According to the U.S. Department of Housing and Urban Development, a loan modification is a permanent change in one or more of the terms of a borrower's loan. It allows the loan to be reinstated and results in a payment the borrower can better afford. The lender and homeowner work together to find a monthly payment amount that is agreeable for both parties.
An article on MSN.com explains that loan modifications could help the nearly five million homeowners who are struggling to make their mortgage payments on time, even those that are 30, 60 or 90 days overdue. The modification does this by resetting the interest rate, the duration of the loan or other factors until the monthly payment is low enough for the homeowner to afford it.
One new way to accomplish a loan modification is through the Making Home Affordable program, detailed at MakingHomeAffordable.gov. The website explains that this program is part of a comprehensive plan to stabilize the U.S. housing market by helping homeowners get mortgage relief and avoid foreclosure. This program is available to anyone who has a loan owned or guaranteed by Fannie Mae or Freddie Mac, and most other major lenders are also participating.