Hard times can fall on even the most conscientious, self-reliant individuals. Job
loss, illness, marital problems, or injury may affect an individual’s ability to
make mortgage payments. Facing foreclosure, homeowners may not realize that options
are available to them. Most lenders have developed a variety of Loss Mitigation
programs which serve to assist struggling homeowners.
These programs have been established by both the federal government and mortgage
industry to provide assistance to homeowners, and every mortgage holder has its
own policies regarding the use of these programs. Each person’s situation is unique,
and frequently mortgage companies will work with borrowers to address their budgeting
challenges. Ultimately, lenders want to keep homeowners in their homes.
Loss Mitigation Solutions
The following are general summaries of loss mitigation options that lenders may
use to resolve delinquent mortgage payments:
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Mortgage Modification
This plan involves refinancing the debt and/or extending the mortgage term, allowing
the borrower to catch up by reducing the monthly payment amount. Modifications include
lowered interest rates, adding payments to the end of the loan term, adding lump
sum payment due at payoff, or lowering payments for a certain time period.
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Short Sale
A short sale is an optimal solution for borrowers that have experienced a long term
hardship and are unable to maintain their loan. Selling the property may be the
best solution to avoid a default loss, and the lender may make accommodations with
a short payoff. This type of sale requires a qualified buyer and lender approval.
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Repayment Plan
A repayment plan is ideal for those that were behind on mortgage payments but are
able to resume making payments. Under this plan, the loan payments are generally
increased until the delinquency is repaid. This option is only viable with proof
that the borrower has the ability to repay the loan.
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