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What is Loss Mitigation ?
The phrase loss mitigation will be described in the context of mortgage loans but can apply to any financial asset that is debt based. Such assets include credit card debt, personal loans, automobile loans, commercial real estate debt and more. First we'll separate the two words, define them individually, then combine them and discuss them in the context of home mortgage loans.
Looking at the two words loss and mitigation separately helps simply our definition. Loss is defined in the Webster's dictionary as: "the instance of losing", "the act of losing a possession", or "decrease in amount, magnitude or degree". Mitigation is defined as: "to cause to become less harsh or hostile" or "to make less severe or painful". Let's put the phrase in context.
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Loss Mitigation in the Context of Mortgage Loans
Trinity Loan Modification's Loss Mitigation experts are here for the exact reason defined above: to make the potential loss of your home less severe or painful for you, your family, and everyone's future. Loss mitigation for mortgage loans can be achieved through multiple steps. The absolute first step is to try and modify the existing terms of your mortgage in order to make the payments affordable. If however your home loans is far greater than the value of the home or if your financial hardship is severely expected to be long term the mortgage lender may be reluctant to modify your home loan. At this point you need to explore other options in order to protect your financial future, your credit rating, and cut your losses as quickly as possible so that you can position yourself for homeownership again in the near future.
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Mortgage Loan Loss Mitigation Options
The first option after a loan modification will be a short pay refinance. A short pay refinance is when the mortgage lender reduces the principal amount of your loan and either refinances your loan themselves or allows you to refinance it through another lender such as a government backed programs through the Federal Housing Authority (FHA) or a private lender.
The next option may be a short sale of your home. It's possible that your lender will agree to a sale price of your house which is significantly lower than the amount owed on the home. This price will be based on comparable sales in your area, or the predicted "fair market value". The impact of a short sale on your credit score is far less severe in magnitude and time than a foreclosure or bankruptcy.
Commonly the option after a short sale is called a deed-in-lieu. A deed in lieu of foreclosure is particularly beneficial to a borrower that can no longer afford to make mortgage payments. There are formal steps that need to be taken in order for the borrower and lender to protect themselves legally. Further, there are multiple benefits to both the borrower and the lender but the most important ones are: the borrower is able to preserve their credit, otherwise a deed in lieu of foreclosure has far less a negative effect on ones credit, and the cost to a lender of a deed-in-lieu is far less than a formal foreclosure which involves repossession and a series of legal actions.
Lastly a Special forbearance will be explored. In the case that a borrower has fallen behind on their payments, a special forbearance is a time period granted by the lender to a borrower to make up for the delinquent amount of the loan. The borrower and lender agree to a series of terms that gives the borrower sufficient time to make up for the delinquent amount.
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