Bank Loss Mitigation
Bank loss mitigation is a division of lending institutions which oversees mortgage note delinquencies. Individuals who work in this department are known as loss mitigators. When a borrower becomes delinquent on their mortgage loan, a loss mitigator is assigned to work with the borrower to establish a forbearance agreement, loan modification, repayment plan, short sale or determine if foreclosure proceedings should be initiated.
The primary role of bank loss mitigation is to keep the lender's losses to a minimum. With the staggering amount of foreclosures, many bank loss mitigation departments are finding themselves overwhelmed with distressed properties. Experts report some lenders receive as many as one hundred loan modification and short sale requests per day.
Forbearance agreements are one of the most common options offered to delinquent borrowers by bank loss mitigation. Forbearance agreements reduce or suspend mortgage payments for a specific period of time. Typically, forbearance agreements last between 3- and 12-months. During this time, bank loss mitigation will not initiate foreclosure proceedings as long as the borrower adheres to the plan.
Once the forbearance period ends, a repayment plan is put into place. Repayment plans require borrowers to pay additional funds to cover the delinquent amount, accrued interest and other fees associated with the plan. The borrower must also resume their normal monthly mortgage payment. The repayment amount is typically $200-$400 higher than the original mortgage payment and lasts for approximately one year. Therefore, forbearance agreements and repayment plans are best suited for borrowers who are facing temporary financial hardships.
Loan modifications are offered by bank loss mitigation when borrowers possess the financial means to become current on delinquent payments over a short period of time. Although similar to mortgage forbearance and repayment plans, loan modifications offer lower monthly payments by extending the terms of the note. Typically, loan modifications add 2- to 3-years of additional payments to the mortgage note.
When borrowers do not qualify for forbearance agreements, repayment plans or loan modifications, bank loss mitigation may offer the borrower a short sale. In this type of real estate transaction, the lender agrees to accept less than is owed on the mortgage note.
Bank loss mitigation is a borrower's saving grace to stop foreclosure. Therefore, it's imperative to provide truthful and detailed documentation to the bank loss mitigator. Doing so will allow the mitigator to develop the best plan for the borrower's circumstances.
Once bank loss mitigation approves a plan to save the borrower's home from foreclosure, it is crucial to do everything possible to adhere to the plan. Otherwise, bank loss mitigators will have no other option than to proceed with foreclosure.