Loan modification and loan workouts both mean the same thing. A loan modification is a way to help homeowners avoid bankruptcy when their largest financial burden is the monthly mortgage payment. Many Americans do not expect or want to be bailed out by the government with a bankruptcy or lose their home to foreclosure. With a loan modification, the homeowner is simply agreeing to a change in the original terms of the loan with the existing lender. The new terms are accepted by both the homeowner and the financial institution. The lender and borrower both benefit from a loan modification because the homeowner gets to keep their home and the bank avoids the lengthy process of foreclosure. Some of the characteristics of a loan modification are interest rate reductions, extensions of loan periods, the reamortization with capitalization of arrears by recasting missed payments, a reduction of principal balance, and deferred junior mortgages.
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