Definition
Loss mitigation is a function of housing counseling designed to resolve serious delinquencies and to help avoid foreclosure.
Analysis
Loss mitigation is designed to help the borrower save the home if they are able, or to help reduce the losses that would result from foreclosure. The options available to the homeowner depend on the severity of the delinquency, the condition of the property, the short and long-term financial status of the borrower and on the response by the lender.
A borrower looking to save their home may be able to receive a:
- forbearance (3+ months delinquent)
- loan modification (3+ months delinquent)
- partial claim (4+ months delinquent)
If a borrower does not wish to keep the home, they may be able to arrange a:
- pre-foreclosure sale (1+ month delinquent for short sale)
- deed in lieu of foreclosure (1+ month delinquent)
Loss mitigation may be able to help a distressed homeowner avoid foreclosure. It may be used by a housing counselor when early intervention fails.
