What Is Loss Mitigation?

Loss Mitigation is the process used by mortgage servicers to review options that may help a homeowner avoid further delinquency, resolve missed payments, or reduce the risk of foreclosure.

When a homeowner has a payment problem, the mortgage servicer may review the account for available options. These options may include repayment plans, forbearance, payment deferral, loan modification, or other programs depending on the loan type, investor rules, hardship, and account status.

Loss Mitigation Basics

Loss mitigation is commonly used when a homeowner is behind on mortgage payments, expects to fall behind, or needs help reviewing available mortgage assistance options.

The purpose of loss mitigation is to evaluate whether the account can be brought back into good standing through a structured option.

The exact options available depend on the mortgage loan, investor, servicer policies, program rules, payment history, hardship, and documents submitted by the homeowner.

When Loss Mitigation May Apply

Loss mitigation may become relevant when a homeowner misses a payment, receives a late notice, experiences hardship, or cannot afford the current mortgage payment.

Common situations include:

• Temporary income reduction
• Job loss
• Medical hardship
• Unexpected expenses
• Divorce or household income change
• Property damage or insurance issue
• Escrow payment increase
• Payment shock after an adjustable-rate change
• Default or serious delinquency

Common Loss Mitigation Options

Loss mitigation options vary, but several categories are commonly discussed in mortgage servicing.

• Repayment plan
• Forbearance
• Payment deferral
• Loan modification
• Partial claim, if available for the loan type
• Short sale in some situations
• Deed-in-lieu of foreclosure in some situations

Not every option is available for every loan. Homeowners should ask the servicer which options may be available for their specific account.

Repayment Plan

A repayment plan may allow a homeowner to catch up missed payments over time.

The homeowner usually continues making the regular monthly payment plus an additional amount toward the missed payments.

This option may be helpful when the hardship was temporary and the homeowner can now afford the regular payment plus a catch-up amount.

Forbearance

Forbearance may allow a temporary pause or reduction in mortgage payments for a limited period.

Forbearance does not usually erase the unpaid amounts. The homeowner should ask how the missed payments will be handled when the forbearance period ends.

Before accepting forbearance, homeowners should ask whether the unpaid amounts will be repaid through a repayment plan, deferral, modification, lump sum, or another arrangement.

Payment Deferral

A payment deferral may move missed payments to a later point in the loan timeline, depending on program rules and loan eligibility.

In some cases, deferred amounts may become due at payoff, refinance, sale, maturity, or another specified event.

Homeowners should ask whether deferred amounts accrue interest and when they must be paid.

Loan Modification

A loan modification may change certain mortgage terms to create a new payment structure.

Depending on the program, a loan modification may involve interest rate changes, term extension, capitalization of arrears, or other adjustments.

Homeowners should carefully review any proposed modification before signing because it may change the payment structure and long-term loan cost.

Short Sale or Deed-in-Lieu

In some situations, a homeowner may be reviewed for non-retention options such as a short sale or deed-in-lieu of foreclosure.

These options may apply when the homeowner cannot keep the property or does not qualify for a retention option.

Homeowners should carefully review the legal, tax, credit, and financial consequences before choosing any non-retention option.

Loss Mitigation Documents to Review

Loss mitigation reviews usually require documents. The servicer may ask for a complete package before making a decision.

• Loss mitigation application
• Hardship statement
• Income documentation
• Bank statements
• Tax returns, if requested
• Profit and loss statement for self-employed borrowers
• Expense worksheet
• Mortgage statement
• Payment history
• Correspondence from the servicer

How the Loss Mitigation Process Usually Works

Step 1: The homeowner identifies a payment problem or receives a notice from the servicer.

Step 2: The homeowner contacts the mortgage servicer and asks what options may be available.

Step 3: The servicer provides application instructions and document requirements.

Step 4: The homeowner submits the loss mitigation application and supporting documents.

Step 5: The servicer reviews the package for completeness.

Step 6: The servicer evaluates available options under applicable program rules.

Step 7: The servicer issues a decision, request for more documents, or offer.

Questions to Ask the Mortgage Servicer

• What loss mitigation options may be available for this loan?
• Who owns or invests in the loan?
• What documents are required for a complete application?
• What is the deadline to submit documents?
• Will foreclosure activity pause while the application is reviewed?
• Has the application been marked complete?
• What options are being reviewed?
• Will missed payments be deferred, repaid, or capitalized?
• Will the interest rate, term, or balance change?
• Can the servicer provide the decision in writing?

When Loss Mitigation May Require Closer Review

Loss mitigation may require closer review when the servicer says documents are missing, when the homeowner submitted documents but the account does not show them received, when deadlines are unclear, or when the decision does not explain why an option was denied.

Closer review may also be appropriate when a homeowner is in foreclosure, when a sale date is pending, when the loan was recently transferred to a new servicer, or when the homeowner received conflicting information from different representatives.

Related Mortgage Education Center Articles

Additional Educational Resources

Additional consumer mortgage information is available through the Consumer Financial Protection Bureau Mortgage Resources and general legal reference materials are available through Cornell Law School’s Legal Information Institute.

MortgagePreCheck Summary

Loss mitigation is the process used to review mortgage assistance options when a homeowner is behind, expects to fall behind, or needs help resolving a payment hardship.

The process usually involves contacting the servicer, submitting documents, completing a review, and receiving a written decision or offer.

Understanding loss mitigation helps homeowners ask better questions, preserve records, and evaluate available options before the account becomes harder to resolve.

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