Loss MitigationCredit Repair Definition
Efforts by lenders and borrowers to avoid foreclosure or minimize losses when a borrower struggles to make mortgage payments.
Definition
Loss mitigation refers to the range of options and processes used by mortgage lenders (servicers) and borrowers to prevent foreclosure when a homeowner is having difficulty making their mortgage payments. The goal is to find a solution that minimizes losses for both the lender and the borrower. Common loss mitigation options include: forbearance agreements (temporary payment pause/reduction), repayment plans (catching up on missed payments over time), loan modifications (permanently changing loan terms like interest rate or term length to make payments more affordable), short sales (selling the home for less than owed), and deeds in lieu of foreclosure (voluntarily transferring ownership to the lender). Lenders are often legally required to explore loss mitigation options with borrowers before initiating foreclosure.
Frequently Asked Questions
When should I contact my lender about loss mitigation?
Contact your mortgage servicer as soon as you anticipate having trouble making your payments. Don't wait until you've already missed payments. Early communication increases the chances of finding a workable solution.
What information is typically needed for a loss mitigation application?
Lenders usually require a detailed application including proof of income (pay stubs, tax returns), bank statements, a hardship letter explaining your situation, and a budget outlining your income and expenses. Requirements vary by lender and program.
Are lenders required to offer loss mitigation?
Federal and state regulations (like those from the CFPB) often require mortgage servicers to contact borrowers about loss mitigation options after delinquency and to evaluate completed applications before proceeding with foreclosure. However, they are not always required to approve a specific option; eligibility depends on the borrower's situation and investor guidelines.
Related Terms
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