Unexpected medical bills, divorce, job loss — sometimes life throws us a curve ball and the home we could afford becomes unaffordable. When Nevadans find themselves facing financial hardship, unable to make their mortgage payments and at risk of foreclosure, there is help. The general term for this type of help is mortgage loss mitigation.
Foreclosure is a lose, lose
The goal of mortgage loss mitigation is to keep struggling homeowners in their homes while also minimizing losses for lenders and investors. It’s in the best interest of the loan company to offer loss mitigation services and avoid a foreclosure. When you can develop a payment program that works for the homeowner, the lender continues to get paid and the homeowner gets to stay in their home.
Due to concern over rising foreclosure rates, a series of government initiatives were developed to prevent a repeat of the housing market collapse of the early 2000s. Like lenders, the government also has a strong interest in promoting and preserving homeownership as it helps stabilize the economy, create wealth, revitalize neighborhoods, and strengthen communities.
Mortgage loss mitigation options
Working together, homeowners and lenders (also called mortgage servicers) can alter loan provisions, work out a refinance plan or extend the time frame between payments to keep the mortgage intact. Here are some mitigation options:
You may be able to work with your lender to modify your current loan. If your loan payments were missed due to a temporary and now ended crisis like illness or job loss, you can discuss plans that add extra payments to make up for the ones you missed.
We heard a lot about forbearance during COVID when folks lost jobs, had hours cut, or had to take extended sick leave. Forbearance allows the homeowner (or renter) to miss or make reduced payments for a specific period due to temporary hardship. Note, this is only a delay, and you will eventually need to pay the owed funds.
Flex modification reduces the homeowner’s payments either by making an interest rate adjustment, adding overdue payments to the remaining loan balance, or extending the term of the loan.
Mortgage loss mitigation helps clients deal with bad outcomes from reverse mortgages. A reverse mortgage allows a property owner 62 or older to turn their home equity into cash payments. However, if the homeowner outlives the term of their reverse mortgage and doesn’t sell the home, they need to start making payments. At that point, they most likely will need to secure a traditional loan. An experienced lender will look at all options, including retirement plans and Social Security, to establish the needed income for a mortgage, enabling the homeowner to stay in their home.
Ask for help when you need it
If you are unable to make your mortgage payments due to a temporary hardship, there are options available to help mitigate the risk of foreclosure. While the leniency lenders demonstrated during COVID is mostly gone, they still want to work with you. If you are struggling financially, reach out to your lender to explore the options.
While not an easy conversation, having it could protect you from losing your home. If you’re looking for a lender well-versed in mortgage loss mitigation strategies, start with the Find a HIP Lender section of our website.