Loss mitigation involves helping homeowners, who are not being able to keep up with their mortgage payments, to negotiate with their lenders to stop foreclosure.
Some of the home loss mitigation measures that can help to prevent foreclosure are mentioned here:
- Special forbearance: This will allow you to pay a smaller monthly amount or to pay nothing for a few months. This will help you to get through short-term financial problems. One downside is that your monthly payments may go up after some time.
- Loan modification: You may be able to reduce your monthly payments if your lender agrees to change the terms of your mortgage. This could involve reducing the interest rate, increasing the term of the loan, changing the type of housing loan, or all three.
- Short sale: This involves selling the home for less than what you owe on your mortgage, and being forgiven the rest of the amount you owe. This is specifically applicable if you owe more on your home mortgage than the current value of your home.
- Short refinance: Your lender may agree to reduce the principal balance of your mortgage to allow you to refinance with another lender. The reduction in the house loan principal may be able to help you to meet the loan-to-value requirements of the new lender.
- Deed-in lieu of foreclosure: This can help you to give your property to the lender and get a release from all obligations under the mortgage. You may not be allowed to do this if you are capable of making the loan payments.
- Cash-for-keys negotiation: The difference between this and the deed-in lieu of foreclosure is that the lender will pay you to move out in a timely manner, without causing any damage to the property. This will help your lender to avoid having to evict you.
- Partial claim: You can only opt for this if you have an FHA loan. Your bank will get a one-time payment from the FHA insurance fund, which will help to make your mortgage current. You will be required to sign a promissory note for the amount with the HUD (U.S. Department of Housing and Urban Development) or HUD.
Write to your lender about your financial difficulties as soon as you find that you cannot keep up with your mortgage payments. Quick action may help you to avoid foreclosure.
Watch out for scams and check the credentials and reputation of loss mitigation services that offer to represent you in negotiations with your lender. Don’t sign any document you haven’t read or don’t understand.
Seek mortgage loss mitigation advice from a HUD-approved housing counselor. You can find a HUD-approved housing advisor in your area by visiting the website of the HUD.
