Loan modification allows homeowners and lenders to change the terms of a loan in order to help the borrower stay in the home and avoid foreclosure. It is important to note that a loan modification is not a new mortgage. A loan modification is the renegotiation of an existing loan. With a loan modification, it's possible that a homeowner's: interest rate may be decreased, interest rate may be changed from an adjustable to a fixed rate, time the borrower has to pay the loan back can be lengthened, loan principal may be decreased, late fees may be waived, second mortgage could be waived or wiped off of the books.