The goal of a loan modification is to reduce a homeowner’s mortgage payment and make that payment affordable. This is accomplished by implementing one or more of the following
• Lowering the interest rate
• Extending the term of the loan
• Adding unpaid interest to the principal balance
• Reducing the principal balance
The Office of the Controller of the Currency (OCC), which regulates national banks, says many loan modifications do not reduce the principal balance owed. Perhaps more disturbing is the news that a large number of loan modifications soon become delinquent again. It’s often just a temporary fix and not a long-term solution.