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Loss Mitigation options to stay out of foreclosure

Posted on: 09th Apr, 2004 12:24 am
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 avoid foreclosure 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?

here's an overview of what you should do when you cannot keep up with your usual payments, how to negotiate with the lender, and what actually happens when you are considered for a loss mitigation/loan workout plan.

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?

here's a rundown of the workout options available to you in order to avoid a foreclosure.

special forbearance

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.
  • suffered verified loss in income and living expenses have gone up, but has enough to cover the debt and become current on the loan.
  • occupies the property as primary residence.

delinquent for 3 months but not more than 12 months.

property should not need repairs which may affect payment under forbearance.

loan modification

permanent change in terms of the loan - the debt is included in the loan balance and reamortized at a reduced interest rate.
  • suffered verified loss in income or increase in living expenses but have stable surplus income to help pay at the modified rate and terms.
  • borrower should remain as the occupant and property should be the primary residence.
  • borrower having loan at above market rates, lower loan-to-value ratio, and mature terms (loan paid down for 10 years or more).
  • someone who isn't delinquent but may soon default on the loan.

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 more…
  • have a verified loss in income.
  • having negative equity of not more than approx. 63% of the unpaid loan balance.
  • occupies property as the primary residence.
  • non-occupant may qualify but have to prove that the need to vacate is related to default.

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 more…
  • one who's unable to continue making payments.
  • occupies property as their primary residence.
  • non-occupant owner can qualify, but he has to prove that the need to vacate is related to the cause of default.

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.

partial claim

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).
  • those having fha loans and mortgages offered by freddie mac approved lenders.
  • unable to qualify for forbearance.
  • use property as the primary residence.
  • can prove that financial hardship is over.
  • may qualify even after bankruptcy filing but court approval required.

delinquent for 4 months but not more than 12 months.

property should be in good physical condition.
*n.b: the criteria and conditions stated in the table above may vary from one lender/mortgage company to another.

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.

related readings
pjb,

I think you can give them request through internet also.You just need to go to their website and submit a ticket/request to change the details of your account.I think it will surely help. :arrow: :arrow:
Posted on: 09th Jun, 2009 12:03 pm
I am currently in Chapter 13 and am current on my mortgage. However, I have to work 6 and 7 days per week to make those payments. I have developed some significant health problems, and my doctor suggests I quit the second job. My lawyer says the Credit Union that holds my mortgage is unwilling to talk with me. I am in a 30 year fixed mortgage at 6.75% and am underwater by probably $60,000 and climbing! Is there anything I can do??
Posted on: 10th Jun, 2009 10:33 am
jameshogg and manoj - i have done all applications for wfb. on line and mailed in a package. however my question was - is there a better phone number to contact someone who really knows what is going on and who can help with in wfb or is my only point of contact the customer service number they provide with the paper work?
Posted on: 10th Jun, 2009 04:02 pm
Hi!

To hollybinx,

If you can afford to sell off the property, then you can apply for a short sale or a deed in lieu with your lender. However, this will effect your credit score. If you want to save your property and continue making the mortgage payments, you can apply for a loan modification. In this case, the lender may reduce your rate of interest which will help you in paying your mortgage dues.

Hi pjb,

In my opinion, you'll have to contact the customer service number and they would provide you with the required paper work.

Feel free to ask if you have further queries.

Sussane
Posted on: 10th Jun, 2009 11:26 pm
Sussane,
Hi thx for the info but I have contacted the loss mitigation dept. Unfortunately at that level they arent much help until a negotiator completely reviews all my paper work. the sad part is the negotiator doesnt all to personally speak with me for any possible help or options. I am starting to seriously think there is a big flaw in the governments plan!! I have heard that the banks need to feel that a person is before they will help them
Posted on: 16th Jun, 2009 11:32 am
pjb

i agree with you in this regard that banks only lend to those who have savvy nature when it comes to financial terms
Posted on: 19th Jun, 2009 06:57 am
Pjb,

You are right, it's a major flaw in the system that you can not have direct contact with the WF negotiator/processor. I having been working on a modification since January. My first attempt was denied because the processor misunderstood some of our financials and didn't bother to contact us for clarification. It was extremely frustrating!!!
We have now been assigned to our second processor and are waiting for a reply....keeping our fingers crossed but so far I am noticing progress unlike before.
Things I've learned in the past six months: when you submit your financial worksheet you need to show a modest surplus at the end of the month, keep faxing paystubs as you get them and resend your hardship letter and financial worksheet every 30 days without question (they won't work with old information and won't take the time to ask for current), call once or twice a week and keep notes of each call (date, time, who you spoke to, and what you discussed), send a proposal (w/your hardship letter) of how you would like to see you loan modification worked out (lower interest, terms, etc... expressing that you are confident this proposal will make your payments affordable and keep you in your home and out of foreclosure). Don't give up and know that it takes a lot of time and patience. Keep a positive and pleasant demeanor while speaking with the WF reps (this can be very difficult because some of the reps are just morons) but they are more likely to help people that are being nice.
Lastly, if you are just getting started in the process, a loan modification may be worth the money. While I expect good news in the next couple of weeks, I have been diligently working on my modification for six months. It has been a part time job; requires a lot of energy and patience. Had I hired a modification company in the beginning, our modification would have been resolved in three months or less with half the hassle. It would have also paid for itself since my payments would have been reduced three months ago....
Best of Luck!
colammy
Posted on: 04th Jul, 2009 09:24 am
To Colammy,

Great information and advice. And I must say, I agree with your tip on hiring a modification company, although I may be a bit biased. :wink: In any case, best of luck with your modification!

To Pjb,

Definitely keep a running collection of all documents that will help paint a picture of your financial hardship. Like colammy said, keep track of your pay stubs, keep a record of your bank statements, mortgage statements: it's best to be as thorough as possible. And be persistent. =)
Posted on: 15th Jul, 2009 01:23 pm
PJB
I think if you can personally visit the office of WFB it will save lot of misunderstanding and it will expedite the process as well.Because it will give you more information as well as you can get the phone number of the incharge of the concerned dept. over there and thus you can always contact him henceforth.
Posted on: 22nd Aug, 2009 12:33 am
not getting that benson
Posted on: 22nd Aug, 2009 05:49 am
I'll be brief but give as much detail as I can...
Recently closed a Chap 7 filing BUT reaffirmed debts on vehicle and home (although both upside down).
Home was appraised Aug. of '08 for 230k at the time of a re-fi. It's now worth-maybe- 190k and mort. bal is about 218k, but now need full A/C-heat system (w/ govt-mandated change in refrigerant, of course) and roof is about done (I think the appraiser missed all of this and played to the bank's ploys) to the tune of maybe 8500 in repairs.
I've only had one 30-day late pymt (while in the process of the Chap 7). I'm mid-class where it's dollar-in-dollar-out just on daily living and am resolved to want to walk away from the home scott-free while trying to take advantage of the Mortgage Debt Relief Forgiveness Act but would rather not let it go into foreclosure.
Any thoughts or opionions would be greatly appreciatedd, thanks!
Posted on: 01st Sep, 2009 09:01 am
jog,

you do not want to have foreclosure and along with that you want to take advantage of mortgage debt relief forgiveness act.here you go .........

first your lender should forgive the debt to you.and he should fill the form 1099-c.If your mortgage is qualified principal residence then you will be relieved from the taxes up to $ 2 millions but if it is not then you need to file taxes for this forgiveness of the debt.
I will advice you that you should contact your lender and ask him to forgive the debt under this act stating your whole financial condition.
I hope it helped you for the time being.
Posted on: 01st Sep, 2009 08:58 pm
just a question: what is meant by "appraiser missed all of this and played to the bank's ploys"?
Posted on: 02nd Sep, 2009 06:13 am
my friend had forbearance agreement. she paid the 3 payments called for promptly and has the confirmations by western union. she repeatedly over the past couple of months since last payment was made called Chase, and was told that they were working on the modification, and had their payments. yesterday, she came home from work and found a 3 day eviction notice and that the house had been sold yesterday.
Posted on: 05th Sep, 2009 10:35 am
Hi roz_levin!

Welcome to forums!

It is quite surprising to me that the lender went ahead and foreclosed the property when your friend was negotiating for a loan modification. She should contact the lender and discuss the issue with him. In my opinion, it would be better if she could hire an attorney and let him negotiate with her lender.

Feel free to ask if you've further queries.

Sussane
Posted on: 06th Sep, 2009 09:39 pm
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