When a homeowner is seriously delinquent on his mortgage or dealing with the possible loss of his house, loss mitigation assistance may be warranted. This route to mortgage reduction can salvage a debtor's credit rating which otherwise would have fallen to a drastically low level.
The suggested first step to salvaging the mortgage and avoiding foreclosure is to schedule a consultation with the appropriate lending institution. The loss mitigators can then assess the financial situation and arrive at a reasonable payment schedule. An agreement between the parties would result in a favorable report to the various credit agencies.
Mortgage Loss Mitigation Options Include Conforming Loans
Borrowers with "conforming" mortgages possess some favorable choices for resolving their dilemma with the lender. These types of contracts are guaranteed or backed by the Freddie Mac or Fannie Mae government agencies. The Home Affordable Modification Program (HAMP) holds that mortgages under the auspices of these two agencies be considered for loan modification.
Reduce Delinquency with Non-Conforming Loans
Homeowners who do not qualify for the conforming loan program may turn to the "Second Look" Program for possible relief. Possible alternatives would be interest rate reduction,adjusting the terms of the mortgage, and reducing or eliminating a portion of the mortgage balance.
Mortgage Forbearance
A mortgage forebearance provides a mortgage holder relief via granting additional time to meet the contractual obligations of the loan and therefore delaying the scheduled foreclosure date. With the economic climate resulting in multitudes of borrowers having their property taken by lending institutions, many lenders are pursuing forebearance in an attempt to avoid taking back their collateral. The grace period which is provided by a forbearance agreement essentially gives the homeowner a time window to pull together sufficient funds to salvage their home.
Prevent Foreclosure with a Short Sale
When a property has a market value which is lower than the outstanding mortgage balance, a "short sale" may result, with the lender agreeing to accept a close out which is less than the amount owed. This acceptance precludes the lending institution from pursuing the remaining balance, and the obligation is deemed "paid in full." The homeowner forfeits any proceeds from the closing of the sale, and the mortgage holder agrees not to report the transaction as a foreclosure.
The debtor legally waives the ownership of the home, and deeds the property to the lender for the purpose of liquidating the outstanding balance at their discretion. The mortgage holder voids all pertinent obligations of the homeowner, and forfeits their legal option to pursue the remaining balance on the note. Therefore the homeowner benefits from the financial relief of the remaining money owed from the sale.
Deed-In-Lieu Foreclosure
Deed-In-Lieu Foreclosure entails the borrower obtaining a second mortgage to liquidate the outstanding amount on the original note in a year or less. The starting date of this second mortgage coincides with the final resolution of the original note, therefore providing the debtor a reasonable window in which to pay back the second mortgage.
Reference: "Servicing and Loss Mitigation Frequently Asked Questions." US Department of Housing & Urban Development.
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