Loan Modification

DEFINITION of 'Loan Modification'

A modification to an existing loan made by a lender in response to a borrower's long-term inability to repay the loan. Loan modifications typically involve a reduction in the interest rate on the loan, an extension of the length of the term of the loan, a different type of loan or any combination of the three. A lender might be open to modifying a loan because the cost of doing so is less than the cost of default.

BREAKING DOWN 'Loan Modification'

A loan modification agreement is different from a forbearance agreement. A forbearance agreement provides short-term relief for borrowers who have temporary financial problems, while a loan modification agreement is a long-term solution for borrowers who will never be able to repay an existing loan.

RELATED TERMS
  1. Forbearance

    A temporary postponement of mortgage payments.
  2. Foreclosure - FCL

    A situation in which a homeowner is unable to make principal ...
  3. Delinquent Mortgage

    A mortgage for which the borrower has failed to make payments ...
  4. Eurosclerosis

    A term introduced by German economist Herbert Giersch referring ...
  5. Heatmap

    A visual representation of data using colors. A heatmap can be ...
  6. Hope Now Alliance

    An initiative launched in 2007 to combat the rising tide of foreclosures ...
Related Articles
  1. Real Estate

    The 5 Best Real Estate Lawyers in Boston

    Discover some of the best real estate lawyers working in Boston, and read more about their legal experience and special practice areas.
  2. Stock Analysis

    Hartford Financial Services: An Activist Investment Analysis (HIG)

    Read about the famous and profitable 2012 clash between activist hedge fund manager John Paulson and Hartford Financial Services Group.
  3. Economics

    How Interest Rates Affect The Housing Market

    Understand how rate changes can affect home prices, and learn how you can keep up.
  4. Personal Finance

    Understanding Your Mortgage

    We walk through the steps needed to secure the best loan to finance the purchase of your home.
  5. Options & Futures

    Short Sell Your Home To Avoid Foreclosure

    Are you in danger of losing your home? Protect your credit score with a real estate short sale.
  6. Options & Futures

    Make A Risk-Based Mortgage Decision

    Find out how to choose which mortgage style is right for you.
  7. Options & Futures

    Things To Know About The Home Modification Plan

    This program allows FHA borrowers to reduce monthly mortgage payments through negotiation with lenders.
  8. Active Trading Fundamentals

    Short Sales And Foreclosures: When It's Time To Move On

    Sometimes it's better to cut your losses, but foreclosures and short selling can have devastating impacts on your credit score.
  9. Options & Futures

    Battling Foreclosure: The HOPE NOW Alliance Strategy

    Hope Now was formed to help prevent foreclosures. Are the organization's strengths enough to overpower its weaknesses?
  10. Retirement

    Mortgage Asset-Liability Management Made Easy

    Should you refinance your mortgage to purchase other assets? Learn how to weigh your risk.
RELATED FAQS
  1. Are Sallie Mae loans considered federal loans?

    Sallie Mae is a private lender, so its direct loans are not federal loans. Basically, federal student loans consist of money ... Read Full Answer >>
  2. Under what circumstances might a syndicated loan be arranged?

    Syndicated loans are almost always arranged for huge, complicated projects that involve major corporations or governments. ... Read Full Answer >>
  3. How risky is a syndicated loan for the lender?

    Syndicated loans are specifically designed to spread risk exposure among different lenders in a joint liability venture. ... Read Full Answer >>
  4. How do I calculate how much home equity I have?

    Even though it is normally assumed most people know their home equity, many are still confused about the topic. It is an ... Read Full Answer >>
  5. In the context of a bond, what does the principal refer to?

    The principal of a bond refers to its face value, or the actual amount listed on the bond itself. The bond's principal is ... Read Full Answer >>
  6. What are the similarities and differences between the savings and loan (S&L) crisis ...

    The savings and loan crisis and the subprime mortgage crisis both began with banks creating new profit centers following ... Read Full Answer >>
Hot Definitions
  1. Liquidation Margin

    Liquidation margin refers to the value of all of the equity positions in a margin account. If an investor or trader holds ...
  2. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  3. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  4. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  5. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
Trading Center