Loss Mitigation Terms
7 terms
Loss mitigation is the set of options available to homeowners who are struggling to make mortgage payments. Federal law (CFPB Regulation X) requires mortgage servicers to evaluate borrowers for loss mitigation before pursuing foreclosure — meaning every homeowner has the legal right to be considered for these alternatives.
The options fall on a spectrum from temporary relief (forbearance) to permanent loan changes (modification) to property disposition (short sale, deed in lieu). Understanding the full range — and which options your loan type qualifies for — is the difference between an informed negotiation with your servicer and a default that could have been prevented.
Loss Mitigation Options at a Glance
| Option | What It Does | Best When |
|---|---|---|
| Forbearance | Pauses or reduces payments temporarily | Short-term hardship (job loss, medical) |
| Repayment plan | Spreads missed payments over 6-12 months | Income has recovered, small arrearage |
| Loan modification | Permanently changes loan terms (rate, term, principal) | Long-term affordability problem |
| Payment deferral | Moves missed payments to end of loan | Can resume payments but can't catch up |
| Short sale | Sell home for less than owed with lender approval | Home is underwater, can't afford payments |
| Deed in lieu | Voluntarily transfer property to lender | Can't sell, want to avoid foreclosure record |
See Behind on Your Mortgage? for step-by-step guidance, or Your Rights in Foreclosure for legal protections.