If you're behind on your mortgage and facing foreclosure, you need to ask your lender to modify your loan.

That's where you ask the bank or mortgage servicing company to lower the monthly payments by reducing the interest rate, extending the length of the loan or even forgiving some of the debt.

We can tell you what to do, what to ask for and what to expect.

Just be ready for long, frustrating negotiations that may, or may not, succeed.

Start by finding out if you qualify for help under the new foreclosure prevention program President Obama created in early 2009.

While the Making Home Affordable program got off to a slow start, the hope is that it ultimately will be more successful than the government's previous anti-foreclosure programs because it offers lenders a financial incentive for participating.

It also establishes the goal of lowering borrowers' mortgage payments to a very reasonable level -- no more than 31% of their gross income.

To qualify, your loan must have been made on or before Jan. 1, 2009, the balance must be no more than $729,750 and the loan must be owned or guaranteed by Fannie Mae and Freddie Mac.

Chances are, it is. These government-owned companies provide most of the money banks and mortgage companies use for home loans.

But before you call to start a modification, it's a good idea to confirm that Fannie Mae or Freddie Mac backs your loan. You can find out by calling the mortgage servicing company you send your check to each month or by contacting:

Fannie Mae at 1-800-7FANNIE (8 a.m.-8 p.m. EDT) or fanniemae.com.

Freddie Mac at 1-800-FREDDIE (8 a.m.-8 p.m. EDT) or freddiemac.com.

Your next step is to call your lender's customer service number and explain that you need to talk to someone about restructuring your loan because you've fallen behind on your payments.

The bank or mortgage servicing company that collects your payments for the investors who own your loan will have a loss mitigation department that works with borrowers with troubled loans.

However, that department isn't always easy to reach.

Customer service reps may tell you it doesn't exist because the lender calls it something else. If that happens, ask if they have a workout department, loan modification department or reinstatement department.

When you reach the correct department, tell the service rep you want a mortgage modification.

The lender should try to modify your loan using the Obama plan or its own internal modification plan, depending on your circumstances.

You'll be asked to fill out forms about your finances, including how much you make and how much you owe, before you get approved for a loan modification.

Be honest and keep in frequent contact with your lender. Withhold information or stop talking and your options will quickly disappear.

Also, it's important to stay in your home while you wait for the lender to work out a new repayment plan. You may not be eligible for assistance if you don't live in the property.

The lender will use the financial information you provide to determine if you can weather your financial crisis and resume making your mortgage payments.

If you can, you have a shot at having your mortgage modified in a meaningful way and knock several hundred dollars a month off your payments.

If your lender thinks you don't make enough money to afford a modified mortgage -- even if it dramatically reduced the interest rate or extended the loan -- it will only offer you a way to catch up on your existing loan.

These catch-up plans will not lower, and can even increase, your payments:

• Forbearance will allow you to make partial or no payments for a few months -- but you'll be expected to make up the difference later.
• Reinstatement lets you catch up on any missed payments and pick up paying your monthly obligation as before.
• Revised repayment plans add missing payments to future payments on a prorated basis -- plus interest. The increased payments can be paid back over a period of time until you are current.

As you might expect, most borrowers given a catch-up plan quickly default because they still can't afford the payments.

And, unfortunately, lenders have been more likely to offer catch-up plans than modified mortgages.

The Obama foreclosure prevention plan tries to change that, but it's too soon to tell if that will be the case.

What should you do if you can't get your loan modified?

Ask for a short sale. That will let you sell the house for less than you owe on the mortgage.

The lender agrees to write off the difference -- which they're often willing to do if they'll lose less money than following through with a foreclosure.

The Obama plan also has incentives for lenders to accept short sales.

(You also can offer to give up the deed in lieu of payment, and the lender may agree to write off your debt in exchange for the title to the home -- which is another, less widely used option.)

If you've suffered a personal hardship -- a serious illness that prevented you from working or the death of a spouse -- you're more likely to win approval.

But don't expect to get it quickly. The approval process can take weeks or even months.

If you do get approval, make sure the agreement clearly states the proceeds of the sale will be payment in full "without pursuit of any deficiency judgment."

The bank could let you sell the home at a loss and then seek a deficiency judgment that requires you to pay the difference between the loan balance and the sale price without that very important clause.

You'll lose your home in a short sale. But it's better than going through a foreclosure, which drops your credit score 250 to 280 points and requires you to wait 36 to 60 months to get a reasonable interest rate for another home purchase.

A short sale only drops your credit score 80 to 100 points, and you can usually land a decent interest rate after 18 months to buy a new home.

By Erin Brereton

Interest.com Contributing Editor