Loss Mitigation Negotiation Tips

Loss mitigation is just an elevated term for trying to recover as much as possible in the process of defaulting on a loan. Loss mitigation is used not only by borrowers but also by lenders. Lenders used to think they would come out on top of a default if there was collateral of any kind. With changes in the market, lenders realized it is sometimes best to try to keep a loan from entering default instead of just seizing assets. If you can convince your lender you will both lose less through mitigation tactics, then you stand to benefit greatly.

Home Loan Value vs. Home Value

Your home loan may be more than your current home's value. This is typically the case only if there is a very depressed real estate market. If you purchased the home while the market was up, the home loan may be in an amount much larger than the home would sell for today. For example, you may have purchased a home for $350,000 and taken a $300,000 mortgage. You paid off about $20,000 so far, but you can no longer make loan payments. This means you have a loan of $280,000 left to pay off. Today, the home is only valued at $250,000. This scenario is called an "upside-down" mortgage. If the lender were to seize your asset, the lender would lose $30,000 on the loan plus the expenses required to list and sell the property. In this case, it may be better for the lender to work with you to avoid the default than to take the large hit in the pocketbook.

Tips to Gain Forbearance

One loss mitigation technique you may try is to ask for forbearance. Forbearance means the lender will stop enforcing the loan for a given period of time while you attempt to bring the payments current. You should note that payments will still come due, and interest will still accumulate. However, the lender will not move forward with any foreclosure proceedings during this grace period. In order to cconvince the lender you are worthy of forbearance, you should show you have reason to believe you can bring the loan current in the near future; for example, you are starting a new job, gaining an inheritance or otherwise coming into more money. You will also have to convince the lender they will save money this way as opposed to foreclosing.

Tips to Modify a Mortgage

If you can afford to make some payments but not the amount required, you may try to modify the loan in order to avoid foreclosure. Again, you will want to show the lender you have reason to believe you can afford the mortgage and make payments if the payment structure is simply modified. To show them this alternative is better than foreclosure, provide lists of comparable sales in the area or details on how long the average foreclosure listing stays on the market. If the lender thinks they will save money through the modification, they will certainly work with you.