debt

loss mitigation

Programs offered by mortgage servicers to help borrowers avoid foreclosure.

Example

“The loss mitigation department offered a repayment plan spreading the arrears over 12 months.”

Memory Tip

MITIGATION — reducing the damage for everyone. Lenders prefer this to foreclosure.

Why It Matters

Loss mitigation is crucial for homeowners facing financial hardship because it can prevent foreclosure, preserve credit scores, and allow people to keep their homes. Understanding these programs helps borrowers take action before missing payments become unmanageable.

Common Misconception

Many people mistakenly believe that loss mitigation programs are only available to borrowers who are already delinquent on their loans. In reality, servicers often encourage borrowers to contact them as soon as they anticipate difficulty making payments, before problems occur.

In Practice

A homeowner with a 300,000 dollar mortgage loses their job and cannot make the 1,500 dollar monthly payment. They contact their servicer, who offers a loan modification reducing the rate from 5 percent to 3 percent, lowering the payment to 1,265 dollars per month. This keeps the borrower current on their loan and avoids the foreclosure process.

Etymology

From Latin 'mitigare' meaning to soften — softening the loss for both borrower and lender.

Common Misspellings

loss-mitigationloss mitigaton

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