Traditional foreclosure prevention methods vs. non-traditional methods

Only recently has there been a change to the standard process that a bank would take to help a homeowner who was struggling with their mortgage payment.

Traditionally, in the past, a lender only offered assistance to a borrower when their home loan was in default, defaulting on the monthly loan payment for three or more consecutive months.

In a typical scenario like this, borrowers could be eligible for traditional loss mitigation methods if they were lucky.

To clarify some terminology, let’s define loss mitigation as the process of working to stop or reduce any losses to the lender and the borrower, in effect, damage control.

Under traditional foreclosure prevention guidelines to receive assistance from a lender, a borrower would have to meet some requirements.

One of the most important requirements is one where non-traditional methods offer some additional flexibility for homeowners in distress.

With non-traditional methods, a homeowner does not have to make their loan delinquent before they can get help.

In the past, lenders told homeowners that they couldn’t offer any help until their loan was delinquent.

Another significant difference is the actual difficulty that caused the owner to stay behind. With the traditional method, the borrower would have to go back to work or have sufficient household income to receive assistance.

Under non-traditional methods of foreclosure prevention, borrowers can receive a temporary grace period in the event that they do not return to full employment.

Many lenders have found that certain occupations have a high probability of employment even though the borrower may be currently unemployed.

Of course, if there is always a downside.

The big problem with relaxed guidelines is this …

Homeowners who are already in default on a mortgage loan take priority over borrowers who are not in default. This results in a large number of borrowers of both types being left out.