interest rate anywhere from 7% - 9%, with most being closer to the higher 8%-9%. Most borrowers therefore paid the minimum negative amortization payment of 1% which gave them a substantially smaller payment - but increased their mortgage balance with each payment.

Most people aren't familiar with the word "recast", so they might not understand that foreclosure may be in their new future, even if it's already in their Pay Option Arm loan. This information is essential.

Recasting percentages differ based on the lender. Most recast at 110%-115%. What this means to the borrower is this: If you have paid only the negative amortization minimum monthly payment for 3+ years or are getting close to it - your loan will recast sooner than you may have expected. If the loan recasts, the bare low negative amortization and the lone interest payment preferences vanish.

The borrower is left with only two payment options, the 30-year and 15-year fixed payment options at the fully indexed rate of 8% plus. Not only that, all of the negative amortization or as the lenders call it, "deferred interest" has increased your original loan balance at the same time their property values are falling in value. Result, most borrowers in Pay Option Arms find themselves upside down with no options other than to walk away or attempt a short sale.

In most cases the end result is bad credit or no money in their pockets to take care of the taxes caused by the short sale.

Depending on when your loan is set to recast - you can find this information on the "Note" with your original loan documents. It is possible that it will say "Adjustable Note", etc. Note is the most important word. If your loan contract states that your loan will recast at 110% of the "original" loan balance, this means on average that you can expect it to reset three years from the loan start date. If the terms on the note call for a 115% recast, then you will recast before 5 years. Either way, borrower's will then find themselves with a payment they cannot afford and they won't be able to refinance because they will most likely either be upside down or have very little to no equity. Essentially leaving them stuck in their Pay Option Arm with no way of converting into a fixed rate mortgage.

When given the option or selling their home or being able to renegotiate their current loan, keep the payments affordable and convert to a fixed rate mortgage - statistics indicate most borrowers would ultimately choose to keep their home.

Loan Modification is a great option to help you with this. If a lender is willing to work with you to change your mortgage terms to something that is less of a hardship for you, that's called loan modification. The purpose is to help make your loan more affordable. An ARM can be converted to a 30-year-fixed loan that includes a rate reduction.

Previously, this was only available if the borrower was behind in his or her payments and had experienced some kind of hardship, such as a job loss, divorce or illness. Now, borrowers can obtain mortgage help from their lender for unaffordable rate adjustments on adjustable rate mortgages.

Loan Modification services should include the initial consultation, compiling the full application, the processing of the application, the underwriting of the proposal, written legal contract of the proposal, legal department's (comprised of attorneys, paralegals, and brokers) The final steps in the loan process includes modifying, execution and final resolution.