If you are behind on your payments and facing foreclosure, you may need loss mitigation help. Loss mitigation options (forbearance, loan modification, etc) help a borrower [url=http://www.mortgagefit.com/foreclosure/17ways-avoid.html]avoid foreclosure[/url] by providing them with alternatives to pay down their mortgage. It also minimizes the lender's credit loss resulting from the borrower's inability to repay the loan.
How do I negotiate for loss mitigation?
Contact the lender: Unless you've missed a few payments, some lenders will not negotiate with you for a workout plan. However, if the lender refuses to negotiate unless you're behind, you should keep trying. Contact the lender's Loss Mitigation Department and request a loan workout option to help you pay down the mortgage.
Hardship letter: Prepare a hardship letter including the specific date when the hardship started. Take a look at this Sample Hardship Letter. You should attach documents supporting your hardship claim. Learn more on how to write a hardship letter.
Lender's analysis of your loan: After the lender has agreed to discuss a loan modification, they will send you a packet of forms. They will want you to provide as much information as you can about your finances so they can evaluate your situation using their own calculations. The types of information they are looking for include:
- 2 months of bank statements
- Tax filings for past 2 years
- Receipts of 4 months of regular monthly payments
- Personal statement about your finances
- Situation that made you delinquent
- Paystubs for past 2 months (to check for current ability to pay off loan)
- Name and contact details of borrower's current employer
- For self-employed persons, last 2 years of tax information and year-to-date and profit and loss business statement for past 2 years
- Recent utility bill
The lender reviews the above information, calculates how much you can afford to pay each month and calculates:
- Monthly net income for past 2 years (adjusted to changes in income)
- Monthly living expenses (under normal conditions) with debt payments (adjustments are made to reflect rise or fall in expenses for each of the first 3 months of the loss mitigation option)
- Surplus income available each month by deducting expenses from income
- Surplus income percentage by diving surplus income by total monthly expense
Based on the above calculations, the lender will approve you for a loan modification and make you an offer. If you cannot afford this offer, you should try to get help from a credit counselor who will be able to help you negotiate. Before sending any documents to the lender, you should make copies in case the documents are misplaced.
What are the loss mitigation options?
|Options||How to benefit||Who qualifies||When to qualify||Property condition|
Repayment plan for the borrower to cover the debt and get current on loan until you can make the usual payments through a structured payment plan or loan modification.
Delinquent for 3 months but not more than 12 months.
Property should not need repairs which may affect payment under forbearance.
Permanent Change in terms of the loan - the debt is included in the loan balance and reamortized at a reduced interest rate.
Behind on payments for 3 months or more and 1 year has passed since the loan was signed.
Property should be in good physical condition; otherwise costs to complete repair work will drain out enough cash and borrower won't be able to make payments under the modification.
Short Sale/ Pre-foreclosure Sale
Sell off property to pay off the debt, though property value has declined to less than the money owed. Know moreâ€¦
One who is already behind on payments or likely to be behind soon.
No serious damage to property. Even if damaged, cost of repair should not exceed 10% of the Repaired Appraised Value.
Property should be able to be sold free and clear of liens.
Deed-in-lieu of Foreclosure
Borrower offers property to lender who sells it off to retrieve the unpaid balance. Learn moreâ€¦
The loan is in default (that is, the borrower is more than 30 days late on their payments and the cause of the default cannot be eliminated).
Property should be free of any liens.
Property shouldn't have been used as rental property for more than 1 year.
Placing your past debts into a subordinate 2nd mortgage (not exceeding 12 months of PITI) payable to HUD (2nd loan payment to begin only after first mortgage is paid down; there's no interest on the 2nd loan).
Delinquent for 4 months but not more than 12 months.
Property should be in good physical condition.
Of all the loss mitigation options, special forbearance is the best. It may be combined with loan modification when there's doubt about the borrower's income stability. Especially in these tough economic times, if you're unable to get a loan modification, your lender may be open to a short sale or a deed-in-lieu to avoid foreclosure. If you convince your lender to accept a deed-in-lieu you can even talk to the lender about rental options. Whichever option you decide is best to help you avoid foreclosure, you'll need to submit the same documents to prove your hardship.