Which response to default involves reorganizing a borrower's debt?

Renegotiation is a process that involves altering the terms of an existing debt agreement to make it more manageable for the borrower. This can include changing the interest rate, extending the repayment term, or adjusting the monthly payment amounts. The main goal of renegotiation is to keep the borrower in their home and avoid default or foreclosure by reaching a new agreement that fits the borrower's current financial situation.

When renegotiation occurs, both the borrower and lender typically engage in discussions to come to a mutually beneficial arrangement. This can help address immediate financial issues while preserving the lender's investment. It is a proactive approach aimed at finding a solution that can prevent further financial repercussions for both parties involved.

Other options like credit counseling focus on providing guidance and advice to borrowers but do not typically involve a direct restructuring of the debt itself. A deed in lieu of foreclosure involves the borrower handing over the property to the lender to avoid foreclosure, which doesn't modify the debt but rather relinquishes the collateral. Foreclosure is the legal process through which a lender takes possession of the property due to default on the mortgage, effectively ending the borrower’s ownership and usually resulting in the loss of the asset.