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- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
About Loss Mitigation
When you take a mortgage you would always expect that you make your mortgage payment on time and never miss them and so does your lender.
However, due to some unforeseen circumstances, such as loss of job, medical emergency, or accidents, a borrower may experience financial hardship.
As a result, the borrower may be unable to make the mortgage payment which leads to foreclosure.
Foreclosure is an expensive procedure for lenders and a devastating situation for borrowers.
To avoid foreclosure one of the provision available is known as loss mitigation. In this post, we will learn what loss mitigation means and how it works in detail.
What Is Loss Mitigation?
As we have discussed above, there could be many reasons why a borrower can face financial hardship and miss his mortgage payments.
In such situations, it is ideal for both the mortgage lender and the homeowner to help the homeowner stay in their home and get back on their feet so they can eventually be current on their late payments.
With the help of loss mitigation, the homeowner can stay in the home without the foreclosure process.
Loss mitigation is a process designed to protect homeowners and mortgage holders from foreclosure procedures. This can be one of several strategies that homeowners can use to stay on top of their mortgage while staying in their homes.
In a worst-case scenario where the borrower defaults on the mortgage, loss mitigation can reduce the negative impact of foreclosures.
If you are having trouble repaying your mortgage, contact your mortgage servicer. Your service provider is the company to which you pay your mortgage payments.
Their job is to help with payment issues as well as collect payments and maintain an escrow account (if any).
Your provider may or may not be the mortgage lender you borrowed from. Rights to service your mortgage may be sold or bought by others.
What Are Different Types Of Loss Mitigation Options?
Based on the type of financial challenge you are in, your lender might offer you various types of mitigations.
Below mentioned are the options:
1 - Forbearance:
With the help of forbearance, you can reduce or temporarily stop paying your monthly mortgage payments.
Any outstanding amount will be added to your loan balance and will be repaid at the end of the grace period according to an agreed schedule known as the repayment plan.
Administrators may offer an option to extend the initial 6-month forbearance period by an additional 6 months (1 year in total).
After this period ends, the borrower repays the outstanding amount in regular monthly payments, usually over six months (or one year if the period is extended).
If you can repay the outstanding amount and resume normal payments during the forbearance period, you can contact your loan servicer to reinstate your mortgage.
2 - Deferred Payments:
A deferred payment is a way to pay the monthly payments that you were allowed to miss during the forbearance period.
In this type of mitigation option, the borrower needs to pay the missed payment amount at the end of the mortgage term, refinancing the current mortgage, or selling the property.
3 - Modification Of Mortgage:
In this option, the lender will change the complete term of your loan, such as the tenure and/or the interest rate to make the payments more affordable.
Based on your lender and the type of mortgage, you may be eligible to lower the monthly payments by up to 25% or by increasing your tenure of mortgage for up to 40 years.
A Short Sale
In this option, the loan servicer agrees that the home can be sold for less than the mortgage loan. Servicers will incur costs as they progress. When home prices fall, short-selling activity increases.
A foreclosure could still be a better option, but both sides still suffer. Mortgage servicers will lose their part of the profit and borrowers will get a negative impact on their credit and lose the opportunity to make a profit from the sale.
4 - Deed in lieu of foreclosure:
This is an option in which the borrower transfers the title of the property in the name of the loan servicer in exchange for loan forgiveness.
With a deed in lieu of foreclosure, both borrowers and the loan servicer can save a lot of time and money which might be included in a foreclosure process.
In some situations, the borrower can reach an agreement with the servicer to stay in the house for a specific time until they find alternate housing options.
Conclusion
Loss mitigation is a process that the lender goes through with the borrower before the foreclosure process. If none of the mitigations work, then the lender only has foreclosure as a last resort.
It is important to speak to your lender to discuss all the possible options if you are unable to make mortgage payments due to financial hardship.
Your lender or your loan servicers would always prefer any of the loss mitigation options over foreclosure.
