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The Obama Administration has been working nonstop – along with agencies like HUD and the FHA – to come up with proactive ways to address the nation’s foreclosure crisis and help homeowners keep their homes. One of the most promising initiatives to emerge is the new Making Home Affordable program, which allows eligible homeowners to get new mortgage terms through a process known as loan modification.

A loan modification is basically just an agreement negotiated between the mortgage lender and the homeowner to change the terms of the mortgage contract in specific ways that make it easier for the homeowner to make their monthly payments. A loan modification’s primary goal is to reduce monthly payments, helping to bring them more in line with the borrower’s income.

That can be accomplished in a number of ways, and the Making Home Affordable program also provides some cash incentives to banks and other lenders who do successful modifications so that foreclosures are avoided.

As a result of a loan modification like those Obama is encouraging, some lenders will agree to extend amortization or payback periods to stretch out the repayment of loans. That lowers the monthly installment payments. They may even cut the balance due on loans, which makes the whole loan smaller and less expensive. In other cases lenders may offer a lower interest rate than the one now attached to the mortgage, to ease the burden of payments and make them more manageable. If the program works as plans it could help hundreds of thousands of people keep their homes and avoid foreclosure.

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