At the point in time when the economic structure of loan becomes financially unsupportable for the borrower, a lender is faced with a few options. The lender could simply default the loan and begin collection activity. Alternatively, the lender could seek to re-work the deal in some way to provide some breathing room for the borrower. No good deed goes un-punished, so it’s good to understand the impact of the two most common types of borrower accommodations – the loan modification and the forbearance agreement. First; the basics. The core purpose of a loan modification is to adjust the terms of a loan because the borrower would have been in default under the prior terms. The notion being that the loan relationship is going to continue. The core purpose of a forbearance agreement is to prevail over the prior loan terms and legal rights for a period of time because the borrower needs relief from those rights in order to accomplish…
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