SEC made a interpretation of the "FAS 140" rules that prevented changes in loan term before foreclosure began.
http://deankonstantine.com/2007/08/11/a-minor-modification-in-accounting-rules-may-halt-sub-prime-foreclosures/
It seems the SEC has opened the door for lenders to make modification to loan terms if “modifications undertaken when loan default is reasonably foreseeable should be consistent with the nature of modification activities that would have been permitted if a default had occurred.”
This is the right way to handle many of the loans.