In this post we will explain what loss mitigation is and the resources available to avoid foreclosure.
What is Loss Mitigation?
There are a plenty of events that can lead some people to fall into financial hardship, bringing them to the point of not being able to pay their mortgage.
If you find yourself in a similar situation and want to avoid foreclosure, we explain the loss mitigation process and how it could help you keep your home.
Loss mitigation is the process where borrowers and their loan servicer work together to avoid a foreclosure. Some loss mitigation options, such as a loan modification, forbearance agreement, and repayment plan, allow the borrower to stay in the home. Other options, like a short sale or deed in lieu of foreclosure, help a borrower give up the property without going through a foreclosure.
The Federal Government Laws on Loss Mitigation
The government has a strong presence in the stability or instability of economies within the real estate market. Therefore, the government intervenes in different ways to preserve stability between financial crises and difficulties in the real estate sector.
Following the 2008 financial crisis, the federal government took the initiative to create stricter guidelines for mortgage servicers, as well as regulations to protect all parties involved in the housing market.
Subsequent to the 2008 recession, the Federal Housing Finance Agency (FHFA) was created, which became responsible for oversight, regulation and supervision of the housing mission of the Federal Home Loan Bank system, as well as Fannie Mae and Freddie Mac.
Then in 2016, the U.S. Department of the Treasury, FHFA, and the Department of Housing and Urban Development (HUD) released a white paper titled “Guiding Principles for the Future of Loss Mitigation”. This white paper set out the key principles for the future of loss mitigation and loss mitigation strategies were developed with these principles in mind.
Loss Mitigation Options
Depending on your situation you may consider these options:
Mortgage Forbearance
With a forbearance plan, you won’t have to make any payments, or you make smaller payments, for a specified amount of time.
Repayment Plans
In a repayment plan, you pay extra each month (more than your regular monthly payment amount) to get caught up on overdue amounts.
Mortgage Reinstatement
To reinstate your mortgage, you must pay the past-due amounts, including missed payments, interest, late fees, and foreclosure costs, in one lump sum. After you reinstate the loan, you resume making your regular payments.
Loan Modification
A loan modification adjusts the loan’s terms, like the interest rate or term (length) of your loan. Usually, the goal of a modification is to make your monthly payments more affordable. Also, the lender typically brings the loan up to date by adding past-due amounts to the debt balance as part of a loan modification.
However, in some cases and depending on the modification’s terms, your monthly payment might actually increase.
Payment Deferral
A payment deferral adds (defers) missed payments (principal and interest) to the end of the mortgage loan term as a non-interest bearing balance. The balance is due at the maturity date or earlier upon the sale or transfer of the property, refinance of the mortgage loan, or payoff of the interest-bearing balance of the loan.
Upon completing the payment deferral, the homeowner continues paying their regular monthly mortgage payment in accordance with its terms.
Short Sale
A short sale allows a borrower to sell their home for less than the balance remaining on the mortgage, avoiding a foreclosure.
Mortgage Release
A Mortgage Release allows the homeowner to voluntarily transfer the ownership of the property to the owner of your mortgage in exchange for a release from the mortgage loan and payments.
If you would like more information about how loss mitigation works and want to avoid foreclosure before it is too late you can contact us toll free at (800) 931-2424 x651 or request information from an attorney or HUD-approved housing counselor.
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