A modification to an existing loan made by a lender in response to a borrower's long-term inability to repay the loan. Loan modification typically involve a reduction in the interest rate on the loan, an extension of the length of the term of the loan, a different type of loan or any combination of the three. A lender might be open to modifying a loan because the cost of doing so is less than the cost of default.

A loan modification agreement is different from a forbearance agreement. A forbearance agreement provides short term relief for borrowers who have temporary financial problems, while we work on a loan modification agreement which is a long-term solution for borrowers who will never be able to repay an existing loan.