The National Mortgage Settlement: Loan Modifications and Servicing Standards

Transcription

1 The National Mortgage Settlement: Loan Modifications and Servicing Standards MHA Trusted Advisor Webinar July 24, 2013 Sarah Bolling Mancini Home Defense Program of the Atlanta Legal Aid Society, Inc.

2 Plaintiffs Department of Justice (for HUD, Treasury, US Bankruptcy Trustee), Federal Trade Commission, 49 state AGs and state banking regulators (all but Oklahoma) 2

3 Defendants Bank of America CitiGroup JPMorgan Chase Ally Financial/GMAC Wells Fargo 3

4 Details of the Settlement Filed in US District Court for District of Columbia on April 4, 2012 Monitor: Joseph A. Smith, Jr., former Commissioner of Banks for NC will monitor compliance Monitoring committee (DOJ, HUD, and some state AGs) will oversee and enforce terms 4

5 Conduct at Issue Robo-signing of foreclosure affidavits and mortgage assignments Improper foreclosures Abusive conduct in bankruptcy cases, including filing padded claims and frivolous motions for relief from the bankruptcy stay 5

6 Overview of Relief Money payments/consumer relief (not for GSE loans) Injunctive provisions setting servicing standards Enforcement provisions Exceptions to release of liability Consent judgments remain in effect 3½ years (until October 2015) 6

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8 Redress for 3 main groups of borrowers 1. Borrowers who have lost their homes to foreclosure get cash payments; 2. Borrowers who are current but are underwater may be eligible for a refinance; 3. Borrowers who are still in their homes but behind on mortgage payments and underwater are eligible for principal reductions on 1 st or 2 nd mortgages and other Consumer Relief. These three kinds of relief cannot be applied to Fannie Mae or Freddie Mac owned loans. 8

9 1. Money for borrowers who lost their homes Home sold in foreclosure Payment of up to $2,000 per borrower No requirement of release of private claims, but payment shall be offset against any other relief This payment is separate from OCC Settlement Information set out in Appendix C of Settlements APPLICATION DEADLINE HAS PASSED! Can t apply now. 9

10 2. Refinance provisions Borrowers who are current but are underwater may be eligible for a refinance: Applies only to servicer-owned 1 st mortgages Does not cover FHA or VA loans Must be current no delinquency in past 12 months No loan modifications, bankruptcy, or foreclosure activity in past 24 months LTV must be > 100% Loan must have been originated before Jan. 1, 2009 Current Interest rate must be at least 5.25% (or PMMS bp, whichever is greater) Credit to the Servicer is based on interest rate reduction x UPB x a multiplier 10

11 3. Other Consumer Relief Banks get credit for providing an array of Consumer Relief: 1st and 2 nd mortgage principal reduction Borrower transitional funds Short sales/extinguishment of 2 nd liens Deficiency waivers Forbearance for unemployed homeowners Anti-blight provisions Details set out in Exhibit D to Settlements 11

12 3. Consumer Relief: Principal Reduction Loan Modifications 1 st mortgage modifications: Borrower must be 30 days delinquent or at imminent risk of default; Pre-modification LTV must be greater than 100%; Modification must reduce P&I payment by 10% Post-modification: LTV no more than 120%; DTI no more than 31% 12

13 3. Principal Reduction Loan Modifications DTI requirements may be waived for first lien mortgages that are 180 days or more delinquent, as long as payment is reduced by at least 20% and LTV is reduced to at least 120%; Servicer shall also be entitled to credit for any amounts of principal reduction which lower LTV below 120%; May get credit for HAMP principal reductions. 13

14 Example 1 PI: PITI: $1,000 $1200 PITI: Income: $1,200 $2400 Income: $3,100 Value of home $100,000 Amount owed on first mortgage $150,000

15 Example 1 PI: $736 PITI: $936 Income: $3,100 DTI = 30.2% Value of home $100,000 $30,000 Principal Reduction Modified P Balance $120,000

16 Example 2 PI: PITI: $1,000 $1200 PITI: Income: $1,200 $2400 Income: $3,219 Value of home $100,000 Amount owed on first mortgage $150,000

17 Example 2 PI: $798 PITI: $998 Income: $3,219 DTI = 31% Value of home $100,000 $20,000 Principal Reduction $130,000 = LTV 130%!

18 Example 2 PI: $736 PITI: $936 Income: $3,219 DTI = 29% Value of home $100,000 $30,000 Principal Reduction Modified P Balance $120,000 = LTV 120%

19 Example 3 PI: PITI: $1,000 $1200 PITI: Income: $1,200 $2400 Income: $2,400 Value of home $100,000 Amount owed on first mortgage $150,000

20 Example 3 PI: $736 PITI: $936 Income: $2,400 DTI = 39% Value of home $100,000 $30,000 Principal Reduction Modified P Balance $120,000 = LTV 120%

21 3. Principal Reduction Loan Modifications 2 nd mortgages: If principal is reduced on 1 st and 2 nd is owned by the servicer, servicer must modify the 2 nd ; If participating servicer holds the 2 nd and another participating servicer holds the 1 st, servicer holding the 2 nd must reduce 2 nd ; Extinguishment of 2d mortgage if greater than 180 days delinquent; Modification according to 2MP terms. 21

22 BOA/Countrywide Loans Exhibit I to the BOA Settlement Special Loan Modification Option, only available if: Loan is in a Countrywide Securitization or in portfolio of BOA or Affiliate DTI is currently over 25% First lien mortgage > 60 days delinquent 22

23 Servicing Standards Protections for Service Members Requirements prior to imposing forceplaced insurance Proprietary loan mods Short sales Development of Loan Portals 23

24 Servicing Standards Accuracy and transparency in foreclosure and bankruptcy proceedings Enhanced loss mitigation protection for borrowers Restrictions on servicing fees Measures to deter community blight Standards apply to all loans serviced by the 5 banks, including Fannie/Freddie loans Details set out in Exhibit A to Settlements 24

25 Single Point of Contact Servicer shall establish an easily accessible and reliable single point of contact ( SPOC ) for each potentially-eligible 1 st mortgage: Communicate options to borrower; Coordinate receipt of documents; Be knowledgeable about borrower s situation and current status; Have access to individuals with ability to stop foreclosure. (P. A-20 through 23) 25

26 Communication Servicers shall solicit borrowers for loss mit in accordance with HAMP timelines; Servicer shall communicate, at the written request of borrower, with the borrower s authorized representative, including housing counselors; Servicer shall cease collection activity while borrower is in a trial mod or has submitted documents for loan mod application. (A-23) 26

27 Servicing Standards: Loss Mitigation Requirements Servicer shall notify potentially eligible borrowers of available loss mitigation options prior to foreclosure referral But no obligation to solicit borrowers in active bankruptcy Servicer shall offer and facilitate NPV positive loan modifications Servicer shall convert successful trial mods to permanent mods (Exhibit A, Section IV, beginning at p. A-16) 27

28 Loss Mitigation Requirements Servicer shall not make inaccurate delinquency reports to credit reporting agencies when borrower is making timely reduced payments pursuant to a trial modification; Servicer shall provide a copy of fully executed loan mod within 45 days; Servicer shall not instruct, advise, or recommend that a borrower go into default in order to qualify for loss mitigation relief. 28

29 Loan Modification Timelines Provide written acknowledgment of receipt of documentation within 3 business days; Notify borrower of any known deficiency in document submission within 5 business days; Decision within 30 days. 29

30 Required Notices: prior to foreclosure referral At least 14 days prior to foreclosure referral, Servicer shall send borrower a letter including: Facts supporting the right to foreclose; Account information (total amount needed to reinstate, date of last payment, etc); Statement outlining loss mitigation efforts made, why borrower ineligible (Ex. A, Sec. I.A.18, at p. A-4) 30

31 Required Notices: Post Referral to Foreclosure Letter Within 5 business days after referral to foreclosure, Servicer shall send a letter to borrower explaining: That borrower can still be evaluated for alternatives to foreclosure even if (s)he has not previously applied; That borrower should contact Servicer to obtain a loss mitigation application; That borrower must submit an application to be considered for loss mit, and giving contact info; Borrower may reapply in lieu of appealing denial 31

32 Right to Appeal a Denial Provided that complete loan mod application package is submitted > 37 days prior to scheduled foreclosure sale, Servicer shall secure an independent evaluation (by an independent entity or separate employee) prior to issuing a denial letter. (Ex. A, Sec. IV.G, beginning at p. A-26) 32

33 Right to Appeal a Denial Provided that complete loan mod application is submitted >37 days prior to sale, borrowers shall have 30 days to appeal a denial, unless the denial reason was: Ineligible mortgage Ineligible property Offer not accepted or request withdrawn Loan was previously modified 33

34 Right to Appeal a Denial Denial notice shall inform the borrower: That (s)he has 30 days from denial letter to provide evidence that the determination was in error If denied because of investor restrictions, the name of the investor and a summary of reason for investor denial If denied because of negative NPV result, the monthly gross income and property value used in NPV test 34

35 Dual Tracking Restrictions 35

36 Dual Tracking Restrictions 36

37 Dual Tracking: First 120 Days If borrower submits a complete loss mitigation package with 120 days of default (or substantially complete and remaining docs by 130 days postdefault), no referral to foreclosure until: Servicer determines that borrower is not eligible; or Borrower declines loan mod offer or fails to accept within 14 days; or Borrower fails to send first trial payment or breaches the trial mod 37

38 Dual Tracking: First 120 Days If Servicer issues a denial giving rise to an appeal right, Servicer shall not proceed to a foreclosure sale until: Expiration of the 30-day appeal window; If borrower appeals, 15 days after servicer sends a letter denying the appeal; or If servicer grants the appeal and loan mod, until borrower fails to accept or breaches trial mod. 38

39 Within 30 days of Post Referral to Foreclosure Letter If borrower submits a complete loss mitigation package within 30 days after Post Referral to Foreclosure Letter, Servicer shall not proceed to sale until: Servicer determines that borrower is not eligible; or Borrower declines loan mod offer or fails to accept within 14 days; or Borrower fails to send first trial payment or breaches the trial mod 39

40 Within 30 days of Post Referral to Foreclose Letter If Servicer issues a denial giving rise to an appeal right, Servicer shall not proceed to a foreclosure sale until: Expiration of the 30-day appeal window; If borrower appeals, 15 days after servicer sends a letter denying the appeal; or If servicer grants the appeal and loan mod, until borrower fails to accept or breaches trial mod. 40

41 More than 37 days prior to foreclosure sale If borrower submits a complete loan mod application more than 30 days after the Post Referral to Foreclosure Letter but more than 37 days prior to sale: Servicer shall not proceed to sale pending review; And if more than >90 days remain until foreclosure date, servicer shall not proceed to sale during appeal window 41

42 15-37 days before sale If borrower submits a complete loan mod application more than 30 days after the Post Referral to Foreclosure Letter, but between 37 and 15 days prior to sale: Servicer shall conduct an expedited review, and if borrower is approved for a loan mod, shall not foreclose until borrower declines or breaches trial mod 42

43 Less than 15 days before sale If borrower submits a complete loan mod application more than 30 days after the Post Referral to Foreclosure Letter and less than 15 days before a scheduled foreclosure sale: Servicer must notify the borrower before the sale date as to Servicer s determination or inability to complete its review 43

44 Compare HAMP Dual Tracking Limitations If borrower submits a complete application no later than midnight on the seventh business day prior to foreclosure, servicer must suspend foreclosure sale as necessary to complete HAMP evaluation. (MHA Handbook 4.2 at Section 3.3.) 44

45 Dual Tracking Restricted Servicer shall not move for judgment or order of sale or proceed with a sale if: Borrower is in compliance with the terms of a trial mod, forbearance, or repayment plan; A short sale or deed in lieu has been approved by all parties. 45

46 Example: Georgia 9/1/2012 Default 2/1/2013 Servicer refers to foreclosure law firm 2/3/2013 Post Referral to Foreclosure Letter sent 2/22/2013 Foreclosure Notice Letter: scheduled for sale on April 2, /28/13 Borrower submits a complete package 46

47 Example: Georgia 47

48 Example: Nevada 9/1/2012 Default 2/1/2013 Servicer refers to foreclosure law firm 2/3/2013 Post Referral to Foreclosure Letter sent 2/15/2013 Notice of Default: scheduled for sale on June 25, 2013 (3 months) 3/8/13 Borrower submits a complete package 48

49 Example: Nevada 49

50 NMS How much has come out of the settlement so far? Per latest progress report from monitor (Note: these numbers are not the actual credits, which would be less than these totals per credit calculations): Consumer relief in US = $45.83 billion Of which $ billion was used for short sales 554,389 borrowers got some form of relief 50

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52 Consumer Complaints 52

53 Professional Complaints 53

54 Consumer Complaints 54

55 Professional Complaints 55

56 Report Servicer Noncompliance! Office of Mortgage Settlement Oversight: Report Client/Constituent Issues (by housing counselor) Reporting by homeowner: mortgage/ask 56