Transcript Practical Guidance on 35B Loan Modification Reviews

Practical Guidance on 35B
Loan Modification Reviews
Bill Allen, Deputy Director
HomeCorps Loan Modification Initiative
©2014 Office of Massachusetts Attorney General Martha Coakley
Presentation Overview
• Overview of Chapter 244 s. 35B
– “Certain Mortgages”
– Protections for homeowners
• Impact on the Application Process
– Returning the Notice of Election
– 35B Application Timeline
– SPOC Interactions & Document Chasing
• Evaluating a Servicer’s 35B Response
– Acceptance & Counter-Offers
– Denials
• Tracking Violations of Chapter 244 s. 35B
©2014 Office of Massachusetts Attorney General Martha Coakley
An Act Preventing Unlawful and
Unnecessary Foreclosures
Became law Aug. 3, 2012, with most homeowner protections
effective Nov. 1, 2012.
Amended M.G.L. c. 244 “Foreclosure & Redemption of Mortgages:”
– Added § 35B establishing significant protections for homeowners with
“certain mortgages.”
– Other changes included § 35C prohibiting specific conduct by creditors
and § 14 regarding foreclosure notices and proof of chain of title.
Division of Banks was given authority to create regulations,
published at 209 CMR 56.00
©2014 Office of Massachusetts Attorney General Martha Coakley
“Certain Mortgage”
§35B(a)
Owner occupied property where the loan has any one of these features:
(1) Introductory rate for ≤ 3 years that is 2% lower than fully indexed rate;
(2) Interest-only payments for any period of time;
(3) Payment option, where any option results in negative amortization;
(4) Loan did not require full documentation of income or assets;
(5) Prepayment penalty exceeds those allowed by MGL c. 183 § 56 or federal law
(e.g. penalty in excess of 3 months’ interest, prepayment penalty extends
beyond 36 months);
(6) At origination, LTV ratio of 90% and DTI > 38%;
(7) At origination, one transaction where CLTV ratio exceeded 95%.
If a creditor is unable to determine whether the loan has one or more of these
factors it is a “certain mortgage.”
©2014 Office of Massachusetts Attorney General Martha Coakley
Not a “Certain Mortgage”
§35B(a)
• Loans financed by the Massachusetts Housing Finance Agency
• Loans originated though programs of Massachusetts Housing
Partnership Fund
• A loan on a property that is not “owner occupied”
– Vacation Homes
– Rental Properties
• A loan which is not “made primarily for personal, family or
household purposes…”
– Business loans
©2014 Office of Massachusetts Attorney General Martha Coakley
How do I tell if this applies to my clients?
Either the client has to tell you they received a notice of Right to Request
a Modified Mortgage Loan (“35B Notice”) or you need to ask for it!
Asking if the borrower has received a 35B Notice should be a standard
part of your intake.
For some clients the notice may still be on the way, so it’s worth telling
them…
DON’T THROW IT OUT!
The 35B Notice contains a Notice of Election which must be completed
and returned within 30 days of the creditor’s notice being sent.
©2014 Office of Massachusetts Attorney General Martha Coakley
A Typical Foreclosure Timeline in
Massachusetts*
Borrower Defaults
SCRA Notice & 30 Day
Response Period
150 Day Right to Cure
Period
Publications of Sale
(minimum 3 weeks)
Referral to
Foreclosure
F/C
Sale
35B Election Period
only 30 days
*The timing of events leading to a foreclosure may vary significantly. This is particularly true where a
borrower has reinstated or modified a loan and then re-defaulted.
©2014 Office of Massachusetts Attorney General Martha Coakley
Reasonable Steps & Good Faith
§35B(b)
Creditor required to take “reasonable steps” and make
a “good faith effort to avoid foreclosure.” Defined as
where creditor has considered:
– An assessment of borrower’s ability to make an affordable
monthly payment
– NPV of receiving payments compared to net recovery
following foreclosure
– Interests of creditor (including investors) considered
Creditor is prohibited from publishing a notice of foreclosure sale until
these steps are taken
©2014 Office of Massachusetts Attorney General Martha Coakley
Presumption of Good Faith & Compliance
§35B(b)(2)(iv)
A creditor is presumed to have acted in good faith and
to have complied only if:
– A loan modification is offered “in all circumstances where
the [NPV] of the modified mortgage loan exceeds the
anticipated net recovery at foreclosure”
So finding an NPV positive modification may be the key to getting a
modification under Ch. 244 s. 35B.
©2014 Office of Massachusetts Attorney General Martha Coakley
Borrower must return the Notice of
Election with a complete RMA or all
documents required by 209 CMR
56.06(2) within 30 calendar days from
when the notice was sent
Creditor
30
35B Notice is sent
Send a missing items letter
within 5 business days of
receipt of the Notice of
election
60
If approved: Borrower may submit a
counter-offer within 30 calendar days
90
120
Issue an “assessment” within 30
calendar days from receipt of the
Notice of Election, including: verified
financials, NPV analysis, and either a
modification offer or a denial
150
Process should be complete by day 150
Borrower
35B Loan Modification Timeline
§35B(c)
Tips for working with the 35B timeline
• Don’t wait to submit the Notice of Election if you’re missing a supporting
document—the 30 day deadline is essential
• The initial application may often be completed in a rush—try to anticipate
what the creditor will ask for in the 5-day MIL
• If you return the Notice of Election and RMA through a provided FedEx
envelope make sure you have the tracking number, if there’s no tracking
number send it back via certified mail—the date received by the creditor
determines the 30 day deadline for the assessment
• As soon as a SPOC is assigned request confirmation of receipt, confirm the
homeowner’s 150 day right to cure has been preserved, and if the SPOC is
not familiar with the accelerated 35B timeline—make them aware of it!
©2014 Office of Massachusetts Attorney General Martha Coakley
Other Issues you may encounter
• What if an application is already in process when the borrower receives
the 35B notice?
– You’ll need to consider the borrower's situation on a case-by-case basis, and let the
borrower make the decision of whether or not to submit a new application. They
should consider that if the Notice of Election is not returned with a statement of
financials or RMA, the right to modify and the 150 day right to cure will be lost.
• What if the 35B Notice is dated many days prior to the homeowner
receiving it? Doesn’t that cut unfairly into the borrower’s 30 day time to
complete the application and return the Notice of Election?
– Yes it does! Bring the issue to the attention of servicer and the Attorney General’s
Office. Many servicers use document vendors that have been known to delay the
release of their letters. This is an issue we are aware of and would like to be apprised of
any examples you may encounter. Also, we don’t recommend relying on a verbal
extension of the deadline—get it in writing or get the application in within 30 days!
©2014 Office of Massachusetts Attorney General Martha Coakley
Tracking Violations of Ch. 244 s. 35B
Did the Creditor…
1. Send the 5 Day Letter?
2. Issue the “assessment” within 30 days of receiving the
Notice of Election?
3. Offer an NPV positive modification where one was available
or proposed via a counter-offer?
4. Investigate any alleged errors in the Creditor’s assessment?
5. Provide Access to the Creditor’s Represenative?
6. Respond to a counter offer within 30 days?
7. Complete the 35B review process before publishing a notice
of sale?
©2014 Office of Massachusetts Attorney General Martha Coakley