Savings for House Payments: Yes or No?

There appears to be a shift away from lenders granting loan modifications despite all the news coverage to the contrary. I've noticed lenders refusing to grant short sales due to rising market values obtainable from REO (Real Estate Owned) property sales. In two separate instances, over the past 4 weeks, the foreclosing lender completed the foreclosure process in almost exactly the allowable minimum time. Not one postponement of the Trustee Sale during the entire process even though a loan modification was being considered. It's a disturbing trend for homeowners. The sequence goes something like this: the borrower spends months making payments on a loan using savings, retirement money, personal loans, everything but actual income, while trying to get a loan modification. After exhausting of all their cash the foreclosure process begins. The lender continues to have the borrower wait for a final answer on the loan modification. Then, within days of the actual Trustee Sale, the lender denies the loan modification. This leaves the borrower with no time to take another course of action, no cash reserves, and they end up losing the property to foreclosure in the end. To add a final sock-in-the-stomach the lender offers a Cash for Keys deal to have the homeowner move out in a timely way (timely for the lender). As if on cue while thinking about this issue today, I received a call from a very distressed homeowner. She, we'll call her Susan, recounted with fascinating detail a 16-month odyssey in pursuit of a loan modification with no success. Just as described above she struggled to make her $5,000 per month mortgage payment on a $1,900 per month unemployment income. Susan and her husband exhausted all their savings making their mortgage payments each month. They finally missed their first payment this past month, prompting a call to me. Frequently I am the referral of last resort. That aside, the real concern is, are lenders doing this on purpose or is it coincidental? Well, regardless of the answer to that question time will tell. If faced with a similar decision what should you do? Answer: if you have to use your cash reserves to make mortgage payments it may be a better plan to sell, and keep your retirement savings for just that.