Time is not on your friend when foreclosure is involved. Talk with a housing counselor for foreclosure help.
Loss mitigation is a phrase that describes a third party aiding a homeowner by attempting to prevent foreclosure. Normally it is a department within the bank itself or can be a separate firm.
Negotiation attempts with the mortgage terms are made through loss mitigation to prevent foreclosure. New terms that are reached are also going to require modifications being made to the existing loans. Types of modifications include: short refinance or short sale negotiation, cash for keys, deed in lieu of or a partial claim loan. Other loan types maybe available as well. All of these options are meant to lessen the risk of loss to the lender.
Various loss mitigation strategies are:
A loan modification is where the homeowner and the bank reach a new agreement on the terms of the mortgage. Loan modification can mean lowering interest rates, lowering the principal balance, fixing adjustable rates, lengthen the loan period, forgiveness on default payments or fees or a combination.
When the value of a home is not worth the amount that is owed on it, a short sale loan may be available. With a short sale loan, the principal is decreased so that the homeowner can sell it for the actual value.
To help a homeowner obtain a loan through a new lender, the current lender may offer a short refinance to bring the homeowner in line with what the new lender requires.
A Deed in lieu of foreclosure is an option where the homeowner voluntarily deeds collateral property in return for being released from all obligations under the loan.
To try to avoid the costs of foreclosure, a bank may offer money to a homeowner if the homeowner agrees to leave the home intact. It is called cash for keys.
Forbearance may be an option as well. During the forbearance time, lowered or no payments will be made. When the time ends, a repayment schedule will be in place or the loan will simply be rewritten.
Partial claims are normally done through HUD. The homeowner will be loaned a certain amount to get the mortgage current. A promissory note will have to be signed as well. Partial claims are paid back when the mortgage is paid in full or when the owner does not own the property anymore. This loan does not incur interest.
Keeping a homeowner from losing their home or getting them out from under the requirements completely is the purpose of these options. No one wants to go through the foreclosure process, including lenders. Both parties are affected by foreclosure.
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