Loss mitigation, according to Wikipedia, refers to a division in a bank or a firm that is responsible for negotiating between homeowners and their lenders. It could also be described as a process that helps 'mitigate' or lessen the losses incurred by both the borrower and the lender. There are several forms of loss mitigation. Loan modification, short selling, short refinance, special forbearance and deed in lieu are all examples of loss mitigation. In this article, we will discuss the advantages of applying for a loan modification.
The loan modification program introduced by the FDIC aims to provide a workout solution to homeowners who are having difficulties and give homeowners the opportunity to stay in their homes while paying for their loans. Loan modification is the most viable program that homeowners who are not yet behind on mortgage payments should take advantage. The only caveat is that some loss mitigation firms and banks require principal forbearance wherein a homeowner still has to pay the balance of their mortgage but with a discounted principal. This is the reason why not everyone takes advantage of this opportunity when they should. Think about it this way, principal forbearance is similar to haggling for a smaller price on the principal. It is different from condoning the entire principal or totally eliminating the homeowner’s obligation to pay the principal.
Most loss mitigation firms and banks require the applicants’ loans to be at least 60days delinquent and that there is no foreclosure sale about to happen. Some firms might be stricter about screening loan modification applications because they want to make sure that a homeowner will be able to stick to the mortgage payments with newly negotiated terms and will not result to another default.
Unfortunately, not everybody is well informed to apply for a loan
modification. Many homeowners are contacted through outbound calling and are offered free financial counseling or are redirected to loan modification firms. It is the responsibility of homeowners to seek information and get hold of somebody to assist them for their loan modification application. Help is everywhere.
