Loss Mitigation 101
How to be successful in the loss mitigation process
What is loss mitigation?Loss mitigation is the term that describes all work out options available that will bring the loan current and/or remedy the default and avoid foreclosure sale. The request must be made in the form of a loss mitigation application accompanied by supporting financial documents (called a loss mitigation *package*). Once the package is complete, it goes to underwriting for review for all possible home retention options. The investor of the loan decides what options are available.
* Tip: Think of the underwriter as a person sitting in a room with your loss mitigation package and nothing else. The only information that this person has about you must exist in the package and it must accurately tell your financial story with no gaps information.
* Tip: The underwriter*s job is to figure out * based on your documents * how much income the servicer can anticipate that you will receive in the future. The underwriter will not consider any sources of income that you are not currently receiving.
There are no verbal requests for a modification, payment plan or other work out. You must submit a loss mitigation application.
When you complete the loss mitigation application, make sure that ALL spaces/boxes/lines are filled out. If an item does not apply to you, write *n/a* or *0* or draw a line through it. If you leave anything blank, the underwriter doesn*t know if that item doesn*t apply to you or if you accidentally skipped it. If you generated the document by hand, sign it. All income received must have been reported on your taxes. If you haven't filed taxes for any previous year, most servicers will not complete a loss mitigation review.
Rules to followRule #1 * USE A NON-PROFIT HOUSING COUNSELOR TO HELP YOU COMPLETE AND SUBMIT YOUR LOSS MITIGATION PACKAGE!! They are free. I cannot emphasize this enough. Would you travel to a foreign country and not use a tour guide for help? NOTE: do not pay an attorney to submit a loss mitigation package for you. Use a housing counselor.
Maryland homeowners can visit https://dhcd.maryland.gov/Residents/Pages/HOPE/CounselorsList.aspx for a DHCD approved counseling agency.
District of Columbia homeowners can visit https://apps.hud.gov/offices/hsg/sfh/hcc/hcs.cfm?webListAction=search&searchstate=DC for a HUD approved counseling agency.
Rule #2 * Documents, documents and more documents. Everything in this process must be documented. If you don*t have a document, then draft a letter of explanation explaining the situation.
Rule #3 * If the servicer is represented by a trustee (*bank*s attorney*), make sure that you send a copy of everything that you send to the servicer to the trustee*s office (preferably by email). Most trustee firms will have a mediation/loss mitigation department. You don*t want to get caught in re-submitting the same documents to the servicer because something wasn*t received by them.
Rule #4 * Know your point of contact representative at your servicer. You should be calling this person (or another team member if he/she is not available) at least once per week. Don*t wait on them to call you. Don*t wait on them to send you correspondence about your loss mitigation package. Most servicers have business hours into the late evening. Keep a record of who you talk to and what they tell you. Stalk them!
Rule #5 * A letter of explanation is your best secret weapon. Anything in your financial situation that is a little unusual or is not otherwise documented should be explained to the underwriter in a letter. Be sure to include your loan number and sign and date it.
Rule #6 * Everything (except the 4506-T form, paystubs and bank statements) MUST include: 1) your signature; 2) the date you signed the document; and 3) the loan number. Everything.
Rule #7 * Everything that you submit (except federal tax returns) will expire 90 days after the date that you signed the document. Once the document is expired, the underwriter can no longer use it as part of the review and it will have to be updated.
Rule #8 * You must continue to update your package with paystubs and bank statements every month even if the servicer doesn*t ask for it. Don*t make them wait to ask.
Rule #9 * If you are self-employed or get a 1099 at the end of the year, expect to have to work a little harder submitting documentation to the servicer. You will have to include a profit and loss statement (itemized by beginning of month to end of month, signed and dated) even if you receive paystubs. Be sure to find out how many months the servicer wants from you.
Rule #10 * If you receive Social Security, pension or annuity income, the servicer will want: 1) your annual award letter that applies to the current year; 2) any paystubs (if applicable); 3) and/or to show that the income is deposited into your bank account.