Loss mitigation is a banking division that handles delinquent accounts. Employees of this division are known as loss mitigators. Their primary job function is to work with borrowers that have fallen behind with mortgage payments and devise a payment plan that keeps financial losses to a minimum.
Loss mitigation handles a variety of real estate transactions including loan modifications, mortgage refinance, pre-foreclosure and foreclosure, mortgage forbearance, real estate short sales, and deed in lieu of foreclosure.
When mortgagors become delinquent with their mortgage loan and unable to pay outstanding balances, they will be assigned to a loss mitigator. The mortgage specialist reviews loan records and borrowers' financial status to determine which option is best suited for their needs.
One of the biggest mistakes borrowers make is to procrastinate about contacting their lender when they realize they cannot fulfill their mortgage obligation. In previous articles, I have discussed what I refer to as 'fear of foreclosure freeze'.
Instead of picking up the phone and calling the bank, borrowers continue to think they can work it out on their own. They avoid collection calls and letters and keep thinking, "I'll have the money next week." Avoidance is the fastest way to foreclosure, so if you have fallen behind with mortgage payments now is the time to contact your lender.
Most banks are willing to work with borrowers. However, the longer you wait the less options are available for saving your home. Banks usually offer borrowers a forbearance agreement first. This option gives borrowers time to get back on track by temporarily reducing or suspending mortgage payments for a few months. Afterward, mortgagors must pay their normal payment, along with additional funds to cure arrearages.
During the forbearance period, banks cannot commence with foreclosure action unless borrowers default on the agreement. Real estate forbearance is a good option for mortgagors facing temporary financial setbacks.
Loan modification permanently alters mortgage terms but do not require borrowers to take out a new loan, such as with mortgage refinance. Banks can modify loans by extending payment terms or providing a reduced rate of interest to lower monthly installments. Certain criteria must be met in order for banks to modify home loans.
Mortgage refinance involves taking out a new loan to pay off existing mortgages. Borrowers must qualify for a new loan and be financially capable of paying associated refinance rates. Refinancing fees vary by lender but usually include loan application or origination fees, along with property inspections and appraisals, legal fees, and closing costs.
Real estate short sale does not allow mortgagors to retain their property, but can help them avoid foreclosure. As the name implies, properties are sold 'short' of the amount owed on the home loan. Short selling is a complicated process that takes several months to complete. Most people require help from a short sale specialist or real estate lawyer
Deed in lieu of foreclosure requires borrowers to return their property to the bank and forfeit all monies invested. The process is relatively swift and can be completed within 30 to 60 days. Once deeds in lieu contracts are signed the bank takes possession of the property.
When working with loss mitigation it is important to realize that while bank loss mitigators do not make final decisions, they can make or break your deal. Always be courteous and organized, and adhere to agreements provided.
Once loss mitigation approves mortgage repayment plans it is critical to do everything possible to submit payments in full and on time. Otherwise, you will end up where you started and your lender may not be willing to give you a second chance.
We invite you to learn more about foreclosure prevention options in our loss mitigation article library. We publish new articles weekly and encourage visitors to subscribe to our mailing list to receive notice of newly published information.