A loan modification agreement is different from a forbearance agreement which provides short-term relief for borrowers who have temporary financial problems, while a loan modification is a long-term solution for borrowers who will never be able to make the existing loan payments.
Loan modifications are designed for customers that can’t afford repayment plans. In a modification, the servicer adjusts the terms of the loan to make it affordable. It may lengthen the amortization schedule or lower the interest rate to cut the monthly payments, or roll the past due amount into the loan and re-amortize the new balance so the borrower can pay the additional debt back over time.
Some companies may consider a short refinance. Here the lender forgives a portion of the debt and refinances the rest into a new loan. Lenders are willing to consider this where they are likely to recover more money than by foreclosing.
If the customer has a more serious financial problem the servicer may agree to help the borrower get rid of the house with a pre-foreclosure sale or possibly a short sale. Here the lender lets the borrower sell the house for less than the outstanding loan amount and may forgive any remaining overage. Banks may be willing to do so when they stand to lose less than they in a foreclosure.
With a deed in lieu of foreclosure the borrower surrenders the property deed to the bank and they sell it. This option may have consequences very similar to bankrupcy on your credit report and restrict your eligability for FHA lending programs.
Filing for bankrupcy stops the foreclosures process but seriously limits your ablity to obtain a new mortgage loan. Consider speaking with legal counsel specializing in these areas to find a solution that works best for you.