Due to our economic crisis homeowners have begun to fall behind on their mortgage payments and are in great danger of having their home foreclosed on. So because of this the term “loss mitigation” tends to be used more than ever before. This is actually an attempt by your current mortgage lender to reduce their loss as much as possible in the event the homeowner defaults on their monthly payments. The lender will try to regain as much as the loans value as possible even though they are likely to suffer some loss.
Pretty much every major mortgage company will have a special loss mitigation department that is trained to negotiate with the homeowner new loan terms that will better fit their financial situation. Once the borrower begins to fall behind on the monthly payments they will usually start receiving calls from either their collection department or loss mitigation. This department is trained to negotiate several kinds of loss mitigation with the homeowner such as a loan modification, short sale, or possibly even a deed in lieu.
Today the most common and popular method used to avoid foreclosure is through a loan modification. Through this route the homeowner will try to negotiate completely new terms for their current loan. A loan modification can help the homeowner catch up on their missed payments to become current, lower interest rate, or possibly even achieve a principle reduction to match the current market value. This has got to be the best route to choose to avoid losing your home.
Short sales are the second best route to avoid the devastating affects of foreclosure. Although, this method will have negative affects on your credit score and should only be used when there is no other choice. Through a short sale the borrower will list their home for a asking price that is less then what they owe on the home. But the sale price of the property must be agreed upon by the mortgage lender that holds the loan. By selling the home instead of foreclosing the lender will still gain some profit from the sale. I’m some cases the lender will issue the borrower a 1099 for the deficiency balance after the sale.
Loss mitigation has been used by many mortgage companies for many years and has helped many people remain in their homes. But ever since the foreclosure rates in America have risen higher than ever over the past two years, this is being used more than ever. If you are one of thousands of borrowers who have fallen behind on their monthly payments, I suggest you contact your lenders loss mitigation department and negotiate new terms to avoid foreclosure.