Owners, Servicers, Trusts: Identifying and Understanding the Players. Alabama Foreclosure Training June 2, 2016

Transcription

1 Owners, Servicers, Trusts: Identifying and Understanding the Players Alabama Foreclosure Training June 2, 2016 National Consumer Law Center 2013

2 Lender $$ Borrower

3 RMBS Securitization Map Various Classes Investors/Certificate Holders Purchase mortgage-backed securities as defined in certificates Master Servicer $$$ less servicing fee Prepares reports for Trustee; remits monies; ensures Primary performs PSA PSA $$$ offering proceeds $$$ offering proceeds Underwriter Sells certificates to investors, collects proceeds Certificates Depositor Creates issuing entity Certificates Note & Mortgage Certificates Trust Holds pool of loans; issues certificates $$$ fees $$$ less Trustee s fee PSA Collateral File Document Custodian Stores and maintains mortgage loan collateral files $$$ Pool revenue less servicing fee MLPA or PSA $$$ purchase price Note & Mortgage PSA Seller Purchases loans from originator; forms pool Trustee Oversees servicers Primary Servicer Services individual loans, collects payments, performs duties under PSA MLPA $$$ purchase price Originator Processes and funds individual loans Note & Mortgage $$$ Interim Servicer Services loans until securitized Other parties not shown may include Credit Risk Manager, Securities Administrator, Swap Counterparty, and Rating Agencies $$$ Mortgage Payments $$$ Borrower Note & Mortgage $$$ Mortgage Broker Received broker s fee, YSP and processing fees

4 Securitization: Practical Problems Who has authority? to modify the loan to settle to litigate Who has the documents? the note the mortgage the loan file

5 Who Owns the Loan? Loans held in portfolio Traditional way of holding loans Whole loans Easier to modify Securitized loans Owned by bond holders via a trust Tranches, Ownership divided PSA limits ability to modify

6 Who s Who in Securitization Lender/Originator Sponsor/Seller Depositor Underwriter Trust/Trustee Servicer Custodian Rating Agencies Insurers Investors

7 RMBS Securitization Map Various Classes Investors/Certificate Holders Purchase mortgage-backed securities as defined in certificates Master Servicer $$$ less servicing fee Prepares reports for Trustee; remits monies; ensures Primary performs PSA PSA $$$ offering proceeds $$$ offering proceeds Underwriter Sells certificates to investors, collects proceeds Certificates Depositor Creates issuing entity Certificates Note & Mortgage Certificates Trust Holds pool of loans; issues certificates $$$ fees $$$ less Trustee s fee PSA Collateral File Document Custodian Stores and maintains mortgage loan collateral files $$$ Pool revenue less servicing fee MLPA or PSA $$$ purchase price Note & Mortgage PSA Seller Purchases loans from originator; forms pool Trustee Oversees servicers Primary Servicer Services individual loans, collects payments, performs duties under PSA MLPA $$$ purchase price Originator Processes and funds individual loans Note & Mortgage $$$ Interim Servicer Services loans until securitized Other parties not shown may include Credit Risk Manager, Securities Administrator, Swap Counterparty, and Rating Agencies $$$ Mortgage Payments $$$ Borrower Note & Mortgage $$$ Mortgage Broker Received broker s fee, YSP and processing fees

8 RMBS Securitization Map Various Classes Investors/Certificate Holders Purchase mortgage-backed securities as defined in certificates Master Servicer $$$ less servicing fee Prepares reports for Trustee; remits monies; ensures Primary performs PSA PSA $$$ offering proceeds $$$ offering proceeds Underwriter Sells certificates to investors, collects proceeds Certificates Depositor Creates issuing entity Certificates Note & Mortgage Certificates Trust Holds pool of loans; issues certificates $$$ fees $$$ less Trustee s fee PSA Collateral File Document Custodian Stores and maintains mortgage loan collateral files $$$ Pool revenue less servicing fee MLPA or PSA $$$ purchase price Note & Mortgage PSA Seller Purchases loans from originator; forms pool Trustee Oversees servicers Primary Servicer Services individual loans, collects payments, performs duties under PSA MLPA $$$ purchase price Originator Processes and funds individual loans Note & Mortgage $$$ Interim Servicer Services loans until securitized Other parties not shown may include Credit Risk Manager, Securities Administrator, Swap Counterparty, and Rating Agencies $$$ Mortgage Payments $$$ Borrower Note & Mortgage $$$ Mortgage Broker Received broker s fee, YSP and processing fees

9 RMBS Securitization Map Various Classes Investors/Certificate Holders Purchase mortgage-backed securities as defined in certificates Master Servicer $$$ less servicing fee Prepares reports for Trustee; remits monies; ensures Primary performs PSA PSA $$$ offering proceeds $$$ offering proceeds Underwriter Sells certificates to investors, collects proceeds Certificates Depositor Creates issuing entity Certificates Note & Mortgage Certificates Trust Holds pool of loans; issues certificates $$$ fees $$$ less Trustee s fee PSA Collateral File Document Custodian Stores and maintains mortgage loan collateral files $$$ Pool revenue less servicing fee MLPA or PSA $$$ purchase price Note & Mortgage PSA Seller Purchases loans from originator; forms pool Trustee Oversees servicers Primary Servicer Services individual loans, collects payments, performs duties under PSA MLPA $$$ purchase price Originator Processes and funds individual loans Note & Mortgage $$$ Interim Servicer Services loans until securitized Other parties not shown may include Credit Risk Manager, Securities Administrator, Swap Counterparty, and Rating Agencies $$$ Mortgage Payments $$$ Borrower Note & Mortgage $$$ Mortgage Broker Received broker s fee, YSP and processing fees

10 RMBS Securitization Map Various Classes Investors/Certificate Holders Purchase mortgage-backed securities as defined in certificates Master Servicer Prepares reports for Trustee; remits monies; ensures Primary performs $$$ less servicing fee PSA PSA $$$ offering proceeds $$$ offering proceeds Underwriter Sells certificates to investors, collects proceeds Certificates Depositor Creates issuing entity Certificates Note & Mortgage Certificates Trust Holds pool of loans; issues certificates $$$ fees $$$ less Trustee s fee PSA Collateral File Document Custodian Stores and maintains mortgage loan collateral files $$$ Pool revenue less servicing fee MLPA or PSA $$$ purchase price Note & Mortgage PSA Seller Purchases loans from originator; forms pool Trustee Oversees servicers Primary Servicer Services individual loans, collects payments, performs duties under PSA MLPA $$$ purchase price Originator Processes and funds individual loans Note & Mortgage $$$ Interim Servicer Services loans until securitized Other parties not shown may include Credit Risk Manager, Securities Administrator, Swap Counterparty, and Rating Agencies $$$ Mortgage Payments $$$ Borrower Note & Mortgage $$$ Mortgage Broker Received broker s fee, YSP and processing fees

11 Pooling and Servicing Agreement Usually attached to a prospectus, filed with SEC for public securitizations, available at See specific instructions in the materials. Prospectus identifies the players and is a good source of information on the underwriting standards and characteristics of the loans anticipated to be in the pool. PSA will usually specify who can institute foreclosure proceedings. PSA will set out guidelines and authority for modifying loans or approving other workout options. PSA will provide information on where the notes and mortgages should have travelled.

12 Pooling and Servicing Agreement and Prospectus Example: Named foreclosing party is Bank of New York as Trustee for CWABS Asset-Backed Certificates Trust

13 Who Are Servicers? Servicers not the same as investors, holders, or lenders Servicers accept the payments and pass on to the trust Servicers compensation largely independent of loan pool performance Borrowers can t hire or fire servicers

14 Investor Restrictions Identifying the investor is critical: GSE? Federal agency like the FHA? None of the above? (typically a mortgage pool) Mortgage Pools Investors in mortgage pools have little say in which loans are modified and what guidelines will be used. Servicers instead rely on PSAs

15 Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac placed in government conservatorship in September 2008 Federal Housing Finance Agency (FHFA) designated as federal agency to regulate the GSE s Great influence over industry practices Publish guides for servicing GSE loans

16 Government Insured Loans Three Federal agencies guarantee loans: Federal Housing Administration (FHA), a department of HUD Rural Housing Service, part of USDA Veterans Administration RHS/USDA also makes direct single family home loans

17 Loan Documents Note & Mortgage/DOT HUD-1 Settlement Statement TIL Disclosure Notice of Right to Cancel Loan Application Complete Payment History

18 MERS Mortgage Electronic Registration Systems, Inc. Established early 1990s by GSEs, large lenders to save money on recording fees MERS sells two basic services: Loan IDs (MIN Numbers) for members to use Signing authority - 20,000 individuals (employees of servicers & foreclosure mills) can sign documents as secretaries or vice presidents of MERS

19 MERS What can be done in MERS name? Conduct a foreclosure sale? Provide a foreclosure notice? Assign a mortgage? Transfer a note?

20 Identifying the Servicer Homeowner usually knows check account statements Check MERS (search by many methods) (search by MIN or SSN) MERS data on loan ownership is not reliable Servicing Transfer Notices 12 USC 2605(b)

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22 Identifying the Owners - TILA Servicer must, upon written request, provide borrower with contact information for the owner. TILA 15 U.S.C. 1641(f)(2) New Note owner must inform borrower of change in ownership within 30 days. TILA 15 U.S.C. 1641(g) Statutory damages up to $4,000 per violation. 15 U.S.C. 1640

23 Identifying the Owner - RESPA Request for Information under CFPB Mortgage Servicing Rules. 24 C.F.R , also 12 U.S.C. 2605(k)(1)(D) Servicer is required to respond to any written request for information with respect to the borrower s mortgage loan Expedited response time frame: Not later than 10 days (excluding legal public holidays, Saturdays, and Sundays) after the servicer receives an information request for the identity of, and address or other relevant contact information for, the owner or assignee of a mortgage loan.

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25 Getting Information freddiemac.com/mymortgage/ fanniemae.com/loanlookup/ TILA 1641(f)(2) RESPA 24 C.F.R

26 Servicing Modules Electronic Loan Boarding Vendor Management Primary System of Record Default Processing Loss Mitigation

27 Servicer of Performing Loans Owners of Note Usually Investors via Trust Master Servicer Primary Servicer Borrower

28 Servicing in Foreclosure (or Bankruptcy) Note Owner MERS Special Servicer Default Servicing (Fidelity National) National Counsel for foreclosure and bankruptcy Local Counsel for foreclosure and bankruptcy

29 The Problem: Foreclosures Are To homeowners To communities Costly Neighbors, probably $500 billion in 2009 alone Local governments, $20,000-$30,000 per foreclosure tens of trillions of dollars To investors Loss severities of 65% Average per home $145,000 Billions of dollars

30 The Solution: Loan Modifications Saves money for everyone (in theory) Net Present Value test Measures benefit to investors Includes cure and redefault statistics Don t know exactly how many loan mods would pass, but probably more than are being done given severity of losses to investors

31 What Happens When There Is a Servicers get paid/ reimbursed for expenses first Investors take what s left Foreclosure? E.g., $400,000 loan $100,000 current value $50,000 in advances and expenses paid by servicer Servicer gets $50,000, investors get $50,000 Investors have $350,000 loss Servicer has no out-ofpocket loss

32 How Does a Servicer Make Money? Monthly servicing fee Default fees and costs Servicers want to increase the size of the pool and pile on fees Capitalization mods Up-front fees Fee padding

33 INTRODUCTION TO HAMP Alabama Foreclosure Law Training June 2, 2016 National Consumer Law Center 2013

34 What Is HAMP? Home Affordable Modification Program Component of Making Home Affordable initiative. Uniform modification characteristics Payments reduced To 31% of gross monthly income for HAMP Tier 1 By any amount for HAMP Tier 2 Modification results in a positive Net Present Value (NPV) for investors Trial modification followed by permanent modification

35 Flavors of HAMP Treasury s HAMP Participating servicers screen everybody, subject only to investor limits GSE HAMP All loans guaranteed/ owned by Fannie or Freddie must be screened for GSE HAMP Other governmental insured loans FHA VA RHS

36 Finding Out If a Loan Is Covered Standard HAMP Fannie Mae Freddie Mac Governmental Insured Loans List of participating servicers at makinghomeaffordable.gov okup okup/ HUD-1

37 Proprietary Mods Generally less favorable than HAMP Interest rate may not be permanently fixed May extend term before reducing interest No principal reduction typically Waivers may sneak in Should be evaluated for proprietary mod after HAMP turndown

38 Payment Reductions Really Do Matter Source: MHA Performance Report, 4Q 2015

39 Where Is There HAMP Guidance? Non-GSE: Handbook (currently version 5.0) Supplemental Directives Model Forms hmpadmin.com Fannie Mae: Fannie Mae Single Family Servicing Guide Subparts D2-3; F-1-18 (April 2016) (efanniemae.com) Freddie Mac: Bulletins & Chptr 9205 of Seller/Servicer Guide (March 2016) (freddiemac.com) FHA: Handbook (March 2016) (hud.gov/offices/adm/hudclips/letters/mortgagee/index.cfm) VA: Circulars (homeloans.va.gov/valeri.html) USDA: Final rule (75 Fed. Reg (Aug. 26, 2010))

40 HAMP Is Floor, Not Ceiling Servicers can do modifications that go deeper than HAMP and still receive incentive payments Servicers can offer non-hamp modifications, although everyone should be screened for and offered a HAMP mod

41 Participating Servicers Must Modify Loans Servicers who sign contract must modify all eligible loans Approximately 85% of eligible mortgage debt covered by HAMP servicers HSBC only major non-participating servicer Servicers of GSE loans must modify GSE loans (even if not a participating servicer) Servicers, not investors, participate stability/tarp- Programs/housing/mha/Pages/contracts.aspx

42 1. Eligible to Apply? 2. Qualify for a Mod? YES Participating servicer Payment > 31% (Tier 1) Default or Imminent Risk NO 42

43 HAMP: Basic Eligibility Tier 1 One to four unit residential property Property is not vacant or condemned Mortgage was originated on or before Jan. 1, 2009 Borrower is delinquent or faces imminent risk of default Unpaid principal balance is no greater than 1-Unit: $729,700 2-Unit: $934,200 3-Unit: $1,129,250 4-Unit: $1,403,400 Property is borrower s primary residence* Current mortgage payments exceed 31% of borrower s gross monthly income* No prior HAMP Mod* * = HAMP Tier 1 Rule (not Tier 2) 43

44 HAMP Tier 1 Modification TWO PARTS Analysis Part 1: Waterfall to calculate affordable modified payment Part 2: Net present value test is this modification in best interest of owners of loan? 44

45 Modification Analysis The Waterfall Determines the modified terms of the loan hypothetically. The goal is to reduce the borrower s monthly payment to 31% of gross monthly income. This is the Target Payment Payment includes principal, interest, taxes, insurance and, if applicable, association fees ( PITIA ). Net present value test is this modification in best interest of owners of loan? 45

46 31% of What? Income Gross income for all borrowers Unemployment income excluded Non-taxable income Doing the Math Multiplier 125% Rental income 75% Non-wage income (including baby-sitting and odd-jobs) less than 20% does not need to be documented; all other income does Some income is optional, at borrower s election Child support or alimony Income of non-borrower household members

47 Incentives Borrowers, servicers, and investors all receive payments for modifications Payments are only for permanent modifications

48 HAMP Mods Are Standard Mods Capitalize arrearages Reduce interest rate Extend amortization term to up to 40 years Principal forbearance Payment reduced to 31% of the gross income

49 Waterfall Analysis Driven by target payment Proceeds sequentially through the waterfall, unless PSA forbids one step or Principal reduction substituted for any step

50 Capitalized arrearage includes: Capitalization of Arrearages=Principal Debt Increases Past due principal and interest Escrow deficiencies/advances, though doesn t have to be. Foreclosure costs Servicing fees: property inspections, credit report fee CANNOT include: Late fees: unpaid fees will be waived Additional modification fees: no charge for HAMP

51 Interest Rate Reduction Reduced to as low as 2% for 5 years (to get to 31%) Can go lower, but incentives only paid down to 2% Increase at 1% after 5 years to lower of Freddie Mac rate Interest rate cap in note Once rate increases to cap, fixed for life of loan.

52 Amortization Term Payments extended up to 40 years Term can be extended even if payments can t be balloon payments

53 Principal Forbearance vs. Principal Reduction Principal forbearance interest free forbearance of principal until loan paid off large balloon payments Servicers required to run an NPV analysis including principal reduction and investor incentives for principal reduction if LTV > 115%, but need not implement it Borrowers who stay current receive up to $1,000 a year in principal reduction for 5 years

54 NPV Test Measures the benefit to the investor of a loan mod Not servicer Not borrower Weighs value and probability of unmodified loan vs. modified loan A pass means value of loan mod, in present terms, allowing for possibility of redefault, is greater than the value of the loan unmodified

55 Modified vs. Unmodified Loan Unmodified Loan Current payments Chance of foreclosure What the foreclosure net will be Modified loan Modified payments Chance of foreclosure after loan mod (redefault) What the future foreclosure net will be

56 What Is a Modified Loan Worth? Value of payments Interest rate Discount rate How long will payments be made Chance of redefault Numbers drop with Payment reduction Principal reduction HAMP mods

57 Two Public NPV Versions HAMP NPV (CheckMyNPV.com) Standard used by all HAMP servicers Available to May 1, 2018 FDIC Loan Mod in a Box Can use either to check NPV with Computer Internet Excel Basic info from servicer and homeowner Both produce the terms of the HAMP modification

58 Applying for HAMP Submission of Initial Package triggers servicer s duty to review for HAMP Request for Modification and Affidavit (RMA) 4506T-EZ form RMA and 4506T-EZ Forms available at makinghomeaffordble.gov or hmpadmin.com Proof of income Checklist available at

59 If Approved month Trial Period Plan Arrears will accrue during trial. Payments are held in suspense and only credited when equal to full monthly payment under note. Will be reported to credit bureaus as either in default or making payments under a plan Will be converted to permanent modification upon completion of trial modification Borrower should not be penalized for servicer s failure to timely convert If fails trial period: no further HAMP Tier 1 mod. 1 bite at the apple. Unless servicer set payments too high

60 Conversions Conversions to permanent mods often stalled If no mod, then arrearages due in lump sum If mod, capitalize arrearages After effective date of trial plan (when permanent mod was supposed to start) interest accrues at reduced rate

61 Delayed Conversions Trials Aged 6+ Months (Percent of all Active Trials) Source: MHA Quarterly Performance Report, 4Q 2015

62 If Denied.... Written denial notices providing basis of denial must be provided Borrower has, in general, 30 days to challenge denial

63 Investor Restriction Denials HAMP doesn't override PSAs, but the program follows the usual and customary industry standards Vast majority of all PSAs permit modifications If the PSA only prohibits one step in the HAMP waterfall, servicer must still modify, omitting only the prohibited step Servicers expected to use all reasonable efforts to get waivers 15 U.S.C. 1639a creates safe harbor from investor litigation for servicers who modify under HAMP

64 NPV Denials If an NPV test was run, even if not the reason for the denial, borrower is entitled to all inputs (2.3.2) If borrower identifies an error, and changing the error results in a different NPV result, the servicer must re-run the NPV The servicer should only change the value corrected by the homeowner; no other values should change CheckMyNPV.com

65 Excessive Forbearance Denials Standard language in denial letter says: We are unable to offer you a Home Affordable Modification because we are unable to create an affordable payment equal to 31% of your reported monthly gross income without changing the terms of your loan beyond the requirements of the program

66 What Is Excessive Forbearance? Principal forbearance greater than (i) 30 percent of the UPB (after capitalization under Step 1) or (ii) UPB less the current markto-market.

67 Can an Excessive Forbearance Be Resolved? Substitute principal reduction for all or part of the excessive forbearance Income increased, or escrow decreased may also reduce the required forbearance Is the interest as low as it can go?

68 What Isn t Grounds for Denial Insufficient income Low income can cause NPV failure or excessive forbearance denial, but can t be denied solely on low income. High DTI Back end DTI over 55% formerly required the promise of housing counseling, but was never a basis for denial Bankruptcy Borrowers in an active bankruptcy filing must be considered Borrowers cannot be denied because of prior bankruptcy filing

69 Common Servicer Violations Failure to process application in a timely way Failure to convert Requiring resubmission of income information Asking for an upfront downpayment Telling homeowners they have to be in default Using incorrect income information in processing NPV Inserting waiver into the documents

70 Escalations Inhouse Every servicer supposed to have a designated team Fannie Mae Loans: resource_center@fanniemae.com Phone: FANNIE Freddie Mac Loans: Non-GSE Loans -- HAMP Solution Center: borrower_outreach@freddiemac.com Phone: FREDDIE escalations@hmpadmin.com Phone: ; Fax:

71 HAMP Tier 2 Started June 1, 2012 Offered to people who fail or are not eligible for standard HAMP mod Offered for investment properties (not owneroccupied) Loan mods not as well tailored to individual circumstances, but broader eligibility Cookie cutter mods that aren t based on borrower income Interest rate will not go as low; fixed at standard rate Principal forbearance if underwater sufficiently, whether you need it or not 71

72 HAMP Tier 2: Plan B If not eligible for HAMP Failed NPV test Excessive forbearance Not owner-occupied Payments already under 31% Failed a previous HAMP trial or permanent mod If permanent mod, either 12 months since effective date or Change in circumstances 72

73 HAMP Tier 2: Terms Driven by modification characteristics, NOT by payment or affordability Resulting modification must lead to a payment within acceptable DTI range Servicer may require payment reduction Fixed interest rate (Freddie Mac Primary Mortgage Market Survey) Standard amount of forbearance No borrower pay-for-performance incentives 73

74 HAMP Tier 2 Waterfall Loan is modified by Capitalizing arrears Principal forbearance (if LTV > 115%) Reducing interest rate Extending term to 480 months NPV test Modified loan checked against affordability requirements DTI must fall within acceptable DTI range (10-55% or 25-42%, depending on the servicer) Payment reduction requirement (varies by servicer) 74

75 GSE HAMP Determining if the loan is owned by Fannie or Freddie: fanniemae.com/loanlookup/ (note: requires last 4 digits of borrower s SSN) 75

76 GSE-HAMP: Basic Differences No Servicer Participation Agreement No investor bar on HAMP modifications Standard application form (Form 710, not RMA) No principal forgiveness allowed in borrower-initiated applications No optional forbearance beyond program guidelines

77 HAMP Tier 1 = GSE-HAMP Basically the same waterfall of steps to reach affordable payment (31% DTI) But no principal forgiveness allowed (still can have forbearance) Anything better than -$5,000 is a passing NPV result = approval! 77

78 HAMP Tier 2 = Standard Mod Very similar to HAMP Tier 2 calculations IF the LTV is at least 80%... If not, different rules apply Acceptable DTI range is 10-55% Interest rate is fixed at the: Fannie Mae Mod Rate (4% as of 2/13/15), or Freddie Standard Mod Rate (4% as of 2/13/15) 78

79 Standard Mod for LTV < 80% Capitalize arrearage Interest rate: If fixed-rate now, keep the same interest rate If adjustable now, fix at Fannie Mae Mod Rate if current rate is lower; or fix at current rate Term: Offer the borrower up to 3 options: 480 months if <= current P&I payment 360 months if P&I payment reduced by 20% 240 months if P&I payment reduced by 20% 79

80 When Does HAMP End? HAMP is currently slated to end Dec. 30, 2016 Initial package must be placed in the mail/ faxed/ ed no later than that date Permanent modification in effect as of September 30, 2017

81 Scope of Termination Termination applies to array of MHA Programs HAMP Tier 1 HAMP Tier 2 HAMP Streamlined Modification 2MP Second Lien Modification HAMP UP HAFA (DIL, Short Sale)

82 And Outside Treasury HAMP Other HAMP Programs ending GSE-HAMP December 31, 2016 for applications and September 30, 2017 for Modification Effective Date FHA-HAMP - not clear RHS and VA HAMP?

83 Timing of Treasury-HAMP Phase-Out Servicers can stop soliciting September 1, 2016 Borrower must submit an Initial Package by December 30, 2016 for HAMP Tier I and Tier II Effective Date of permanent modification must be before September 30, 2017

84 Review: What is an Initial Package? Initial Package that must be submitted by December 30, 2016 consists of: Request for Mortgage Assistance RMA Form Either (i) IRS Form 4506-T or 4506T-EZ or (ii) a signed copy of the borrower s tax return for the most recent tax year (servicers may not reject an Initial Package that includes either the borrower s complete tax return for the most recent tax year or the IRS Form 4506-T or 4506T-EZ) Evidence of income Dodd-Frank Certification (part of the RMA Form)

85 Review: What is Evidence of Income? Evidence of Income means: Each wage earning borrower must provide copies of two recent pay stubs, not more than 90 calendar days old at time of submission, indicating year-to-date earnings. Each self-employed borrower must provide his or her most recent quarterly or year-todate profit and loss statement. Audited financial statements are not required.

86 Streamline Modifications One likely future replacement for HAMP modifications Based on similar GSE model now available since 2013 Treasury HAMP Streamlined modification available since Jan. 1, 2016 Basic HAMP eligibility requirements apply, but need not submit Initial Package Eligible if defaulted or were ineligible for a past Tier I or Tier II modification in past

87 Streamline Modification Procedure Automatic offer at 90 days delinquency Servicer reviews defaulted loans on portfolio basis, selects NPV positive loans for Streamlined mod offers NPV process not public Offer/terms not based on borrower income, only on loan terms and property value (info in servicer s file) Borrower accepts Streamlined TPP offer by making first payment and then completing application Permanent Streamlined mod executed after completing TPP and submitting application

88 Policy Issues What will replace HAMP? Models targeting affordability target a percentage of income payment, like current HAMP and FHA HAMP Cookie cutter models current GSE mods, HAMP Tier II, Streamline mods (capitalize arrears, fixed interest rate reduction and fixed term extension, maybe limited principal forbearance)

89 Government-Insured Mortgage Loan Programs Alabama Foreclosure Training June 2, 2016 National Consumer Law Center 2013

90 THREE FEDERAL AGENCIES HUD manages FHA single-family insured loan program VA manages VA single-family insured loan program USDA manages two distinct programs: USDA insured single-family home loan program USDA direct loan program (purchase and home repair loans)

91 Structural Similarities - Authority Federal Statute Codified Regulation (C.F.R.) Agency Handbook Administrative updates (on website) Court decisions 91

92 Defense to Foreclosure Compliance with regulatory framework as condition precedent to foreclosure Enforce regulations to defeat foreclosure Enforce loan contract that incorporates regulatory obligations Compare Campbell v. Bank of Am., 141 So.3d 492 (Ct. App. Ala. 2013) and Wells Fargo v. Neal, 922 A.2d 538 (Md. 2007) (both addressing FHA equitable defense) 92

93 FHA LOSS MITIGATION AUTHORITY Statute; 12 U.S.C. 1715u HUD Regulations: 24 C.F.R , et seq. and , et seq. HUD Mortgagee Letters New HUD Handbooks (effective March 2016) Court Decisions HUD/FHA website: (contains Mortgagee Letters, Handbooks)

94 The Federal Statute: FHA Loss Mitigation Review is Mandatory The National Housing Act states: Upon default of any mortgage insured under this title, mortgagees shall engage in loss mitigation actions for the purpose of providing an alternative to foreclosure. 12 U.S.C. 1707u(a) Obligation is also in the mortgage enforceable as contract term

95 FHA Loss Mitigation Tools What loss mitigation techniques must be reviewed under & Handbook ? Special forbearance FHA Standard Modification FHA HAMP, including: Income-based modification and/or Partial Claim (principal forbearance) Pre-foreclosure sale Deed in lieu of foreclosure

96 FHA-HAMP: The Basic Concept Combines a partial claim with a loan modification (30- year term, fixed interest rate) Uses partial claim (principal forbearance) to reach a target payment Either percentage of income, or Percentage payment reduction The total partial claim (principal forbearance) may not exceed 30 percent of the unpaid principal balance as of the default date. No formal NPV test. New FHA Loss Mitigation Home Retention Option Priority Order Waterfall in HUD Handbook Part III (2016)

97 FHA National Servicing Center Oklahoma City Office U.S. Department of HUD 301 NW 6 th Street, Ste 200 Oklahoma City, OK Fax: (405) or (405) hsg-lossmit@hud.gov See also HUD Neighborhood Watch: (data on FHA loss mitigation activity by state and by servicer)

98 RURAL HOUSING LOANS U.S.D.A. s Rural Housing Service ( RHS, formerly FmHA ) manages two singlefamily home loan programs for borrowers in rural areas. Guaranteed Loan Program: private lender, guarantee not obvious from mortgage and note Direct Loan Program: The United States is the lender and they tell you they are

99 RHS RESOURCES Guaranteed Loans: 42 U.S.C. 1472, et seq. USDA Regulations: 7 C.F.R , et seq. RD Instruction 1980-D (tracks regulations) at RD Administrative Notice 4433 at Includes USDA Rural Development Loss Mitigation Guide (Single Family Guaranteed Loan Program) Appendix 4: Loss Mitigation Checklist Appendix 5: Loss Mitigation Forms

100 RHS Guaranteed Loan Program RHS Guaranteed Loans: Loss Mitigation obligation: 42 U.S.C. 1472(h)(13) Options for RHS Guaranteed Loans Special Forbearance Loan Modifications (including RHS-HAMP) Pre-Foreclosure Sale Deed-in-Lieu

101 Rural Housing Direct Loans These are loans directly from the United States government (USDA) to the borrower for purchase or construction of residence Section 502 loans under U.S. Housing Act Regulations: 7 C.F.R. Part 3550 Handbook HB (Centralized Servicing Center):

102 RHS Direct Loans Direct Loans Special Features: Interest credit/payment assistance reduces monthly payment toward interest based on household income Periodic payment adjustments and review Forborne interest is subject to recapture

103 VA Loans - Introduction VA guarantees loans by private lenders Available for eligible veterans Can be for purchase, construction, refinance Relatively low interest rate, no down payment

104 VA Loans Resources Regulations: 38 C.F.R & 38 C.F.R VA Handbook H Servicer Loss Mitigation Program Handbook Both handbooks at m Help from regional servicing centers

105 What are the VA Options? Repayment Plan Special Forbearance Loan Modification VA-HAMP Compromise (short) sale Deed-in-Lieu of foreclosure Refinance Assumption Refunding- VA takes over loan

106 The CFPB s Mortgage Servicing Rules Alabama Foreclosure Training June 2, 2016 National Consumer Law Center 2013

107 CFPB Mortgage Servicing Rules Dodd-Frank Act of 2010 amended RESPA and TILA to include new servicing requirements CFPB issued mortgage servicing regulations in Feb Regulations became effective January 10, 2014 (some revisions underway 2016) 107

108 CFPB Servicing Rules Applies to mortgage servicers Small servicer exemption (certain provisions) Most credit unions, community banks exempted Covers most first lien loans: GSEs, government insured loans But not loans securing open-end lines of credit Not reverse mortgages

109 Notices of Error and Requests for Information Separate qualifications and procedures for: notice of error - Reg. X request for information - Reg. X Written inquiry can be a NOE or RFI even if not a former Qualified Written Request Ban on fees for responding to either a NOE or RFI (h) error resolution (g) information requests 109

110 Notice of Error 12 C.F.R Failure to accept a conforming payment Failure to apply a payment correctly Failure to timely credit a payment Failure to make timely escrow disbursements Imposing an unreasonable fee Failure to provide a payoff statement Failure to provide accurate loss mitigation information Failure to do a servicing transfer correctly Filing a foreclosure without giving the correct notices re. loss mitigation Moving for foreclosure judgment or sale without following the loss mitigation protocols Any other error relating to the servicing of a borrower's mortgage loan 110

111 CFPB Error Resolution Procedures Time Frames 5 days to acknowledge receipt 30/45 days to respond (reasonable investigation, report on error correction) For errors related to dual tracking submitted up to 7 days before sale, servicer must respond before sale. 12 C.F.R (f)(2)

112 Request for Information Servicer is required to respond to any written request for information with respect to the borrower s mortgage loan Unlike QWR, a RFI is not limited to information related to the servicing of the loan RFI may seek: information about a loan modification application servicing file vs. mortgage file

113 Identity of Mortgage Loan Owner RESPA/TILA RESPA Request for Information: Servicer must respond within 10 business days to request for identity, address, and other contact information about owner or assignee of loan. Reg. X (d)(2) Supplements TILA 1641(f), but provides time deadline

114 RFI for Loan Owner Who is the current owner or assignee of mortgage loan? Generally the beneficial owner party ultimately entitled to receive payments Guarantor role Considering special rule for GSEs. 114

115 Asking the Servicer to Identify the Mortgage Loan Owner TILA (f)(2) RESPA - Reg. X (d)(2) Time Presumptively reasonable 10 business days Fees Not discussed Banned Remedy $4K plus actual damages, but servicer liability? Statute of limitations 1 year 3 years Actual damages, plus $2K if can prove pattern and practice Useful commentary in the RESPA Official Interpretations, (a)-2 115

116 Recent Decision Renfroe v. Nationstar Mortgage, LLC, -- F.3d --, 2016 WL (11 th Cir. May 12, 2016) Timing of violation Duty to take concrete steps to investigate, correct

117 Loss Mitigation Rules Rules effective Jan. 10, 2014 dealing with foreclosure avoidance: Early Intervention - Reg. X Continuity of Contact - Reg. X Loss Mitigation - Reg. X

118 Jan. 10, 2014 Effective Date Does not apply to applications received before effective date Applies to applications received after effective date even if borrower evaluated for loss mitigation before effective date 118

119 Pre-Foreclosure Review Period By 36 th day of delinquency Attempt live contact with borrower By 45 th day Send written notice and assign personnel to borrower After 120 th Day If complete application not received, may initiate foreclosure by making first notice or filing 119

120 Loss Mitigation Procedures CFPB: nothing in imposes duty on a servicer to provide borrower with a specific loss mitigation option Borrowers do not have private right of action under to enforce terms of agreement between servicer and mortgage holder concerning evaluation for loss mitigation options Borrowers do have private right of action to enforce the procedural requirements in

121 The Loss Mitigation Application Key concept: the Application Expansive definition of a loss mitigation application May be verbal or in writing Borrower must: Express interest in foreclosure avoidance Provide some information relevant to evaluation for an available option

122 Receipt of Application 45 Days or More Before Sale Servicer must: Conduct review to determine whether application is complete Within 5 business days of receiving application, provide written notice to borrower that: acknowledges application is complete, or describes documents and information needed to complete the application, and provides reasonable date by which borrower should submit missing documents and information 122

123 The Complete Application When is an application complete? When servicer has received all the information that the servicer requires to evaluate for the loss mitigation options available to the borrower. ( (b)(1)) You need to know how applicable owner/investor guidelines determine the options available

124 The Complete Application Servicers have flexibility to establish their own application requirements, but must exercise reasonable diligence to obtain information needed to complete the application Application is complete if borrower provides all required information within borrower s control even if additional information not in the control of the borrower is required (e.g., credit report) 124

125 A Facially Complete Application Means borrower submitted all missing docs, nothing more due (12 C.F.R (c)(iv)) Servicer may later request more docs, but borrower retains all protections re: notices, dual tracking, appeals

126 Incomplete Application Servicer has duty to assist in completion Must give 5-day notice of: What is needed to complete the application Deadline for completion

127 What Happens When the Servicer Gets a Complete Application? Upon receipt of complete application Servicer must evaluate For all available options Not just the ones borrower asked about Written notice of decision in 30 days Describe options being offered Specific reason for denial of each available loan modification option Notice of right to appeal (escalate)

128 CFPB Dual Tracking Restrictions Two stages 120 day preforeclosure review period Period from initiation of foreclosure to sale

129 CFPB: Dual Tracking Restrictions Before Initiation of Foreclosure Runs 120 days from start of delinquency Bars first notice to start foreclosure Insulation from foreclosure activity Emphasis on soliciting application ( early intervention notice) Pre-emption of state foreclosure laws

130 CFPB: Dual Tracking Restrictions After Initiation of Foreclosure Duty to evaluate and give written notice of decision for complete application submitted up to 37 days before sale date

131 Date of Foreclosure Sale If no foreclosure sale has been scheduled as of date complete loss mitigation application is received, the application is considered to be received more than 90 days before any foreclosure sale Dual track and other protections that apply based on timelines remain in effect even if foreclosure sale is later scheduled or rescheduled 131

132 Summary: Loss Mitigation Application Received days of delinquency Full evaluation, notice of incomplete application, and appeal rights No referral to foreclosure 90 days or more before sale Full evaluation, notice of incomplete application, and appeal rights No foreclosure sale until application reviewed 45 days or more before sale Full evaluation and notice of incomplete application No foreclosure sale until application reviewed 38 days before sale Full evaluation No foreclosure sale until application reviewed 132

133 Evaluation of Incomplete Loss Mitigation Application Servicer may offer: A short-term payment forbearance (for payments due over no more than 6 months) Other loss mitigation option if application remains incomplete for a significant period of time If forbearance provided, servicer must: Not initiate or continue with foreclosure if borrower is performing under agreement Continue to comply with loss mitigation rule and seek documents to complete application and review if later becomes complete 133

134 Loan Modification Denial If loan modification denial based on a requirement set by loan owner or assignee, notice must identify owner or assignee and specific requirement that was basis for denial If loan modification denial based on net present value test, notice must state this reason and include the inputs used for the calculation Denial notice must also describe borrower s right to appeal, the deadline to appeal, and any requirements for making an appeal, if applicable 134

135 Loss Mitigation Process Appeal Rights Appeal rights apply only to decisions: involving eligibility for loan modifications made on complete (or facially complete) applications submitted 90 days or more before a scheduled foreclosure sale Borrower must request an appeal within 14 days after servicer provides initial notice of determination Review must be by different personnel than those responsible for evaluating application Servicer must decide appeal and provide notice of determination to borrower within 30 days of appeal request 135

136 Four Basic Notices Required by Rules Initial pre-foreclosure notice (w/in 45 days of delinquency) Notice of acknowledgement of receipt of application (5 days from receipt) Both for complete and incomplete application Notice of decision on application & appeal rights (30 days after complete app. received) Notice of appeal decision

137 Transfer Requirements New servicer must obtain loss mitigation documents and information submitted by borrower to former servicer and comply with If borrower s complete application is being evaluated when mortgage is transferred, new servicer should continue the evaluation to the extent practicable Documents in a complete application are received for purposes of timelines as of date they were received by former servicer, not new servicer 137

138 Duplicative Applications Section (i): A servicer is only required to comply with the requirements of this section for a single complete loss mitigation application for a borrower s mortgage loan account Does this really mean borrowers have only one bite at the apple, regardless of when earlier application was submitted or whether there have been changed circumstances? 138

139 What Must Still Be Done for Duplicative Applications Rule does not apply if: Application is made to a different servicer comment 41(i) states that transferee servicer must comply (but does this include transfers between affiliates or through merger?) Servicer provides short-term forbearance or other loss mitigation option on an incomplete application 139

140 Pending Revisions Possible revision of (i) duplicate application limitation Borrower may be able to submit more loss mitigation application and receive RESPA procedural protections if not delinquent at all times since last application 140

141 Servicers Duties under TILA Regulation Z Promptly Credit Payments Provide Periodic Mortgage Statements Provide Payoff Statements Provide Payment Change Notices Provide Transfer of Ownership Notices 12 C.F.R , ,

142 Periodic Statements Servicer must send statement for each billing cycle with the following categories of information: amount due for the billing period explanation of amount due including fees imposed past payment breakdown transaction activity partial payment information contact and account information, and delinquency information, if applicable Disclosure required of payments servicer decides to hold in suspense account rather than apply to account 142

143 Periodic Statements When Homeowner Is > 45 Days Late Date consumer became delinquent; Notification of possible risks, such as foreclosure, and expenses, if delinquency is not cured; Account history for previous six months or since last time account was current, showing the amount remaining past due from each billing cycle; Notice of any loss mitigation program to which the consumer has agreed; Notice of whether the servicer has initiated foreclosure by making the first notice or filing required by state law; Total payment amount needed to bring the account current; and Either the CFPB list or the HUD list of homeownership counseling organizations and the HUD toll-free telephone number 143

144 Saving Homes in Bankruptcy Alabama Foreclosure Training June 2, 2016 National Consumer Law Center 2013

145 *Fresh Start for Debtors *Fair and Equitable Distribution of Non-Exempt Assets to Creditors

146 Key Bankruptcy Concepts Fresh Start Automatic Stay Exemptions Discharge Fair and Equitable Distribution among Creditors Avoiding preferential transfers to creditors Claims bifurcation Pro rata distribution among creditors

147 The Automatic Stay

148 Limits of the Stay: Repeat Filers One year Date petition filed Within one year before filing: One dismissal = auto stay for 30 days (unless extended) Two or more dismissals = no automatic stay! ( 362(c))

149 Eligibility to File: Repeat Filers 180 days Date petition filed Within 180 days before filing: Voluntary dismissal after a Motion for Relief from Stay? Court order dismissing with prejudice for willful failure? = Ineligible to file, and no auto stay ( 109(h), 362(b)(21))

150 The Bankruptcy Estate 1. Debtor s assets go into the estate upon filing 2. Property claimed as exempt comes out of the estate Debtor s prepetition assets Debtor s exempt property, part of the fresh start 150

151 Chapter 7 vs. Chapter 13 Chapter 7 Chapter 13 * Creditors get paid from liquidation of any non-exempt assets * If Debtor owns property beyond what she is allowed to claim as exempt, the Trustee may sell it * Case is over and discharge is entered in about 4-6 months * Creditors get paid from Debtor s disposable income over a 3-5 year payment plan * Debtor gets to keep nonexempt assets Case is over and discharge is entered after the Debtor completes plan payments (3-5 years)

152 Credit Counseling Filing Fee/Fee Waivers Means Test

153 Why not Chapter 7? Secured Creditors Stay Secured Unless a Court orders otherwise, the lien (or security interest) survives the bankruptcy Thus, secured creditors will still be able to foreclose on a home or seize other property if consumer is in default They may file a motion for relief from stay or wait for the discharge to be entered Personal liability on secured debts is wiped out (no deficiency after foreclosure, for example)

154 Saving Homes In Chapter 13

155 Secured Claims Allowed secured claim is limited to the value of the collateral 506(a) Undersecured claims may be bifurcated into their secured and unsecured portions

156 Debt Owed - $10,000

157 Value- $6,000

158 Allowed Secured Claim $6,000 Allowed Unsecured Claim $4,000

159 Anti-modification Rule (mortgage on principal residence) Section 1322(b)(2) The plan may modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor s principal residence, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims

160 So what can you do? Automatic Stay to stop foreclosure Cure and maintain the mortgage (unwind acceleration) Apply for loan mod while in ch 13 Modify/strip off some mortgages Avoid judicial liens

161 Cure and Maintain

162 Right to Cure 1322(b)(5) the plan may provide for the curing of any default within a reasonable time and maintenance of payments while the case is pending on any claim in which the last payment is due after final plan payment Arrearages include reasonable pre-petition foreclosure costs All payments are made under the plan even if debtor disburses ongoing maintenance payments.

163 POC Requirements Payment Change Notices Notice of Fees or Charges

164 Proof of Claim Requirements For all claims, itemized statement of interest, fees and other charges For security interest in debtor s property, amount necessary to cure any default For security interest in debtor s principal residence, Official Form B10, Attachment A and mortgage escrow statement prepared as of petition date

165 Payment Change Notices Applies to security interest in debtor s principal residence treated in plan under 1322(b)(5) Notice of payment change 21 days prior to change Fed. R. Bankr. P (b)

166 Notice of Fees and Charges Applies to security interest in debtor s principal residence treated in plan under 1322(b)(5) Notice of fees or charges imposed during the chapter 13 case, no later than 180 days after fees incurred Fed. R. Bankr. P (c) 180-day period based on date when fees incurred, not when advanced or determined to be recoverable

167 Notice of Final Cure Notice of final cure filed by trustee no later than 30 days after plan completion - Fed. R. Bankr. P (f) If trustee does not file the notice and debtor believes all cure and plan payments have been made, debtor may file notice Mortgage holder must file a response If response says the loan is not current, debtor may object and court will determine after notice & hearing Mortgage holder who does not respond may be barred from later presenting evidence to the contrary

168 Loss Mitigation and Litigation in Bankruptcy

169 Loss Mit in Bankruptcy Borrower may apply for a loan mod during bankruptcy (or continue with an application that was initiated prior to the bankruptcy) No HAMP rule prohibits mods while in bankruptcy (MHA Handbook, Ch. II, 5.2, 8.6) Fannie Mae: at servicer s discretion, Freddie Mac: borrower in active bk must be considered if borrower, borrower s attorney, or the trustee submits request; C Bankruptcy attorney may have to sign a form or send a letter authorizing servicer to keep communicating with borrower or the borrower s 3P rep 169

170 Loss Mit in Bankruptcy Options for the Ch. 13 Plan: 1) Standard plan to cure mortgage arrears Can client afford it? Does this contradict the request for mod? 2) Plan for a loan mod, saying arrears will be cured through loan mod and including the anticipated modified payment of 31% of debtor s gross monthly income in the budget (may serve as pre-confirmation adequate protection) In re Arizmendi, 2011 WL (Bankr. S.D.Cal. May 26, 2011) (finding that TPP payments provided sufficient adequate protection even though contract interest not being paid) 3) Confirmable plan with lump sum at the end to treat the arrearage Feasibility is based on the expected loan modification * Remember the binding effect of plan confirmation order. 170

171 Bankruptcy and HAMP Court Approval of loan mods: Servicer and its counsel must work with borrower or borrower s counsel to obtain any court and/or trustee approvals required in accordance with local court rules and procedures. MHA Handbook Ch II, 8.5 In re Smith, 409 B.R. 1 (Bankr. D. N.H. 2009) (finding that motion for approval of loan mod. does not present court with a case or controversy unless filed in connection with proceedings for stay relief, plan confirmation, or plan modification) 171

172 Loss Mit/Litigation in Bankruptcy RESPA Reg on Loss Mitigation, 12 USC , does not have a bankruptcy exemption! Servicer must acknowledge application and notify borrower if it is complete, docs needed to complete it (and deadline) within 5 business days Servicer must evaluate within 30 days of receipt of a complete application Dual tracking restrictions (use them to argue against Motion for Relief from Stay?) Consider filing an Adversary Proceeding for a claim under RESPA

173 Stripping Off 2nd Mortgages

174 Anti-modification Provision Section 1322(b)(2) The plan may modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor s principal residence, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims

175 Parsing the Language Section 1322(b)(2) The plan may modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor s principal residence, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims

176 Underwater Homes Value of Home: $120,000 Amount due on First Mortgage: $125,000 Amount due on Second Mortgage: $15,000 Total Amount of debt: $140,000

177 Underwater Mortgages Value of home $120,000

178 Underwater Mortgages Undersecured by $5,000 Value of home $120,000 Amount owed on first mortgage $125,000

179 Underwater Mortgage Amount owed on second mortgage - $15,000 Undersecured by $5,000 Value of home $120,000 Amount owed on first mortgage $125,000

180 Doing the Calculations If total of all senior liens equal or exceed property s value, junior lien creditor has no allowed secured claim Homestead Exemption not considered Other considerations: Effect of first lien loan mod with principal reduction?

181 Proving Value of the Property Valuation date (three approaches): Petition date Effective date of plan (helpful in declining market) Flexible approach Discovery Obtain pre-foreclosure appraisal by servicer Make use of request for admissions Debtor may initially rely upon BPO or recent appraisal, but will need appraiser to testify if value contested Debtor may testify as to condition of property, neighborhood, etc. as lay witness (F. Rule Evid. 701)

182 Strip Off Procedure *Check Local Decisions, Rules and Practice Adversary proceeding? Complaint to determine validity and extent of lien Motion/Contested matter? Motion to determine value of claim secured by lien (Rule 3012) Chapter 13 plan provision Make explicit and serve under Rule 7004 (due process) Objection to Claim Avoid decisions on preclusive effect of claim allowance process

183 Other Permissible Mortgage Modifications

184 Parsing the Language Section 1322(b)(2) The plan may modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor s principal residence, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims

185 Mobile Homes Loans on mobile homes that are considered personal property under state law are not subject to the antimodification provision

186 Multi-family Buildings Modification permitted when other real property, such as rental units, is part of security interest

187 Parsing the Language Section 1322(c)(2): in a case in which the last payment on the original payment schedule for a claim secured only by the debtor s principal residence is due before the date on which the final payment under the plan is due may be modified.

188 Short-term loan/ final payment within next 5 years Loans where the final payment will come due within the term of the chapter 13 plan are not subject to the antimodification provision (people near the end of their 30-year mortgage )