Since the real estate crash of 2008, one of the most common alternatives to foreclosure has been a loan modification. A loan modification is a voluntary agreement between the lender and the borrower to alter the terms of a mortgage. They often reduce the interest rate of a mortgage, or alter the payment terms. Once in a great while, they will reduce the principal amount of a loan.

Lenders are not legally required to modify loans. From a legal perspective, a loan modification is a form of charity by the lender to the borrower. This is frustrating, because the banks themselves received an enormous taxpayer-funded bailout after the crisis of 2008. Although Uncle Sam gave the banks a huge handout, the federal government did not require the banks to modify loans or otherwise help distressed homeowners.

While millions of homeowners have asked for loan modifications, relatively few have received one. Of the small number who received a loan modification, the majority got a relatively minor loan modification. For the vast majority of homeowners, in short, loan modifications have been a disappointment.