Do You Use Loss Mitigation to Help Homeowners Stop Foreclosure?
When you work with a homeowner facing foreclosure do you use loss mitigation as a solution to their problem? Or do you just walk away when they don’t want to sell their house? When a homeowner falls behind on their mortgage payment, research indicates that 8 in 10 homeowners want to try to keep their home.
One of the best ways for them to try to keep their home is to work with their existing lender’s Loss Mitigation department. This department is set up to facilitate a “workout” agreement between the lender and the borrower who has fallen behind on payments. Their goal is to try to come up with a workable solution or repayment plan for the borrower so that they can get the loan back into good standing.
Loss Mitigation is a great solution for homeowners who are behind on their mortgage payment. They can go to their lender, explain their situation and agree on a plan (often called a “forbearance,” “loan modification” or “workout agreement”) for rectifying their late payment situation. This solution allows both the homeowner and the lender avoid foreclosure.
A common myth to homeowners in foreclosure is that the lender wants to take their home when they fall behind on their mortgages. Nothing could be further from the truth! Lenders are interested in making money, not acquiring real estate. Foreclosure is simply the last resort for the lender. In fact, it can cost anywhere from $28,000 - $40,000 on average for a lender to foreclose on a conventional loan.
When you factor in those numbers, it’s easy to see why lenders would rather work out a deal with the homeowner. So how can the homeowner stop foreclosure and get their loan back into good standing with the bank?
The first step is to contact the Loss Mitigation department and explain their situation. The lender should have some standard forms for the homeowner to complete. The homeowner will have to demonstrate that they have the ability to make their regular monthly mortgage payment, in addition to all of their expenses.
In other words, the lender will want proof of the homeowner’s ability to pay their mortgage. The homeowner must have full time employment with an income that can support all of their monthly expenditures. The lender wants to see that the borrower has more money coming in the door each month (after taxes) than they do going out (after all expenses) - the homeowner must have positive cash flow.
Lenders may also want an upfront lump sum payment from the borrower. The more the borrower has saved the better, and the more likely they are to qualify for a plan.
For many homeowners, doing a monthly expenditure sheet is an eye-opening experience that many times shows them that they are currently living beyond their means. In some more dramatic examples, homeowners have found their monthly expenditures exceeded their income, resulting in a bigger and bigger personal debt each month: so keeping their house was not an option.
Using Loss Mitigation to help a homeowner keep their home is an effective tool. Unfortunately the average person working in a lender’s Loss Mitigation department is overworked, underpaid, and has literally hundreds of files on their desk of homeowners who are behind on payments. This is not an excuse, but sadly a reality of the situation.
Many homeowners don’t have the ability to follow up effectively with their lender, nor do they have contacts within that department to get their workout agreement approved. A professional loss mitigator has a much better chance of getting a deal worked out, and is a valuable addition to your PreForeclosure business.
Offering Loss Mitigation to your PreForeclosure prospects is a winning strategy. For those who qualify, you can help them keep their home and avoid foreclosure. For many homeowners, you can show them why they can (or in some cases cannot) qualify for a workout agreement. In our next article, we’ll discuss how adding Loss Mitigation to your foreclosure prevention offerings can also put money in your pocket.