What is 'Loss Mitigation'?

Loss Mitigation is a term that will be used frequently through all proceedings dealing with a delinquent mortgage. Loss Mitigation literally means to reduce loss by finding an alternative to foreclosure.

Loss Mitigation options reduce losses for the lender, who avoids the costs of foreclosure and potentially keeps a performing loan in their portfolio; for the consumer, who avoids foreclosure, can potentially keep the home, or potentially sell it for a profit; and for the FHA, who insures the loans.

FHA lenders are required to provide the borrower with a loss mitigation packet. This is a financial and income evaluation. It is important to be as honest as possible. Hiding "under the table" income, for example, could  be a disqualifier. The borrow must complete and return the packet to be eligible for loss mitigation options. Generally, borrowers need to show a verifiable loss of income, and the financial ability to meet retention agreements.