What does loss mitigation mean?

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.

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Moe Bedard
Founder at LoanSafe.org
My name is Maurice "Moe" Bedard. I am the founder of America's #1 Mortgage Forum, LoanSafe.org. My online work has been featured in the New York Times, LA Times, Fox Business, and many other media publications. I currently live in Carlsbad, California with my beautiful wife and children.
  • Don D

    My kid’s mortgage is upside down – about 18%. They received a written payment number at closing that they say included the (very significant) taxes. But instead they have been receiving tax bills separately that they have had to pay. With decreasing income due to less business, they can’t make both payments now.

    Do they have a fraud case here? They’re considering hiring a law expert using their last savings. Help —

  • Mike Gilbert

    I have tried to deal with Wachovia’s “Loss Mitigation” for more than 2 years, on three single family home mortgages. They will NOT talk to anyone until they are at least 3 to 4 months behind… Absolute fact, so don’t even waste your time trying.
    Secondly, Wachovia absolutely can NOT be trusted to act in good faith. I have had not one but four (4) promised modifications, the first two disappeared when Wells Fargo acquired Wachovia. In 10-08 we were 2 to 3 wks from closing on 2 mods… suddenly they didn’t call or respond to my 2x/wk inquiries – just ignored us! Finally just a form letter, my name typed in the space & misspelled, saying I didn’t “qualify” (even though it was a pre-approved mod)!

    Then in May 09 I received a mtg mod verbal commitment for two 30 yr fixed mtgs at 4.9% & 5.5%. Papers over nighted to sign, found they had changed the rates to a whopping 6.5% on both… when I called, escalating up to dept head, I was told “take it or leave it, I don’t care what you do!”.

    Again, Wachovia is impossible to deal with. Should you finally get to someone who actually knows anything at all, you absolutely CAN NOT rely on what they tell you. You will be asked for the same documentation over & over again. They will say they never got it, later acknowledge receiving it, then still later say they lost it…. this won’t happen once or twice, it will happen over & over again, over weeks! Because you can not speak to the same person even twice, and because its only talk, with little in writing, it becomes hopeless to work with them! It’s like trying to work with a mugger, except there you can actually see the individual you’re trying to deal with.

    We are fed up with these whores. They continue to ignore us and will not negotiate in good faith, so they’re getting the first of three properties back. Assuming they still don’t care, the second & third property will follow shortly. Honestly, these troubled mortgages companies deserve every bit of the trouble they’re getting… They’ve earned it! The best thing to happen to them – for the taxpayers point anyway – is for them to go out of business!