An important thing to keep in mind when considering a short sale to avoid foreclosure- your lender is not technically obligated to sell your house in such a manner. For them, it is a pure cost-benefits calculation. When they allow a real estate short sale, they have to swallow the discrepancy between the amount you owe on your mortgage and the money your house brings in when it sells. They don’t like doing this unless the alternative is even less profitable.

You may even have a potential buyer who has put down all the paperwork to make an offer, and they still won’t cave. On the plus side, this can go two ways- the bank may say you have to go into forclosure, but they may also try to convince you to stay in your house and refinance your mortgage.

You may even be able to settle it with a loan modification.

If that doesn’t work, though, and your bank is willing, a short sale may be completed. In order to comfort potential buyers, you may want to think about moving out of your house while going through the shortsale process- this will make it seem less likely that you may decide to simply refinance. And be sure to get official approval from your bank. “Bank Approved Short Sale” is much more likely to get takers than one that doesn’t yet have expresss permission. a

The Treasury Department unveiled sweeping rules this week to help financially troubled homeowners who need to sell but can’t get a price high enough to pay off their mortgages. Homeowners will even get $1,500 to help cover their moving costs.

The plan is designed to help homeowners who don’t have the income or debt levels to qualify for a loan modification under the Obama administration’s $75 billion Making Home Affordable program. The plan establishes timelines, a standard process and documents, and cash incentives for participation.

Short sales, as these deals are known, reduce the damage to the borrowers’ credit record and save the lenders the cost of foreclosure. Short sales also help neighboring property values because the sales price is usually higher than what the house would fetch in a foreclosure auction.

About one in 10 home sales this year was a short sale, or an estimated 500,000 sales, according to the National Association of Realtors. In areas like Las Vegas, southern Florida and California, the ratio is far higher.

Recently, the U.S. Department of Housing and Urban Development (HUD) has passed new guidelines allowing FHA borrowers to seek to cut down their monthly payments on their mortgage through a Making Home Affordable loan modification program starting August 15^th.

Before this, homeowners struggling to make their payments on an FHA-backed mortgage were not allowed to get a loan modification.

Now, at-risk mortgagors will be able to lower the principle they must pay on their loans by up to 30% in what is being called a ‘partial claim’. However much the principal is reduced will be combined into a second, no-interest mortgage that isn’t due until the first one is completed, or the property no longer belongs to the borrower.

Reducing the principal on the original mortgage in this way will allow homeowners to lower their monthly mortgage payments to an amount they can afford, preventing foreclosures and defaults. The old MHA loan modification program used to leave the principle alone, reducing only the interest rate.

The goal of either method, however, is to reduce monthly mortgage expenses for homeowners to 31% of their income.

An added bonus of the new MHA program is its ability to bring borrowers up-to-date on their payments: it includes all past due payment into the second, no-interest mortgage.

The program is called FHA Home Affordable Modification, and in order to qualify, a borrower must already be in default on their mortgage, (that is, at least one month past due on payments) but not more than one year past due.  This, hopefully, will prevent those who are irresponsible and completely unable to make payments from joining, and also preventing those who can make their payments just fine from taking advantage of the program.

In addition, any borrower wishing to take advantage of the program must be the owner and occupant of a single-family residence, and be able to prove that they have enough financial resources to maintain payments on the new mortgage. They must also not have purposefully defaulted on their mortgage payments even though they had enough money to pay. Also, applicants must not have more than 55% of their monthly income in total debt after modification.

The new program doesn’t only incentivize the mortgage owners, but lenders as well. It offers up to $1,200 for each loan to lenders. Homeowners who do not have an FHA mortgage should try to get a loan modification through the first Making Home Affordable loan modification programs which deal mainly with changes of interest rates.

For more information on the FHA-Home Affordable Refinance Program can be found on the HUD website.

Eraly in this recession, people were worried about literal bank failures a lá the Great Depression. Mortgages were in trouble, interest rates were going haywire, and people were pulling their money out of banks fast.

The Federal Deposit Insurance Corporation protects the deposits of consumers in the event that a bank fails, and has been doing so for decades. In this day and age, there is no reason to fear that a bank will lose your money. The organization has recently said that banks and other lenders should try to give certain qualified borrowers a ‘temporary respite’ from their monthly mortgage payments. This is known as a forebearance, and can last up to six months, especially if the mortgage holders are trying to work out a loan modification.

The agency has released a plan to lower loan payments to lower levels for borrowers to have defaulted, but only those who can prove that they only defaulted because of job loss or involuntary salary reductions. The FDIC chairwoman has released statements saying that they’re making these announcements, not just to save money and mitigate losses, but because it’s the right thing to do. They’re trying to keep families in their houses and keep the economy going strong.

Although other dimensions of the economy have been seeing some turnaround in recent months, unemployment is still at record highs. This means that federal regulators have been trying even harder to mitigate the effects of those job losses and prevent another big cycle of home foreclosures and short sales.

The Federal Deposit Insurance Corporation protects the deposits of consumers in the event that a bank fails, and has been doing so for decades. In this day and age, there is no reason to fear that a bank will lose your money. The organization has recently said that banks and other lenders should try to give certain qualified borrowers a ‘temporary respite’ from their monthly mortgage payments. This is known as a forebearance, and can last up to six months, especially if the mortgage holders are trying to work out a loan modification.

The agency has released a plan to lower loan payments to lower levels for borrowers to have defaulted, but only those who can prove that they only defaulted because of job loss or involuntary salary reductions. The FDIC chairwoman has released statements saying that they’re making these announcements, not just to save money and mitigate losses, but because it’s the right thing to do. They’re trying to keep families in their houses and keep the economy going strong.

Recently, the U.S. Department of Housing and Urban Development (HUD) has passed new guidelines allowing FHA borrowers to seek to cut down their monthly payments on their mortgage through a Making Home Affordable loan modification program starting August 15^th.

Before this, homeowners struggling to make their payments on an FHA-backed mortgage were not allowed to get a loan modification.

Now, at-risk mortgagors will be able to lower the principle they must pay on their loans by up to 30% in what is being called a ‘partial claim’. However much the principal is reduced will be combined into a second, no-interest mortgage that isn’t due until the first one is completed, or the property no longer belongs to the borrower.

Reducing the principal on the original mortgage in this way will allow homeowners to lower their monthly mortgage payments to an amount they can afford, preventing foreclosures and defaults. The old MHA loan modification program used to leave the principle alone, reducing only the interest rate.

The goal of either method, however, is to reduce monthly mortgage expenses for homeowners to 31% of their income.

An added bonus of the new MHA program is its ability to bring borrowers up-to-date on their payments: it includes all past due payment into the second, no-interest mortgage.

The program is called FHA Home Affordable Modification, and in order to qualify, a borrower must already be in default on their mortgage, (that is, at least one month past due on payments) but not more than one year past due.  This, hopefully, will prevent those who are irresponsible and completely unable to make payments from joining, and also preventing those who can make their payments just fine from taking advantage of the program.

In addition, any borrower wishing to take advantage of the program must be the owner and occupant of a single-family residence, and be able to prove that they have enough financial resources to maintain payments on the new mortgage. They must also not have purposefully defaulted on their mortgage payments even though they had enough money to pay. Also, applicants must not have more than 55% of their monthly income in total debt after modification.

The new program doesn’t only incentivize the mortgage owners, but lenders as well. It offers up to $1,200 for each loan to lenders. Homeowners who do not have an FHA mortgage should try to get a loan modification through the first Making Home Affordable loan modification programs which deal mainly with changes of interest rates.

For more information on the FHA-Home Affordable Refinance Program can be found on the HUD website.

All over the state, banks and lending institutions are growing their loss mitigation departments in order to process more short sale transactions and facilitate loan modifications and reamortizations. In this day and age, most lenders accept short sale requests and/or offers, even after someone has been issued a Notice of Default. Because of the 2009 foreclosure crisis, mortgage lenders have been suffering from record losses and are now much more willing to work with homeowners to complete short sales.

This means that California homeowners can be assured that even if they get behind on their payments, they are not automatically going to have to default or be foreclosed on. The problem is, different lenders have different levels of tolerance for short sales and requests for loan mods. Most lenders will have their own pre-determined, specific criteria for these transactions. A homeowner must jump through a lot of hoops- conditions, approvals, paperwork, and the like- to get a short sale through.

And there are other factors that determine whether or not a lending institution will accept a request for a shortsale, and the level of ‘liens’ may help make that decision. Junior liens for example (like HOA and HELOC lenders, and those that deal with second mortgages) might be more willing to accept short sales. Tax liens holders, on the other hand, are more likely to reject such requests.  And if your lender asked for mortgage insurance on the loan they gave you, they’ll also probably need the insurer to be a part of the negotiations as they navigate the short sale.  The insurer may be asked to shell out some dough to help cushion the fall of the lender.

Basically, there is a vast network of steps you need to take, people and institutions that needs to be involved, parameters that must be met, and processes that you must slog through to complete a real estate short sale, get a loan modification, or otherwise avoid foreclosure. It’s a complex, specialized kind of transaction, and the entire process tends to have a high failure rate, especially among homeowners that choose to forge th path alone, without professional counseling or help. A knowledgeable, experienced professional can really facilitate the process. A loss mitigation specialist or real estate lawyer who specializes in short sales would be a good person to have on your team during such a time.

As more and more American homeowners are dealing with unemployment, undervalued homes, and debt, prominent mortgage lenders and bank are learning to adapt with more personalized communication systems to try to avoid allowing people to default, or letting mortgage troubles escalate to foreclosures. They’re also trying to avoid gathering too many expenses in dealing with foreclosures and loan resolutions.

In this light, getting loan modifications and other loss mitigation tactics like short sales makes sense from all points of view, and homeowners in trouble can take heart in knowing that banks have the same goals that they do. It doesn’t have to be an us-against-them, win-lose situation.

The idea is that proactive, highly personalized forms of communication between banks and lenders and their customers really help allow mortgage lenders to cooperate with individuals. Then both parties can avoid foreclosures and minimize the astronomical costs of all the paperwork of loan workouts, refinancing, and restructuring.

One of the country’s biggest financial holding companies, for example, recently cut down on first payment defaults by more than sixty percent in the last few years. Bigger lending groups are focusing in on mortgage and consumer lending research, trying to optimize conditions and expand departments to save everyone the most money.

We talk a lot about loss mitigation here, but it seems we never give a full, descriptive definition. This is the gist of what the HUD (Department of Housing and Urban Development) says counts as loss mitigation:

Loss mitigation is a service provided by a third party with the goal of helping a mortgage-possessing homeowner lessen the amount of money they lose if they can no longer make their mortgage payments. Usually, it is a division within a lending bank, though it can also be a private financial firm. The process by which these experts try to help decrease the amount of money lost by the bank and the homeowner is to facilitate negotiation between the two parties. Usually they do their best to avoid outright foreclosure.

New terms are often reached through either loan modification, short refinance negotiation, real estate short sales, a deed-in-lieu of foreclosure, or some other form of loan work-out.

These types of services use to be relatively uncommon and reserved for special cases. Nut ever since the 2008 recession hit, more and more homeowners have been turning to loss mitigation tactics to try to deal with financial burden. Unfortunately, this places a big strain on banks, who are unused to having customers feel they are entitled to this service and are struggling to grow their departments.

That’s where outside firms step in and fill the gap- to try to benefit both the overwhelmed bank and the overworked homeowner.

The Federal Trade Commission chairman declared last Thursday that the government agency is now entering talks to consider banning all upfront payment requirements for  ‘borrower help’ companies that advertise their ability to help homeowners stay good on their home loans.

Officials in the federal and state government say that there is a relatively high percentage of scammers in the industry, and that this is a trending phenomenon among financial-related industries. Unscrupulous ‘businessmen’ take advantage of desperate borrowers who are in danger of having to default on their mortgages, and who are looking for help. Those who charge upfront fees in the thousands of dollars rarely perform services that pay off.  If it’s that expensive on the outset, it’s unlikely to be a legitimate company who will try to help you stave off foreclosure or short sale.

California loss mitigation companies will be the next state to undergo judicial rulings on the matter. Two companies, “Nations Housing Modification Center” and “Infinity Group Services” have had files charged against them by the Federal Trade Commission.

Limits may also be placed on how these types of companies may advertise, and additional ‘false advertising’ restrictions may be layered upon the pre-existing ones.  More than twenty-two companies have had files charged against them by the government in recent months, and the government wants to emphasize that upfront payments should be minimal for most homeowners, if the company is legitimate.

The government does offer free loss mitigation services, but the wait times are often quite detrimental to the effort. Sometimes you do have to pay a little to get the attention and expediency you need.