Due to the recent recession, the whole economy has been jeopardized and lenders are under extreme pressure by the Federal regulators, as well as their investors to turn their bad loans (non-performing assets) to good loans (performing assets).

The process of a foreclosure in the present economy is not an easy job. One hundred percent financing and a downturn in the real estate market have wreaked havoc on lenders bottom lines.

Loss mitigations programs have been established and enhanced by the federal government and the mortgage industry in order to stop home foreclosures. There is a great pressure to assist foreclosure victims. People who are in default in their mortgage payments can now find a multitude of alternatives to home foreclosure. Each homeowner has a unique situation and no two lenders have the same exact policies or procedures regarding the programs available to stop foreclosure.

• You can save your home and credit history through a variety of loss mitigations options:

1) Repayment plan:  This is the simplest way to cure a default on your mortgage. Repayment is usually available to homeowners who can make their regular payment, along with an extra payment to catch up on their mortgage. So, if you have incurred a short term financial hardship and your loan is two or three months past due, you can consider submitting a request for a payment plan to your lender for approval. The lender will carefully review your financial situation before your request is approved. You must be able to demonstrate an ability to pay in order to be eligible.

Typically the period of a repayment plan is no more than 24 months. This term varies by lender and you should check with yours so that you can familiarize yourself with their policies.

If your rate is reasonable and you can afford to make your regular payment along with a payment that will catch you up on your back payments within your lenders timeframe, this may be the solution for you.

2) Loan modification: The number of ways to modify a loan is limited only by your creativity along with your lenders appetite for that creativity. Here are a few tips that will help you in the negotiation process for the loan modification

•    All back payments added to the principal balance of the loan
•    Re-amortization of the loan back to 30 years.
•    Interest rate reductions to as low as 3%
•    Conversions of ARM’s to fixed rate mortgage
•    Interest rate rollback to original rate (prior to ARM adjustments)
•    Interest only periods (3 – 5 years) designed to lower payments for a period of time that allows the borrowers to make it over the hump
•    Principal reductions to bring the loan to value ratio into line. This is an actual reduction of the loan balance which in turn lowers your payments.
•    Combining two loans held by the same lender in order to create one uniform interest rate and payment
•    Elimination or extreme reduction in the second mortgage balances.
•    Balloon payment at 10 or 15 years to lower today’s payments.

3)    VA loan modification / Refunding: Refunding is when the VA buys your loan from the lender. Refunding gives the VA the ability to contemplate foreclosure avoidance options to help you save your home that your current lender couldn’t or wouldn’t consider. The VA can refund a loan under 38 U.S.C.  36.4318, in this situation the arrears are added to the principal and the mortgage term are re-amortized. The new mortgage is not transferable without prior approval from the Secretary of Veteran Affairs. On occasion the interest rate is reduced and an assumption is approved. For more details, call your lender or the VA.

4)    Deed in Lieu of Foreclosure:  sometimes this is also referred to as a “cash for keys” program, because it may be possible to get your lender to give you money to help you move on with your life. If you have incurred a financial hardship and your house has been on the market for 90-120 days, you could ask your lender to consider a deed in lieu of foreclosure. As with most foreclosure avoidance options; your lender will most probably want a complete financial package. Remember, there cannot be any additional liens (other than the mortgage) against the property. If you give your property back to the bank with a deed in lieu of foreclosure, you will give up all rights to the property. In return for the deed in lieu, your lender may waive all deficiency judgment rights.

5)    Short pay-off:  This could be an option if you have suffered a financial hardship and are unable to make your loan payments. Short sale allows you to sell the property to avoid a default loss on the property. Many lenders would rather take a small loss on the property now rather than go through the timely, costly process of foreclosure. Many lenders require a qualified buyer prior to negotiating a short sale. If this is an option you wish to pursue, you must inform the lender immediately and get their list of requirements. There could be tax consequences associated with any short payoff or foreclosure. You may consult your tax advisor for more details. Your lender may want to seek a deficiency judgment for the amount of money left over after the sale. Recently some states have passed laws preventing this. If you are considering a short sale, you should seek the advice of an attorney.

6)    Special forbearance:  If you have incurred a financial hardship and your loan is three months to one year past due, you might be eligible for special forbearance. A special forbearance is designed to provide you with deeper relief than a regular FHA repayment plan provides. If you are approved for this type of relief your repayment would be spread over 12 to 18 months. Type II forbearance is usually reserved for a temporary unemployment situation when the prospect of future employment is guaranteed.

7)    Partial claim: Eligibility is available to those whose loans are 4 months to 1 year past due. A partial claim enables you to convert your arrears into a subordinate 2nd mortgage between you and the Secretary of HUD. This type of note usually defers payment on the second mortgage until after the first mortgage is paid off. These second mortgages are gives as no interest loans. The partial claim can be for no more than 1 year of past due payments. You may call your mortgage lender of the FHA for more details.