Lenders and mortgage servicers each have their own loss mitigation departments and policies, but what is clear is that no lender wants yet another house to enter foreclosure, specially with all of the recent government incentives and assistance. As such, given foreslosure the alternative, as long as the homeowner can still make payments on the loan, the lender would be willing to work with him/her to prevent a foreclosure. Typically, lenders' requirements are to make sure that the deal makes fiscal sense. For example, they must determine that the revenue lost in lower payments on the loan would still be better than the cost assosicated with the foreclosure and maintenance of the home after it is given back to the bank. In certain situations, this really gets down to bad vs. worse for the lender, but as a general rule, it is always better to let the homeowner keep his/her home and not take the house back.