Loss mitigation is a process that mortgage lenders and servicers use to help borrowers who are struggling to make their monthly payments avoid losing their home. The goal of loss mitigation is to avoid foreclosure, which is a last resort. Loss mitigation options include forbearance, repayment plans, loan modification, short sale, and deed-in-lieu of foreclosure. These options are evaluated based on a client’s financial situation and the circumstances that led to their asking for assistance to determine qualifications.

If a borrower is having trouble making their mortgage payment, the ideal scenario for both the mortgage lender and the homeowner is to help the homeowner get back on their feet so they can stay in their home and eventually catch up on their payments. In the event that the home is no longer affordable, loss mitigation can also enable the homeowner to gracefully exit the home and avoid foreclosure.

Its important to note that loss mitigation is not always possible, and the process can have varying degrees of impact on the borrowers financial picture. Under federal mortgage servicing laws, in most cases, by the time a mortgage payment is 45 days delinquent, the servicer must appoint personnel to help the borrower with loss mitigation.

Loss mitigation options include:

• Forbearance: A forbearance plan allows a borrower to work with their mortgage servicer to temporarily pause or reduce their monthly mortgage payments and may provide specific terms for repayment.

• Repayment plans: A repayment plan is an agreement between the borrower and the servicer to spread out past-due amounts over a set period of time.

• Loan modification: Loan modification is one possible loss mitigation option in which past-due payments are added into the loan balance to bring the mortgage current.

• Short sale: A short sale is when the borrower sells the property for less than the amount owed on the mortgage.

• Deed-in-lieu of foreclosure: A deed-in-lieu of foreclosure is when the borrower voluntarily transfers ownership of the property to the servicer to avoid foreclosure.

If a borrower is experiencing a financial hardship impacting their ability to make on-time mortgage payments, they should contact their mortgage servicer as soon as possible to discuss their options.