Better Credit Network
Mortgage Loss Mitigation - What Is It?
Common Practices
Resources
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Upside down, foreclosure, these are all too familiar words you hear when there is a downturn in the Real Estate market. Another word you will hear is "Loss Mitigation". This is just a term used by banks when they are willing to negotiate with a homeowner that is having trouble paying the mortgage. In a bad economy there are many reasons why a person has money problems, it could be a job loss, reduced hours, health reasons or just bad financial planning. In any case a decrease in home prices coupled with a persons lack of ability to pay brings banks to the point where loss mitigation becomes an option.
The first area a bank looks at is how much can you pay. You must provide all of your expenses and income so that a determination of what you can afford verses what type of modification, if any, are available. There are cases where you just can't afford to keep the house, in these cases you have to take a look at other options.
In most cases though loss mitigation is an option worth pursuing. Before a bank will even consider forgiving some of the principal due, they will look at terms and interest rates. We have seen terms being stretched out to 50 years. This lowers your monthly payments, but 50 years is a lifetime. What this accomplishes is you can keep your home, if and when the real estate market recovers you can choose to sell the house and move on. The other thing that happens is your job improves, housing goes up and you can refinance a better loan term. If you decide to take a 50 year loan be careful, try to avoid a modification with prepayment penalties. When things improve and you have the chance to refinance, a prepayment penalty could bite you hard.
Interest Rates - This is the other area a bank will concede on. Don't take a short term fix that could have long term consequences. What we mean is don't take a low rate adjustable now, where in 5 years you will be in the same fix again. Negotiate rates that will be affordable now as well as in the future.
Look at mortgage mitigation as tool, a tool that many people are using during these tough financial times.
In most cases though loss mitigation is an option worth pursuing. Before a bank will even consider forgiving some of the principal due, they will look at terms and interest rates. We have seen terms being stretched out to 50 years. This lowers your monthly payments, but 50 years is a lifetime. What this accomplishes is you can keep your home, if and when the real estate market recovers you can choose to sell the house and move on. The other thing that happens is your job improves, housing goes up and you can refinance a better loan term. If you decide to take a 50 year loan be careful, try to avoid a modification with prepayment penalties. When things improve and you have the chance to refinance, a prepayment penalty could bite you hard.
Interest Rates - This is the other area a bank will concede on. Don't take a short term fix that could have long term consequences. What we mean is don't take a low rate adjustable now, where in 5 years you will be in the same fix again. Negotiate rates that will be affordable now as well as in the future.
Look at mortgage mitigation as tool, a tool that many people are using during these tough financial times.
The Author is a Loan Modification Specialist who writes on various related topics like “Home Loan Mortgage”, to help people understand the Home Loan Modification process and assist them to save their home from foreclosure. He regularly writes about Loan Modification Program related issues. His ideas and analysis on Loan Modification are based upon years of practice. To read more about related articles please visit: “Mortgage Loss Mitigation”
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