Loan modifications are often used to generically describe several things that happen with mortgages. In fact, repayment plans are often called Loan Modifications.

The best example of this are the Hope Now Loan Modifications. These are really repayment plans designed to help borrowers catch up on their arrearages.

Approximately 70% of these repayment plans (erroneously called Loan modifications) re-default. This is usually because the mortgage principal was never reduced to make the mortgage truly affordable for the troubled borrower.

Forbearance agreements and balloon payment maturity date extensions are also referred to as loan modifications.

However, a TRUE loan modification requires a reduction of principal.