They should go back to the lender and ask to modify the loan, because that will lower their payments...otherwise, they will always have this problem, with the rents not covering all of the expenses.   

Yes - if you make 401(k) contributions it will lower your Modified Adjusted Gross Income (MAGI) which is used to calculate the phaseout.2. 

During that time, I also had 2 mortgages that were successfully modified--but as a result my credit scores have suffered and dipped to the low 600's.

Thomas S. adds a good point-modifying it to make it a duplex would be a great idea.  

I know our firm starts to modify standard emails and calendaring features we send to clients right around the 2nd week of October every year to address this very issue.  

I've just modified it to fit what I'm thinking.

You can modify it on a case by case basis as necessary for the deal.

You'll likely have to create/modify a standard buyer commission agreement.

You'd have to account for what a fair rent would be for your unit, or try for a proportionate percentage (e.g. if you occupy one of three equal units, I think the 1% rule would be "modified" down to .67% to reflect your own living space.

I think the impact would come from the loans that were previously modified at ridiculously low 2-3 percentage interest.It's hard to compare apples-to-apples without knowing which kind of notes the fund you're referring to is investing in (or creating)