There is no question that loss mitigation through loan modification is very helpful for individuals who want to avoid foreclosure. However, not everybody grabs the chance to apply for a loan modification. There are several reasons why. First, lenders and attorneys have become more selective of their clients and they will most probably single out homeowners who are not very late in their payments or are current in their mortgage payments. Furthermore, what is the point in modifying a hopeless loan? Attorneys and lenders ARE businessmen and they wouldn’t want clients who will cost them money.


The next reason is that most loss mitigation servicers require that homeowners pay principal forbearance, which is the amount of mortgage due plus the discounted principal. Discounting the principal DOES NOT MEAN forgiving or condoning the principal. While some “exceptional” banks and lenders do condone the principal, most banks and lenders do not. So the obligation to pay remains outstanding. This is a major setback among homeowners who are tight on their cash budgets and who are unwilling to pay out more money for a debt gone bad.


Borrowers and lenders need to meet at a certain point to avoid foreclosures for the borrowers AND large losses for the lenders. This is where the attorneys who mitigate losses come into the picture. They are mediators, and like businessmen, they won’t do so without getting anything in return. Beneficence is not a useful virtue in times of crisis. Or maybe it is, for really “exceptional” lenders, banks and other financial institutions. Clearly, mitigating losses through loan modification is important and is a win-win-WIN situation. The homeowner doesn’t experience foreclosure. The lender doesn’t lose everything. And the loss mitigator gets paid out of mediating.




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