Transcript Mortgage Foreclosure Filings in Cook County

Circuit Court of Cook County Mortgage
Foreclosure Mediation Program
Homeowner Advocate Training
Patricia Nelson
Director, Foreclosure Mediation and Access to Justice
Ashley Griffith
Supervising Attorney, Foreclosure Mediation
Chicago Volunteer Legal Services
“CVLS”
• Founded in 1964 – celebrating 50 years
• Work from a small staff – leverage resources with volunteers
• Our job is to support YOU so that you have a good volunteer
experience and in turn our clients get excellent quality
representation
• Since 2010, we’ve trained over 500 mediation volunteers and
mediated close to 5,000 cases
• We’ve reached agreements in nearly 50% of cases
2 Possible Components to CVLS
assistance for homeowners
Mediation
• CVLS is automatically appointed by the court, and we
•
•
accept all cases
No income caps
Just for mediation – no litigation
Access to Justice
• Full legal representation for litigation
• Possible representation for failure to mediate in
good faith sanctions claims
• Possible representation for foreclosure cases that do not
settle in mediation
•
Who can participate in the mediation
program?
•
No income caps
•
Defendant must live in the property
•
Single family home or building with 4 or less units
•
Must have an Appearance and Answer on file
•
Must have met with a HUD-approved housing counselor and been
denied a loan modification
When is Mediation?
Sample Foreclosure Timeline
June
JanuaryMarch
Late
April
Client misses
three
payments
Borrower
is served
Case Management Date: Defendant files an
Answer and Appearance and presents a
Motion for Mediation. Judge continues the
case for 30 days for status on loss
mitigation.
October
First
Mediation
Late
December
Case is returned
to the trial call
Year One
April
Plaintiff files
Complaint
May
Meets with Chicago
Legal Clinic for
assistance with drafting
an Appearance, Answer
to the Complaint to
Foreclose Mortgage,
and Motion for Mediation
July
Borrower’s Motion for
Mediation was granted due
to either a denial of a loan
modification, pending trial
payment plan offer, or other
legal issue
December
Second
Mediation—results
in no agreement
When is Mediation?
Sample Foreclosure Timeline
February-May
February
Court approves the
sale and stays
possession for 30
days by statute
October
Defendant issues
discovery and
Plaintiff answers.
Summary
Judgment
Entered
Year Two
June
Plaintiff files Motion for
Summary Judgment and files
its Supreme Court Rule 114 loss
mitigation affidavit. Borrower
gets 28 days to respond.
Plaintiff gets 14 days to reply.
January
Sale: The sale cannot take
place until the redemption
period expires; 3 months
after judgment or 7 months
after service, whichever is
later
March
Client must
vacate the
property
What are we mediating?
2 categories of resolution
• Retention
• Relinquishment
Overall goals
• Ensuring adherence to government programs
• Ensuring an end to endless submission of documents
• Ensuring fair treatment and no bullying
Retention Options
Borrower Remains in the Property
• Reinstatement
• Repayment Plan
• Forbearance Agreement
• Loan Modification
• Hamp Tier I and Tier II
• National Mortgage Settlement
• Fannie Mae, Freddie Mac, or FHA modifications
• In-house (standard) loan modification
Retention Option
Reinstatement
• Borrower pays full arrearages – including missed payments,
attorney’s fees, lender’s costs, taxes paid on their behalf
• Realistic for some borrowers who can borrow the money from
401(k)
Retention Option
Repayment Plan
•
Borrower pays arrearages (missed payments, attorney’s fees,
lender’s costs, taxes paid on their behalf) over a period of time,
usually 6-12 months
•
Borrower must make regular mortgage payment in addition to
repayment amount
•
Unrealistic for most borrowers
Retention Option
Forbearance Agreement
• Lender agrees to accept no (or reduced) payments for a specified
period of time
• Unemployed borrowers or those experiencing a temporary, finite
loss of income
• Review any Forbearance Agreement to ensure there is some
promise or course of action for review for a loan modification once
the forbearance is over
Retention Option
Loan Modifications – under any program
• There are only 3 variables in any loan that can be modified
• Interest rate
• Term
• Amount of Principal
• There are infinite number of ways regulators and investors can
make it complicated
• Eligibility rules for borrowers and loans
• Restrictions on rates, amounts, terms if certain conditions are
met.
• If you can understand HAMP, you will be able to apply that
understanding to any of the other loan modification programs
HAMP Basic Concepts
•
Home Affordable Modification Program (Making Home Affordable - MHA)
•
All servicers who received TARP money are required to participate in HAMP
Tier 1, subject to investor limits.
•
The goal is to modify the terms of the loan to make it both affordable for
the borrower AND profitable for the investor.
• Affordable for the homeowner – Waterfall Analysis
• Profitable for Investor – NPV Test
• “Guidance” is found in the MHA Handbook –
www.makinghomeaffordable.gov.
Applying for HAMP
• Submission of “Initial Package” triggers servicer’s duty to review for
HAMP
• Documents need to be fairly current, or may be unusable
(“staledated”) – within 60 days for some, 30 days for others
• CVLS paralegals will already have submitted an application for you,
regardless of the purpose for mediation or any previous denials.
Often, you will need to submit additional or clarifying documents or
an entirely new package.
• Regardless of the submission date, you will need to send current
proof of income.
Applying for HAMP
What needs to be in a HAMP application
Request for Modification (RMA includes Dodd Frank certificate)
•
–
–
•
•
Separate list of expenses, signed and dated
Separate free form hardship letter, signed and dated by all borrowers
4506T – tax certification form
Proof of income
– 30 days-worth of most recent paystubs for W-2 income
– Lease, contribution letter, proof of deposits in bank statements
– Profit and loss statement for self-employed
•
•
•
•
Last 2 years tax returns that have been filed
Last 2 months of bank statements – all pages, even if intentionally left blank,
for all accounts. Printouts of online activity reports are not accepted
Recent utility bill- proof of occupancy
Sometimes a servicer specific application (ask plaintiff’s counsel)
• Most forms are available at www.hmpadmin.com – CVLS has samples
of others
HAMP – Loan Eligibility
• Non-GSE invested loans/Private Investors- servicers, not investors
choose to participate
• All Fannie Mae/Freddie Mac (GSE – Government Sponsored
Enterprise) loans covered – HAMP Tier 1 is mandatory
• FHA- insured loans must be evaluated for FHA HAMP, which has
slightly different guidelines.
HAMP – Loan Eligibility
Loan must be:
• First lien originated on or before January 1, 2009
- Home equity loans eligible if loan is first or only lien on
property
• Unpaid principal balance cap
- 1 unit: $729,450
- 2 unit: $934,200
- 3 unit: $1,129,250
- 4 unit: $1,403,400
• Not previously modified under HAMP
HAMP – Borrower Eligibility
Income Eligibility
• Current monthly mortgage payment including PITIA (principal,
interest, taxes, insurance, association fees) must be greater than
31% of monthly gross income.
• Does not include private mortgage insurance payments (PMI).
• Servicers commonly make mistakes - they deny because current
payment is <31% of gross income by leaving out taxes, insurance
and/or association fees.
HAMP – Borrower Qualification
Income considerations
•
Income – what’s included? (Sec. 5.1 MHA Handbook)
– Can include income for non-borrower household members
– Can include income for non-resident borrowers, so long as one borrower uses
property as primary residence
– Rental income gets multiplied by 75%
– Unemployment income is not eligible
– If self-employed, profit and loss statement without other documentation suffices
– Borrower DOES NOT have to disclose child support or alimony
•
•
Must be able to document monthly income
There is no income amount that bars application. However, a borrower’s
income may be too low or too high for a HAMP mod
– Too low and the borrower will fail for unaffordability
– Too high and current payment may already be at or under 31%
HAMP – Borrower Qualification
Steps of the Waterfall Analysis
• Target payment – PITIA = 31% of gross monthly income
• Waterfall Analysis
–
–
–
–
–
Capitalize arrearages
Reduce interest rate
Extend the term of the loan
Principal deferment
Possible principal forgiveness
• Servicers will only take steps necessary to get payment to target
amount
HAMP – Borrower Qualification
Waterfall Analysis – Capitalizing Arrearages
• All arrearages will be added to principal - Principal debt will increase
• Capitalized arrearage includes:
– Past due interest
– Escrow deficiencies/advances – lender will have paid property
taxes
– Foreclosure costs and attorney fees
– Servicing fees: property inspections, credit report fee
• CANNOT include:
– Late fees: unpaid fees will be waived
– Additional modification fees: no charge for HAMP
HAMP – Borrower Qualification
Waterfall Analysis – 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
HAMP – Borrower Qualification
Waterfall Analysis – Increase Term of Loan
• If the interest rate is reduced to 2% and payment still not
equal to or less than 31% of gross income, then the next
step is term extension. The limit is 40 years.
HAMP – Borrower Qualification
Waterfall Analysis – Principal Forbearance or Forgiveness
• Principal Forbearance (Deferral)
– Forbearance of principal is essentially taking a portion of what is
owed and not making it due and payable until transfer of the
property or the maturity date of the mortgage loan
– The principal forbearance amount is treated as a non-interest
bearing balloon payment
– The lender can forbear the greater of the following:
• 30% of the UPB after capitalization; or
• An amount that would result in a modified interest bearing
balance that would create a loan to value ratio equal to 100%
• Principal Forgiveness – optional for servicer and very, very rare
HAMP – Borrower Qualification
Net Present Value (NPV) Test
• Measures the benefit to the investor of a loan mod, not the benefit to
the servicer or the borrower
• Positive NPV test = HAMP Tier 1 loan mod review continues
• Negative Tier 1 NPV test = move to HAMP Tier 2 loan mod review if
the investor participates in Tier 2
HAMP – Borrower Qualification
Net Present Value (NPV) Test
• Actual HAMP NPV test not public
– In mediation, demand inputs – limited to some inputs
– FDIC has comparable model online at FDIC.gov.
– www.mynpv.com
• Servicers can generate their own NPV and use their own numbers for
required inputs
• However, more information is available at
https://checkmynpv.com/ and a whitepaper on NPV at
https://checkmynpv.com/sites/all/themes/npvtool/pdf/CheckMyN
PV-WP.pdf
HAMP – Borrower Qualification
Reasons for Failing NPV Test
• Foreclosure looks attractive
• High home value
• Chance of cure is high
• Mod looks risky
• Declining home prices
• High chance of re-default
• Mod doesn’t generate enough income
• Borrower’s income is so low that at 31%, the mod doesn’t
generate enough income
HAMP – Bankruptcy
• Borrowers may not be denied a permanent HAMP modification
on the basis of a bankruptcy filing.
• BUT – filing BK puts an automatic stay on the mediation.
• Effects of Bankruptcy- A bankruptcy discharge through chapter
7 relieves your client of personal liability for the mortgage debt.
• It also qualifies as a change in circumstances and triggers a rereview for HAMP.
HAMP Tier 2
• Expansion of HAMP program, effective June 1, 2012.
• Designed to provide additional chance at modification for
previous HAMP defaults and denials.
• Only participating servicers – Fannie and Freddie do not
participate.
HAMP Tier 2 – Loan Eligibility
• First lien originated on or before January 1, 2009
- Home equity loans eligible if loan is first or only lien on property
• Unpaid principal balance cap – same as Tier 1
• Can be a loan on a rental property
HAMP Tier 2 – Loan Eligibility
• Borrowers who were not eligible for HAMP Tier 1 (for excessive
forbearance, failed NPV test, etc.).
• Borrowers who did not successfully complete a HAMP Tier 1 trial or
permanent loan modification.
• Borrowers with a monthly mortgage payment less than 31% of
their gross monthly income.
HAMP Tier 2 – Target Payment
• Target payment is between 25% and 42% debt-to-income ratio.
• Some servicers have expanded this DTI ratio to 10%-55%.
• See: http://www.makinghomeaffordable.gov/forpartners/understanding-guidelines/Documents/ServicerExp_DTI_1106-13.pdf
HAMP Tier 2 – Borrower Qualification
Waterfall Analysis
Waterfall Steps are same as Tier 1.
• Step 1: Capitalize arrearages.
• Step 2: Adjusts interest rate. Can be more than 2%.
• Step 3: Extend term of loan to 40 years.
• Step 4: Defer principal.
• Must reduce P&I payment by at least 10% from current P&I
payment.
HAMP - TPP
• Trial Period Plan
• At least 3 months trial at proposed modified payment
• 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
• If fails trial period: only HAMP Tier 2 may be possible, otherwise no
obligation to re-offer
• Reschedule any mediation set for during the TPP until after the TPP
to ensure it goes permanent. Do not agree to cancel any further
mediations.
HAMP – after the TPP
• Upon timely payment of all trial payments, permanent modification
will be offered – problem can be getting the permanent modification
on a timely basis.
• Advise your client to continue making trial payments until
permanent.
• Additional docs and/or meeting with a housing counselor may be
needed, but uncommon requirements.
• Step-rate interest plan: will remain at modified interest (as low as
2%) for 5 years, then increase 1% point each year until caps out at
current market rate (around 5%).
• Any amount needed to fully fund escrow will be repaid over 60
months (escrow shortage).
• Payment amounts in the documents will not incorporate any PMI
payments.
HAMP Denial
• Written Notice must be sent to borrower within 10 days of
determining HAMP modification denied.
• Must state why homeowner was denied
• Must describe alternative loss mitigation options
• Must evaluate for in house options – there should be a denial letter
for each program stating the reason denied for that specific program
HAMP Denial for NPV
• If denied based on NPV: notice will allow opportunity to request
certain inputs (e.g. income, UPB) in 30 days (sale stayed)
• Servicer must provide inputs w/in 10 days of request
• Must review new borrower data, recalculate if likely to change
outcome
• If property value is challenged, must be recalculated using
borrower’s value if there is supporting documentation
HAMP Guidance
• No regulations or statute
• Guidance
• MHA Handbook (found at hmpadmin.com)
• There is no private right of action to enforce HAMP, but
failing to follow the guidance can be used to support
sanctions, unfair business practices, and other consumer
fraud related counter-claims in litigation.
Other Loss Mitigation Programs
• National Mortgage Settlement (DOJ)
• Fannie Mae
• Freddie Mac
• Unspecified In-House (traditional) modification programs
National Mortgage Settlement
It is unclear if this is still an option – the banks seemed to have fulfilled
their duties under the settlement agreements.
• Big five banks entered into settlement agreements (agreed orders) with
the state Attorneys General – must call for eligibility
- Ally/GMAC: 800-766-4622
- Bank of America / Countrywide: 877-488-7814
- Citi: 866-272-4749
- JPMorgan Chase: 866-372-6901
- Wells Fargo: 800-288-3212
• Review prior to HAMP
• Offers principal forgiveness
Fannie Mae modifications
Fannie Mae has four modification programs.
1. Fannie Mae HAMP – works the same as non-GSE HAMP
2. Fannie Mae Alt Mod – Borrowers who were eligible for a HAMP mod
and initiated a HAMP trial plan but were not offered a HAMP
permanent mod may be eligible
• for borrower’s who failed the hardship test
• payment moves to 31% - so it will go up
3. Fannie Mae Standard Mod – where borrower is not HAMP eligible,
failed a HAMP TPP or defaulted on a permanent HAMP
• provides for a housing expense to income ratio that is greater
than or equal to 10% and less than or equal to 55%
• 40 years, market rate
Guidance is at: www.fanniemae.com
Freddie Mac modifications
Freddie Mac offers 2 different modifications:
1.
Freddie Mac HAMP – works the same as non-GSE HAMP
2.
Freddie Mac Standard Modification
• Recapitalization, Interest rate is reduced to Market rate, term
extended to 40 years
• must be lower payment
Guidance is at: www.freddiemac.com/singlefamily/guide/
www.freddiemac.com/learn/pdfs/service/std_strm_ mod.pdf
FHA Modifications
• FHA insured loans are reviewed in the following order: forbearance,
repayment plan, standard modification and then for FHA HAMP (if
necessary)
• Used to be difficult to get a reasonable modification because FHAHAMP was unavailable if loan was over 12 months in default. This
rule was eliminated 3/15/2013
•
If client’s loan was denied under old guidelines, ask for re-review
• FHA still has the following distinctions:
•
will not extend maturity date beyond 30 years and the interest rate (even for FHA HAMP) is the market
rate plus a risk adjustment
• Mortgagee letters available at
http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/index.cf
m
Traditional, “In-House” loan modifications
• Same Terms to Modify: Interest, Term, Principal
• Some servicers use same HAMP Income Target: 31% of Gross…
but can vary
• Some servicers offer 30 years, or 40 years
• Need to evaluate net income and actual expenses to determine
how much borrower can actually afford to pay
• If payment is unaffordable, look at expenses, will a Chapter 7
reduce expenses to make it affordable?
• Can your client offer a down payment on the arrears?
• Defer Arrearage as Balloon Payment
• Again, forgiveness is extremely rare
CVLS Advocate Workbook
• Excel workbook with a step by step process to prepare your case for
mediation
• Does automatic calculations for all loan mod programs
Relinquishment Options
Borrower Surrenders Property
Evaluate with list in CVLS Advocate Workbook
• Short Sale
• Deed in Lieu of Foreclosure
• Consent Judgment
Consumer Financial Protection Bureau
(CFPB) Servicing Rules
• Apply to all servicers except some exempt “small” servicers.
• Went into effect January 2014.
• Servicers must evaluate application for completeness within 5 days
and send written acknowledgment of receipt.
• If application is incomplete, must send notice of what is needed.
• Servicer can determine the deadline, must be “reasonable” and take
into account the borrower’s other document dates becoming stale.
• Comments to the rules suggest nothing less than 7 days for
additional or corrected docs is reasonable.
• Servicer must evaluate within 30 days of a complete application.
• Notice of approval or denial must be sent within 30 days.
• 14 days to appeal, and 30 days to determine result of appeal.
47
Issue Spotting
for all types of loan modifications
• Document issues / income verification
• Income calculations – contribution, rent, child support
• Reasons for previous denials
• Incomplete docs
• Improper calculations
• Change in circumstances
• Divorce / title / quit claim issues
• Servicing transfers
• Failure to review for ALL programs
• Investor participation in HAMP
Mediation session structure
• Introductions
• Confidentiality agreement & ground rules
• Opening statements & loan figures
• Discussion with Q & A
• Caucus, if needed (meet privately with client)
• Discussion, wrap up
• Drafting of Memorandum of Agreement and/or other forms, if
applicable
• Evaluations
• Synopsis of mediation session to CVLS support attorney
49