Transcript The National Anti-Predatory Lending Consumer Rescue Loan

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Predatory Real Estate Practices & The
Homeownership Sustainability Fund
Program (HSF)
Facilitated by
Lloyd P. London, Director
September 14, 2007
Agenda
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Introduction
Predatory Lending
Predatory Lending Tactics
Q&A
Homeownership Sustainability Fund Program History
Homeownership Sustainability Fund Program Objectives
Q&A
Agency Benefits
Program Workflow
Intake Process
Q&A
Program Evaluation Process
Reviewed Documentation and Information
HSF Program Forms
Q&A
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The National Community Reinvestment Coalition
• The National Community Reinvestment Coalition
(NCRC) is a membership organization that
promotes economic justice and fair access to credit,
capital, and financial services for all communities,
rural and urban. NCRC supports long-term
solutions that provide resources, knowledge, skills,
and opportunities to wealth in underserved
communities.
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Homeownership Sustainability Fund Program (HSF)
The Homeownership Sustainability
Fund (HSF), formerly the National
Anti-Predatory Lending Consumer
Rescue Loan Program (CRF), was
designed to get borrowers out of
abusive and predatory loans with a
remedial loan and help borrowers at
risk of foreclosure get a fresh start.
All HSF loans are conventional
home mortgage loans with marketlike interest rates, no fees, no
points, no prepayment penalties,
and no insurance or ancillary
product sales or offerings.
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Today’s Market
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According to the Mortgage Bankers Association- “The United
States overall had 0.7 percent of mortgages enter foreclosure in the
second quarter of 2007, with 5.1 percent past due and 1.1 percent
at least 90 days past due.
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Of the 7.7 million households who took out ARMs over the past two
years to buy or refinance, up to 1 million could lose their homes
through foreclosure over the next five years because they won't be
able to afford their mortgage payments, and their homes will be
worth less than they owe, according to Christopher Cagan at First
American Real Estate Solutions research.
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Today’s Market
The FDIC reported that there was roughly $27.5 billion worth of residential
mortgage loans that were 90 days or more past due at the close of Q2. If we
estimate an average mortgage size of $300k (due in part to the areas in which
most of the foreclosures are concentrated), that’s approximately 91,667.00 total
households.
….The delinquency rate, which tracks the number of people who are behind in
their payments but have not yet entered the foreclosure process, was also up
sharply during the spring, rising to 5.12 percent of all loans, up nearly threefourths of a percentage point from the same period a year ago.
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Doug Duncan, the Mortgage Banker Association’s chief economist, said the
worsening performance was driven by two factors — heavy job losses in the
Midwest states of Ohio, Michigan and Indiana and the collapse of previously
booming housing markets in California, Florida, Nevada and Arizona.
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Indiana foreclosures remain high
Hoosier State is in top 10 for foreclosures in July
By Arthur E. Foulkes
The Tribune-Star
TERRE HAUTE — Indiana continues to be among the worst states in the nation
for home foreclosures, according to data released by RealtyTrac, a Californiabased firm specializing in foreclosed properties.
The Hoosier state was in the top 10 in foreclosures in July, RealtyTrac reported.
One house in 609 in Indiana was in foreclosure, compared with one in 693 for
the nation as a whole, the firm reported.
…The high number of home foreclosures in Indiana and nationwide
follows years of expansion in the subprime mortgage lending business,
experts say. Subprime mortgages are typically sold to people with little
or no credit, often with little money down.
Arthur Foulkes can be reached at (812) 231-4232 or [email protected].
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Predatory Lending
A predatory loan is an unsuitable loan
designed to exploit vulnerable and
unsophisticated borrowers. Predatory real
estate transactions include property flipping,
the over-appraisal of properties, enticing
consumers into loan products with terms
and conditions that make sustaining their
homeownership difficult and any number of
schemes or scams that deprive current and
future homeowners of achieving the safe
and affordable “American Dream”.
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• The market that borrowers see today is flooded with enticing
mortgage products boasting record- low introductory rates,
interest-only loans, option adjustable-rate mortgages
(ARMs), no money down, and no income documentation
required.
• Originally considered “nontraditional” mortgages because of
their high risk and small pool of qualifying borrowers, these
products are now cropping up nationwide and becoming
mainstream.
David Berenbaum, Executive Vice President- NCRC
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Predatory Lending Tactics/ Origination
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Targeting mailings to low-income or minority neighborhoods
“Bait and Switch”
Home Improvement Scams
One-Stop Shopping Scams
Under-developed and over-valued properties sold
Racial steering to high-rate lenders
Kickbacks to mortgage brokers (Yield Spread Premiums)
Structuring loans with payments the borrower can not afford
Inflated value of home
Falsifying loan applications
Adding insincere co-signers
Forging signatures on loan documents
Paying off low income or subsidized mortgages
Changing loan terms at closing
Shifting unsecured short term debt into mortgages
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Predatory Lending Tactics/ Loan Terms
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Unjustified high interest rates
“interest only” ARMs with unaffordable first adjustments
40-year Balloon loans with large balance remaining after 15 or 30 years
Unjustified high points and/or padded costs
Padded recording and settlement fees
Unnecessary broker fees
Required, financed credit insurance
Falsely identifying loans as lines or credit or open-end mortgages
Request to sign blank or unfinished documents
Loans refinanced with escrows into loans without escrows without
notification
Mandatory arbitration clauses
Unjustified and excessive prepayment penalties
Adjustable rate loans with high interest rates and high minimum floor rates
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Predatory Lending Tactics/ After Closing
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Flipping (repeated refinancing, often after high pressure sales)
Daily interest when loan payments are late
Unnecessary forced placed homeowners insurance policies
Predatory servicing practices
Foreclosure abuses
Failure to provide payment history request
Failure to report good payment history
Failure to provide accurate loan balance and timely payoff amount
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QUESTIONS AND
ANSWERS
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Homeownership Sustainability Fund Program
• Established the National Fair Lending Consumer Rescue
Fund (CRF) in October 2001 with member agencies in
Arizona, Ohio and New York with a 25 million funding
commitment from Household International (Now HSBC-North
America.)
• Closed first loan in New York in March 2002
• Designed brochure and website, www.fairlending.com, in
2004
• Assisted “Toussie Development” Class Action Victims in
Suffork County New York beginning in 2004 to refinance
mortgage loans in developer over-appraisal scam
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Homeownership Sustainability Fund Program
• Ombudsman Agreement with Select Portfolio Services in 2004 to
work with servicing matters referred from the Federal Trade
Commission (FTC)
• Expanded to 17 states in 2005
• Participated with Freddie Mac’s “Don’t Borrow Trouble” campaign in
2006 to provide technical support to housing agencies
• Joined the Baltimore Homeownership Preservation Coalition in 2007
• Charter member of the Prince Georges County Homeownership
Preservation Coalition in 2007
• Expanded to 19 states in 2007
• Re-branded the CRF to the Homeownership Sustainability Fund
Program (HSF) in 2007
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Homeownership Sustainability Fund Program
Objective
• To work efficiently and urgently on behalf of consumers affected
by predatory and abusive lending practices, foreclosure abuse,
servicing abuse and involuntary hardships in order to help them
to sustain their homeownership
• To intervene and mediate with lenders or servicers when
necessary to provide reasonable and affordable workouts
• To “rescue” qualified clients affected with an affordable remedial
mortgage product with favorable terms and conditions
• To extract data for use in advocacy for others which will lead to
improvement in existing consumer protection laws
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The HSF program will include five components necessary
To have a lasting beneficial effect for the homeowner:
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Default counseling and financial
education/ foreclosure prevention
Intervention and mediation with
lender to assist homeowner as
needed
Provides an affordable mortgage
refinance
Provide assistance in receiving
write-downs, as necessary
Assist member organizations with
private enforcement of consumers’
rights and responsibilities
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Eligible States:
The approval to refinance loans is available in the states of Alabama, Arizona, California, Colorado,
Florida, Georgia, Indiana, Illinois, Maryland, Massachusetts, Nevada, New Jersey, New York, North
Carolina, Ohio, Pennsylvania, Rhode Island, Texas and Wisconsin.
Eligible Borrower:
Consumers who have predatory or other high-costs loans secured by real estate and borrowers at risk
of foreclosure.
Consumers who have made good faith efforts to pay their mortgages and are unable to do so due to
an involuntary change in their financial circumstances.
Consumers with charge-off accounts at Household/ Beneficial Finance and HSBC affiliates will be
handled through our mediation process and are not eligible to be refinanced in the HSF Program
Eligible Properties:
1-2 unit residential properties, manufactured housing, condominiums and PUDs. Properties must be
owner occupied.
Closing Cost:
Paid by the lender. There will be no points, no closing costs (appraisal, title, and recording or release
fees) and no prepayment penalty.
No insurance will be available or offered nor any side loans.
Escrows:
Escrows available for taxes and homeowner insurance in all states where refinance can be done.
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Financing: Loan Terms/ Conditions
•1st Mortgage with a fixed rate for 15, 20 or 30 years
•Interest rate based on ability to pay guidelines
•No Private Mortgage Insurance
•No Prepayment Penalty
*Principal and interest payment- (no exotic or non-traditional mortgages)
*No maximum loan amount
•100% LTV refinances (lower for manufactured housing)
•Possible cash-out up to $10,000 or 10%of loan amount, whichever is less, for debt consolidation
•Home repair costs necessary for property eligibility may be financed
Flexible Underwriting
•Allows review for foreclosure in progress and credit that would generally be unacceptable in the
conventional marketplace
•Credit scores not used in underwriting decisions but explanations may be required
•Boarder income may be used
•Maximum total debt ratio of 45%, may make exceptions to 50%.
•Disposable income guidelines apply
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Agency Benefits
• NCRC will compensate nonprofit agencies who provide HSF
counseling and processing assistance in the amount of $250
for each case for pre-qualified submissions that meet the
parameters of the HSF Program. Payments are not paid based
on the final approval or closing but on their ability to participate
in the the program (evaluation).
• The opportunity to make use of a remedial loan product for
their local community
• Provide competent contact with services/ lenders to offer
resolution
• Access to executive resources for mediation of HSBC-North
America and its affiliates loan matters is offered.
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Program Workflow
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Agency determines consumer eligibility for HSF Program/
Consumer contacts HSF staff
Agency submits case to HSF staff
Intake Specialist Inputs file in HSF Database
Program Director/ Associate Director assigns case to Fair
Lending Specialist (FLS)
File and document review done by FLS
File investigation and initial processing done by FLS and
agency contact
File assembled and submitted to HSBC Rescue Underwriters
for application processing/ credit decision (preliminary
approval)
File developed by FLS, agency contact and HSBC
Underwriters for Final Approval
Loans closed in HFC/ Beneficial branches by independent
agents
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Intake Process
• NCRC General Intake (Short
Form)
• NCRC/ HSF Intake (Long
Interview)
1.) Set Expectations
2.) Listen to the story
3.) Look at financial facts and develop
options
4.) Make contact with other services
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QUESTIONS AND
ANSWERS
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HSF Program Evaluation
• The HSF offers a low rate, no fee loan for consumers who qualify for
this special program and demonstrate both the ability and intent to
pay. The evaluation process consist of:
• High risk mortgages- can be defined as unaffordable or inequitable terms
• Consumers who have made good faith efforts to pay their loans but, are
unable to do so due to a change in financial circumstances
• Origination concerns, such as over appraisal, high fees, high interest rates,
misrepresentation, etc.
• Servicing related concerns
• Unintentional financial hardships
• Predatory or problematic nature of transaction placing homeowner at “risk
of foreclosure.”
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Documents Reviewed for Submission
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Original 1003-Mortgage Application
Truth-in-Lending Disclosure (at application and final at closing)
Good Faith Estimate
Mortgage Note or Deed of Trust Note
Mortgage or Deed
Mortgage Note Riders
Previous Loan Documents
HUD-1 (settlement statement)
• Loan Disbursement Form
• Foreclosure Papers
• Written Workout Documents
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Predatory Information and Items Reviewed for the HSF Program Submission
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Loan Terms
• Interest rate and annual percentage rate
• Whether fixed or variable rate
• Type of index (Libor, Treasury, etc.)
• Variable rate ceiling and floor
• Term of loan
• Monthly payment amount
• Escrow payment
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Loan Fees
• Loan Origination Fee
• Discount Points
• Commitment Fee
• Broker Compensation (YSP)
• Loan Application Fee
• Document Preparation, Processing and Underwriting Fees
• Fees Paid Outside of Closing (POC)
• Questionable Settlement Expenses
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Predatory Information and Items Reviewed for the HSF Program Submission
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Additional Items
• Prepayment Penalty
• Credit Insurance
• Mandatory Arbitration
• Insincere Cosigners
• Notes and Riders
• Appraisals
• Forged Signatures or Fraudulent Documentation
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Borrower's Individual Circumstances
• Purpose of Loan
• Borrower Current Hardships
• Borrower's Credit History (Profile)
• History of Repeated Financing
• Amount of Equity in Home
• Borrower's Ability to Repay
• Borrower in Bankruptcy, Forbearance or Foreclosure
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Hardship
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Hardship is defined as an involuntary increase in expenses or decrease in
income significant enough to affect the borrower’s ability to meet his or her
mortgage commitment.
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HSF requires a client to submit a hardship/ predatory lending complaint letter in
conjunction with any required information or documents
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Hardship letters written in the consumer’s own words are most effective
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Though counselors can assist borrowers who have poor writing skills, the
counselor should not coach a borrower to exaggerate the hardship/ predatory
issue in order to gain the sympathy of the lender. We seek to verify issues of
hardship and predatory matters for acceptance into the program.
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HSF Program Forms
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HSF Document Checklist
HSF Voucher
Consumer Information Form (Application)
Authorization Form
Escrow Account Option Form
Personal Financial Assessment Form
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Summary
The National Community Reinvestment Coalition in its
partnership with HSBC-North America brings this opportunity
to consumers that have been victims of unfair and abusive
lending across the nation. The establishment of the
Homeownership Sustainability Fund Program, formerly the
National Anti-Predatory Lending Consumer Rescue Fund
Program (CRF), shows that the collaboration of these entities
can work together in furtherance of a strategy to challenge
predatory lending practices and provide a safe and affordable
mortgage loan.
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QUESTIONS AND
ANSWERS
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For More Information
•Please contact Lloyd London at (202) 464-2738 or
[email protected]
•The NCRC National Anti-Predatory Lending Consumer
Rescue Fund Information if available at
www.fairlending.com.
Thank you for participating today!
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