How to negotiate with your mortgage lender
All across America, home owners face the risk of losing
their homes as a result of foreclosure. In Arizona, the same crisis
confronts people who are behind in their mortgage payments or who are counting
the days until the foreclosure sale.
Whenever a homeowner faces the threat of foreclosure, it is
important to take a step back and analyze his or her situation from the
perspective of the lender. Though the home
owner's primary objective may be to save his or her house, the lender's primary
objective is to minimize the loss as much as possible to the company. In
addition, if
a home owner is to save his or her house from foreclosure, the home owner must
analyze the situation from the perspective of the lender by 1) analyzing and
determining the severity of the situation that caused the delinquency or
default, 2) analyze his or her financial situation for the possibility of curing
the default, and 3) identifying the best possible solution or alternative that the
lender is willing to accept.
The policy of foreclosure prevention and minimizing a loss
to the company is referred to as loss mitigation. Loss mitigation is a
lender's corporate policy or procedures designed to find solutions and
alternatives for the lender and home owner while keeping the best interests of
the lender in mind.
It is the goal of any entity's loss mitigation policy
to insure that losses and expenses are minimized and are generally in the best interest
of the company, even if the home owner loses the home. The Federal Housing Administration (FHA), for example
states in Mortgagee Letter 00-05 that the purpose of its loss mitigation policy
is to "fulfill the goal of helping borrowers in default retain home
ownership while reducing, or mitigating the economic impact on the insurance
fund." The Department of Veterans Affairs (VA) states in VA Handbook
H26-94-1, section 4.03 that "VA encourages holders to extend every
reasonable indulgence to worthy borrowers who are in temporary difficulty.
However, when it is evident that the default is insoluble, every effort should
be made to see that the security [house] is liquidated promptly to minimize the
loss to the Government." In all cases of loss mitigation policy, the lender will
always try to find solutions that is the most financially sound for the
corporation.
This does not state that the lender wishes to foreclose on
every property that becomes delinquent or in default. Lenders are not in
the business of foreclosing on homes; rather, a mortgage company will analyze
the home owner's situation and if it is possible for the borrower to continue
making payments (which is composes of both the principal owed against the home
and the interest payments to the mortgage company), the lender will find a
solution to help the home owner continue making principal and interest payments.
Foreclosure can be a costly and time consuming process for
a lender. However once a lender has started foreclosure proceedings, it is
often difficult for a home owner to reverse or delay the mortgage
company. The home owner should act quickly to prevent foreclosure
proceedings from starting.
If a home owner faces the possibility of foreclosure,
the lender will try to contact the borrower as soon as possible in order to
identify the reason for the default and demand payment for the
delinquency. Most lenders will categorize the borrower's reason for the
default into two categories: 1) hardships created by choice such as the
purchase of a new, larger home and 2) hardships that are beyond the borrower's
control, such as the loss of income due to unemployment or illness.
Furthermore, the lender will try to determine the duration of the
hardship. A lender will ask, "Is it a temporary set back where
the borrower will be able to reinstate the loan or is it a permanent situation that will
affect the borrower for the remaining term of the loan?" The answer
to these questions will control the decision and alternatives offered to the
home owner.
Once the reason for the default has been identified, most
lenders will require financial data from the borrower. This may include
personal asset statements, current income statements, paystubs from the
employer, credit checks, and other information that will be used to determine
the borrower's current financial status. The lender will try to determine
if the home owner has the ability to pay the monthly mortgage payment and keep
the account current. The lender will verify checking and savings account
to determine if any cash can be applied to the total amount owed.
Stated in most loss mitigation policies, the preferred
alternative for permanent hardships is a solution that separates the borrower
from the property. On the other hand, lenders recognize that borrowers
facing temporary situations are generally able to get back on track through
short term repayment options.
The following sections outlines options, alternatives, and
solutions for specific types of loans. The key to negotiating with your
lender is knowing what the lender expects and the course of action it will
employ when faced with a borrower's loan in default.
Select from the following:
|
arizona
foreclosure counseling 