What happens to the principal balance after a loan modification?
“In a loan modification, one of the things you would seek to do is to get a reduction in the principal balance, especially if the debt is higher than the value of the house. In many circumstances, the banks are willing to take a reduction to the principal balance in order for them to work out a loan payment that you can afford. In other circumstances, they will not forgive that principal balance or any portion of it, in which case, they may put it at the end of the loan in the form of a balloon payment, or just wrap it back into the loan to hopefully give you an affordable payment.”
