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Preforeclosure Loss MitigationTo save a home in foreclosure, back payments -arrears- must be made to halt the actual foreclosure process. This is usually quite difficult because typical back payments are usually for about three months. For a mortgage of only $1,200 per month, that means a lump sum payment of $3,600. Hardly anyone has this amount readily available. As you can imagine, for mortgages greater than $1,200 per month, the amount in arrears would be quite substantial. In markets like California where home prices in some areas were averaging $425,000, the monthly mortgage could have easily been $2,800 at a low estimate. This means owing a lump sum of nearly $9,000. Given that the homeowner in foreclosure has more than likely underwent some serious hardship that made the monthly payment impossible to make, it is clear that only a rare occurrence would result whereby that same homeowner could finally being able to pay a lump sum of close to ten grand a few months later. So, how can this problem be solved in the preforeclosure stage? Call the loan company and explain the hardship. Ask for help, solutions, something! Anything. However, the typical person answering the phone is going to either not know how to help or stress out the homeowner even worse. Enter the.... Loss Mitigation DepartmentThe Loss Mitigation Department is a separate entity than the basic 1-800 customer "service" department you get when you initially call. This department is designed to keep mortgages active and not go to foreclosure.Lenders know that if they proceed with the foreclosure process, it will cost THEM! They will have to pay thousands of dollars to maintain that home on their records. The lender must pay lawyers fees, court costs, insurance fees, collection fees, as well as pay property taxes. Lenders are also fined for having REO houses on their books. Some lenders might pay for repairs but that trend is changing. The bottom line is that lenders who proceed with foreclosure to completion will lose substantial sums of money. Thus, they are highly motivated to work on a mutually beneficial solution that helps the homeowner and themselves. Estimates show that banks lose upwards of $50,000 on a foreclosure process. However, they can lessen this financial blow by simply working with the homeowner. One solution is to just take the amount in arrears, add it to the principal of the loan, recalculate the monthly payment and "start" the loan all over again. No harm, slight foul. A New LoanAnother solution is to completely re-do the loan which might make the payments go up a bit. This increase is better than the homeowner losing the home.Other solutions include resuming the loan as is but arranging a separate payment plan for the arrearage. Again, I tend to think that banks and lenders would prefer to choose one of these solutions or create another reasonable answer than go through the headache and financial blow of proceeding with the foreclosure.
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