What Is Loss Mitigation and Will It Affect My Credit?
All it takes is a single crisis and some Americans won’t be able to pay their mortgage. If this happens to you, you may be forced to foreclose on your home. Since nobody benefits from a foreclosure, the government is taking a series of initiatives to prevent a repeat of the housing market collapse in the early 2000s. Included in these steps is what’s known as loss mitigation.
What Is Loss Mitigation?
Loss mitigation is the process of trying to protect both the homeowner and the mortgage owner from foreclosure. Several different strategies can help homeowners get current on their mortgage payments so they can stay in their homes. These include:
- Repayment plans allow you to work with your current lender to modify your loan. Oftentimes this works best if you’ve been through a hardship that’s now over. The lender can simply add additional payments to your loan.
- Forbearance plans allow you to miss or make reduced payments for an agreed-upon period. This plan gives you time to resolve any temporary hardship you may be experiencing. Once you’ve resolved the difficulty, you will enter into a new repayment plan that will allow you to make up for any payments that you may have missed.
- Flex modification modifies your current loan’s repayment schedule by adjusting the interest rate, adding your overdue payments onto the remainder of your loan’s balance, extending your loan’s term, or setting aside part of your loan’s remaining principal.
When Mitigation Loss Fails
Sometimes, despite your best efforts, the strategy may still fail. If the lender isn’t willing to allow you to stop paying on your mortgage indefinitely, they’ll try one of the following strategies:
- Short sales occur when you sell your home for equal to or less than the amount that’s due on your mortgage. You may still have to pay any outstanding balance on your loan that isn’t covered by the sale.
- Deed-in-lieu-of-foreclosure is when the homeowner signs the deed over to the lender to be released from the mortgage.
Loss Mitigation and Your Credit
Loss mitigation and how it affects your credit will vary depending upon the type of mitigation you agree to. The various ways they can affect your credit include:
- Forbearance has no negative impact on your credit.
- Loan modifications also have no negative impact on your credit. This approach permanently restructures your mortgage contract and requires your lender to list your debt as either current or paid in full with the various credit reporting agencies. Of course, you’ll have to comply with the modification’s requirements.
- Flex modification plans won’t directly impact your credit because they simply modify the terms of your original loan. However, your credit will be hurt here by any mortgage payments that you missed before the modifications were made.
Deciding What to Do
Unfortunately, life does take its twists and turns, many of which are completely unpredictable. When this happens, it’s normal to be concerned about your credit and how something like this may affect it. That is why you need to have a team of experienced professionals on your side. The Bartifay Law Offices are here to help. With over 20 years of experience, you can’t go wrong, so reach out and contact our office today.