Mortgage Servicing and Loan Modifications: 6.2.4.5 Principal Forbearance
Often a loan modification may involve forbearance of part of the capitalized principal balance; that is, repayment of a portion of the principal is delayed until the loan is paid off in full. The forborne principal becomes a balloon payment, and interest is not charged on the forbearance amount. Principal forbearance is usually the last in a series of steps that servicers employ to reduce the monthly payment.