Indiana OR/WA/HI Tri-State Conference Mortgage Servicing. Sonia Lee Director, Affiliate Financial Service HFHI

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1 Indiana 2015 OR/WA/HI Tri-State Conference Mortgage Servicing Sonia Lee Director, Affiliate Financial Service HFHI

2 Mortgage Servicing Mortgage Servicing New Policy 24 Mortgage Loan Servicing What is mortgage servicing? Changes impacting existing practices Federal Laws Delinquency Escrow Accounts Foreclosure Tips 2

3 Preliminary Considerations Initiating Partnership Preparing for Sale Mortgage Fundamentals The Mortgage Process Servicing Full Servicing Small Servicer Exemption Controlling Delinquencies Escrow management Foreclosures/ Bankruptcies Remember: MPAR University on My.Habitat! 3

4 Mortgage Loan Servicing: Policy 24 - Minimum Requirements Know and follow applicable federal / state / local laws Affiliates that outsource Must be aware of regulations that govern the servicer (small servicer vs. large servicer) Know their servicer's policy of loss mitigation up to and including foreclosure and be provided with timely status of delinquent homeowners Receive timely reporting of mortgage account status Board approved comprehensive servicing policies Accurate mortgage balance must be provided to homeowner s at least annually, this included any subordinate mortgage balances Escrow account management in accordance with RESPA Escrow Guidelines & Sample Analysis Initial and annual escrow statements Separate account for these funds, and cannot be used for any other purpose Delinquency & Enforcement Accurate categorization of delinquent accounts ASR Mortgage Reporting Defined Forbearance or trial modification agreements must be documented and fully executed Foreclosure is permitted 4

5 Federal Laws - Servicing Minimum Requirements Prompt Crediting of Payments and Response to Request for Payoff Mortgage payments must be applied to the homeowner s account the day it is received Partial payments acceptance Return Keep and apply Keep and hold until a full periodic payment is received, then apply Accurate Payoff Balance must be provided within 7 days of request Error Resolution and Information Request Both requests must be acknowledged to the homeowner within 5 days of receipt Purchase of Forced-Place Insurance with exceptions If the cost of the force-placed insurance to the consumer is less than the amount the small servicer would need to disburse from the consumer s escrow account to pay the consumer s hazard insurance premium Loss Mitigation with exceptions Cannot move for foreclosure if the homeowner is performing to the terms of a loss mitigation agreement First notice or filing of foreclosure cannot be made unless the homeowner is more 5 than 120 days delinquent

6 Federal Laws vs. State Laws Servicing Pre-foreclosure / Foreclosure filing Escrow Account Administration cushion, interest, type of account Payment treatment including partial and late payments Delinquency management Late Fee amount 6

7 Full Servicing At a minimum, full Servicing included, but not limited to: Receive, process, record and update account status of mortgage payments Establishment of, allocation to, and disbursement from federally insured escrow accounts Customer resolution management Life of loan monitoring and management of tax and Insurance (including flood insurance, when applicable) Annual escrow analysis Delinquency management, including collections management Recommendations for resolution of delinquency problems Loss Mitigation, including forbearance agreements, deed-in-lieu, loan modifications & foreclosure Reporting to credit depositories OFAC database management (follow policy frequency) 7

8 Mortgage Servicing Why Mortgage Servicing? Fund for Humanity Affiliate s biggest asset Unrestricted funds Sustainability 8

9 January 2014 Major Changes RESPA/TILA Mortgage Servicing Rules 9 rules split between 2 Regulations Many provisions to each rule Exemptions Small servicers State Finance Agencies All servicers Master and Sub-servicers must comply 9

10 SAFE Act Governs servicing May require license or registration In some states, exemption covers servicing Know your state laws 10

11 Small Servicer Exemption Small Servicer Exemption You are a small servicer if you service 5,000 or fewer mortgage loans, and you are the creditor or assignee for all of them. New - Nonprofit Small Servicer definition Allows Habitat affiliates who service for other affiliates even for a fee, the benefit of the small servicer exemption. Loans must be owned or originated by the servicer or the other affiliate(s) and the amount serviced must be less than

12 Rule Error Resolution & Information Request Federal Servicing Laws Regulation X (RESPA) Exempt as Small Servicers Small Servicer Requirements No Acknowledge request within 5 days Correct error and provide written notification of correction, or investigate and provide written notification that no error occurred within days Provide requested information or search for the info and provide a written notification why it is not available Forced-place Insurance With exceptions If the cost of the force-placed insurance to the consumer is less than the amount the small servicer would need to disburse from the consumer s escrow account to pay the consumer s hazard insurance premium. Loss Mitigation With exceptions Cannot make the first notice or filing required to foreclose unless a consumer s mortgage loan is more than 120 days delinquent Cannot move for foreclosure judgment or order of sale, or conduct a foreclosure sale, if a consumer is performing pursuant to the terms of a loss mitigation 12 agreement

13 Rule Servicing policies & procedures Early Intervention with delinquent homeowners Continuity of Contact with delinquent homeowners Federal Servicing Laws Regulation X (RESPA) Exempt as Small Servicers Yes Yes Yes Requirements if not small servicer Establish policies and procedures ensuring key objectives such as record retention, oversight of, and compliance by, service providers, and proper evaluation of loss mitigation applications etc.. Establish or make good faith efforts to establish live contact with consumers by the 36th day of their delinquency and, if appropriate to their situation, promptly inform them of loss mitigation options that may be available. Maintain policies and procedures reasonably designed to provide delinquent consumers with access to personnel who can assist them with loss mitigation options where applicable. 13

14 Rule Prompt Crediting of payments & response to request for payoff Rule Periodic Statements Federal Servicing Laws Regulation Z (TILA) Exempt as Small Servicers Small Servicer Requirements No Promptly credited as of the day of receipt. A payment that is less than the amount due may be placed in a suspense account. When the amount received covers a full monthly payment (periodic payment), promptly credit it to the consumer s account. Accurate payoff balance are to be provided no later than 7 business days after receipt of a written request. Exempt as Small Servicers Yes Requirements if not small servicer Consumers must be provided with a statement each billing cycle showing payment due and the application of past payments Interest rate adjustment notices for ARMs Not Applicable Does not apply to HFH 14

15 Delinquency Defined If the periodic payment is due the 1st of the month (January 1 st ): If not paid, it is delinquent. January 2 nd is the 1st day of delinquency February 6 th is 36 days and February 15 th is 45 days) It is 30 days delinquent if it is not paid before the next due date. It is 60 days delinquent, if not paid before the following due date It is 90 days delinquent, if not paid before the following due date. The first day of delinquency is important: To consistently trigger policy collections actions and to comply with12 USC 1701x(c)(5) requiring that before the 45th day, you must provide the delinquent homeowner information about credit counseling and the HUD toll free number for finding a certified nonprofit credit counseling agency. Should homeowner be a servicemember, the Servicemember Civil Relief Act (SCRA) notice also has to be provided by day 45. Absence of past due notifications can be used as a foreclosure defense 15

16 Controlling Delinquencies Begins with family selection Review of credit history; establish underwriting guidelines only income paying the mortgage should be factored into ATR Comprehensive homebuyer financial training, which should include: Understanding importance of a good credit score Setting financial goals Importance of saving Developing a budget Repairing credit scores and the importance of paying bills on time Defined Servicing Practices Clear policies and procedures that are consistently applied Consistent application of servicing practices Trained staff, including a succession plan for these roles Prompt corrective action - past due letter and phone calls Report to credit depositories Monitor mortgage receivable / delinquency - create a monthly report that 16 captures this data

17 Controlling Delinquencies cont d Resolving Serious Delinquencies Requires: Acknowledge there is an issue and seek help from HFHI or other qualified experts Review policy and procedures to ensure it is comprehensive and covers all aspects of servicing Ensure that the policy is understood and followed Contact each homeowner that is delinquent to discuss options Forbearance agreement Trial modification Deed in Lieu of foreclosure Foreclose when appropriate Outsource servicing to a professional servicer Change the effect of the homeowner grapevine 17

18 Board of Directors have a fiduciary responsibility to their affiliate. Monthly mortgage status report showing delinquency categories and arrearage amounts with historic trends should be presented to the board. Mortgage Servicing Standards Delinquent Mortgage Servicing Board Governance Reporting Period 12/31/14 Total Mortgages: 175 # Mortgages Delinquent Arrearage % Delinquent days 12 $ % days 5 $ % 90 plus days 8 $10, % Total this month 25 $14, % Total prior month (173 mortgages) Total same month Prior year (163 mtgs) 23 $12, % 30 $18, % 18

19 Escrow Management (RESPA) Compliance is MANDATORY Escrow Guidelines "Escrow account" Is an account that a mortgage lender establishes or controls on behalf of a borrower to pay taxes, insurance premiums including flood insurance, or other charges with respect to a mortgage loan, including charges that the borrower and lender voluntarily agreed that the lender collects and pays. The definition encompasses an account established for this purpose. "Escrow funds" Is money entrusted to a mortgage lender by a borrower for the purpose of payment of taxes and insurance or other payments to be made in connection with the servicing of a mortgage loan. Account must be properly titled and set up as a fiduciary escrow account to protect homeowners. Federal insurers cover each individual homeowner s funds up to the insurable limit there is no cap on the account balance. You may not borrow from the escrow account Must comply with RESPA Initial disclosure at closing or 45 calendar days after closing Annual escrow analysis, leading to a statement provided to homeowners notifying of changes due to tax or insurance adjustments Cushion restrictions Handling of surplus and shortages at end of computation year Penalties ( (m)) Failure to provide an initial or annual escrow account statement to a borrower can result in the financial institutions or servicer s being assessed a civil penalty of $75 for each such failure, with the total for any twelve-month period not to exceed $130,000. If the violation is due to intentional disregard, the penalty is $110 for each failure, with no annual cap on liability. 19

20 In-House vs. Third-Party Servicing Why consider third-party servicing? Third party servicers for full servicing have lower delinquency rates (based on limited data). The cost of third party servicing is often less than the cost of an affiliate in-house servicing. See MPAR document Cost Comparison Mortgage Servicing In-house servicing requires professional servicing software and ongoing updates and support. It is difficult to stay on top of the constantly changing legal and banking compliance issues, thus increasing risk. 20

21 Foreclosures / Bankruptcies We strongly recommend that the affiliate work closely with a local residential real estate attorney that is experienced with bankruptcy and the foreclosure law and procedures of your respective state. Must know your state laws. Attorney should also review your policies and procedures prior to you needing them. Bankruptcy attorneys have far more resources and options. Consider alternatives to foreclosure when appropriate, but be prepared to foreclose if necessary. 21

22 Questions Affiliate Support Center Monday to Friday 8 am to 8pm ussupportcenter@habitat.org

23 Servicing Checklist Overview Why was the checklist developed? Changes in laws Compliance is mandatory Affiliates still service in-house Who will benefit /use the checklist? Affiliates Funders Investors Regulators state / federal 23

24 Servicing Checklist Overview cont d Affiliate s servicing policy with the following processes: Post Closing (RESPA, TILA, E-Sign, GLBA) Independent review of closing document- verify: HUD-1 to GFE & TIL Statement Promissory note is accurate (loan term, payment amount, maturity date etc. correct spelling names, address on all documents All required disclosures are in file Recording of documents Security Instruments (Mortgage/Deed of trust; Equity sharing agreements Deed restrictions (if any) Follow-up of outstanding items 24

25 Servicing Checklist Overview cont d Loan Boarding (RESPA, TILA) Hand off to (third-party) sub-servicer (if applicable) Create a servicing file Ensure escrow account is set-up Provide coupon books (if used and not already done) Payment Processing (TILA, RESPA, AML) Post payments according to mortgage document/state law Partial payment (handle according to policy) Late fee collection and application (no pyramiding of late fees) Identify Suspicious Activity - Is the payment typical for the homeowner? 25

26 Servicing Checklist Overview cont d Delinquent Accounts (ECOA, RESPA, TILA, SCRA, GLBA) Delinquent notices Contact homeowner Loss Mitigation options Loan workout (payment plan) Loan modification Forbearance agreement Deed in Lieu Cash for keys Hardest Hit Funds (state program) Foreclosure 26

27 Servicing Checklist cont d Deceased Homeowner (TILA; Garn-St. Germain Act) Know your state laws Garn-St. Germain Act prohibits exercising a due-on-sale clause as a result of death of a relative and in some cases where of title is due to divorce Successor-in-interest rights not a typical assumption, ATR does not apply to put them on title 27

28 Servicing Checklist cont d Escrow Management (RESPA, *FDPA) Comply with mortgage document and/or state law Initial escrow analysis/statement (provided at closing) Create a record to log all transactions in/out of account Life of loan monitoring escrow items Disbursement to payees must be made by due dates late fees cannot be passed on to homeowner Force-placed insurance (when required) Annual account analysis Statement to homeowner 30 days after computation year Surplus reimbursement Shortage collection Voluntary agreement to hold additional escrow funds *Flood insurance 28

29 Servicing Checklist cont d Request for Payoff (TILA, RESPA) Must be provided by 7 th business day Shared appreciation Subordinate mortgages that are triggered Deed restrictions Final Loan Payment Record Release the Deed of Trust / Satisfaction of Mortgage in county (release the lien) Stamp cancelled on note and mortgage and deliver to homeowner Escrow Account Refund must be provided within 20 days Short year statement provided within 60 days Affiliate s must be removed from Hazard Insurance 29

30 Servicing Checklist cont d Error Resolution & Information Request (RESPA) Acknowledge request within 5 days Within days - correct error, research information, provide written notification to homeowner No later than 7 days if the concern is inaccurate payoff balance (earlier of) Within 30 days or prior to date of foreclosure sale for concerns for initiating foreclosure prematurely Record Retention (RESPA) Servicing file Contain all transactions/notes for each mortgage within 5 days of occurrence, including escrow and suspense accounts Copy of security instrument(s) Maintained until 1 year after 30

31 Servicing Checklist cont d Credit Reporting (FCRA) Establish an agreement with credit reposting agencies (CRA) Minimum accounts to report directly If not enough accounts, engage third-party processor Responsible for accuracy of information submitted 30 days to investigate and respond to disputes 31

32 Servicing Checklist cont d Annual Reminders (RESPA, GLBA, Dodd-Frank Act, USA PATRIOT Act, BSA/AML) Escrow analysis / statements Privacy Notices Policy review Vendor review OFAC Portfolio should be verified 32