Transcript Document 7553526

Foreclosures and Modifications
William T. Tanner
Patrick Ulibarri
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How did we get here?
Loan Origination
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Payment Options
Option #1
30 yr fixed
5.875% P/I:
$2,366
Option #2
30 yr fixed 10yr I/O
6.125% I/O
$2,041
Option #3
12-MTA Option Arm
1% Minimum $1,286
Index 3.58 / Margin 3.25
6.83% Fully Indexed/ I/O Payment $2,273
(Neg Payment - $987)
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Index
3.58 Index
+3.25 Margin
6.83 Fully Indexed
Index
Margin
Treasury
+ 3.25 = rate
LIBOR
+ 3.25 = rate
Prime Rate + Margin = rate
(Fed funds rate + 3%)
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Different loan programs
by documentation
Full Documentation “Full Doc”
Limited Stated “SIVA”
Stated Income Stated Assets “SISA”
No Income No Assets “NINA”
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What can a borrower do?
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Questions to Borrower
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Do you wan to stay & should you stay?
Can you afford to stay? (DTI 31%)
Value of property v. encumberances-BPO
Notice of Default or sale
– If same postponed lender does not give
another notice
• Current or late payments
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What it used to be
• Skip a few payments (re-capitalize)
• Forbearance (increase payment to make
up past due payments)
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What it is now
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Still forbearance & missing payment
Rate reduction / step rate
Increasing amortization term
Reducing the principle balance
Real or window dressing?
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Write downs will be necessary
• “Servicers should also be more aggressive
about writing down principal amounts
when necessary to make the loan
affordable.”
Sheila Bair
FDIC Chairman
2/26/08
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Fixing a mess…
"Our goal is to get the greatest recovery
possible on loans in default or in danger
of default, while helping troubled
borrowers remain in their homes.”
Sheila Bair
FDIC / IndyMac
8/20/08
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Who owns the loan?
• Probably not who you are making the
payment to - they are the Servicing Co
• In most cases some entity on Wall Street
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HAMP
Home Affordable Modification Program
Making Home Affordable (MHA)
If a servicer took TARPII funds from Treasury they are required to actively
pursue modifications under the terms of HAMP/MHA in coordination with the
investor who owned the loan.
If the loans are owned by Fannie/Freddie they automatically eligible.
If the homeowner does not qualify for HAMP/MHA the servicer must try to
qualify the homeowner for the servicers own in-house modification programs.
(FHA/VA must be first turned down for in-house modification before they can be
considered eligible for HAMP/MHA)
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The Obama Plan
Making Home Affordable Modification Plan
• Gross Wages
• 31% - 38% Housing Ratio (PITIA)
• Drop rate .125% to a floor of 2%
• Extend Amortization (up to 480 mos)
• Forebear Principle to end of loan @ 0%
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Who Qualifies
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Primary Residence
No more than $729,750 Loan Amount
Have a Hardship
1st TD PITIA More Than 31% of Gross
Income
• Loan was finalized before 01/01/2009
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Who is the investor?
• 15 U.S.C. §1641(f)(2) request
• Sup. Dir. 10-02, after June 1, 2010,
servicers must provide Fannie Mae with a
list of investors who are not participating
• Fannie, Freddie, VA or FHA loan
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Who is the investor? (part 2)
• 1641 does not provide a timeline and no
cases yet.
• TILA 1641 g …notice to borrower if owner
changes
• Fannie may then know who owns the loan
• Fannie freddie check on line FHA VA too
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Reasonable Efforts?
• Ask servicer what reasonable efforts
they’ve taken to get the investor to waive
restrictions
• Reasonable efforts are required by Sup.
Dir. 09-01, p.1
• Under Sup. Dir. 10-02, effective 6/1/2010,
server must write to investor requiring
waiver at east once
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Inadequate Response?
• Servicer’s in-house escalation team
• E-mail [email protected]
• Ask for Ken Hannold if escalations are
satisfactory
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HAMP second lien program
• Wells, B of A, Chase and Citigroup have
signed onto this program
• Just recently
• We don’t know the specifics yet
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HAMP Second Lien Program
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Resolutions
Dismissal of foreclosure
NPV test not require
Required standard modification steps or
extinguishment
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HAMP 2nd Lien Program
• 09-05r revised directive
• Requires resubordination by second
• If first mods then second must dismiss
foreclosure
• No NPV on second
• Standard mod steps-capitalization, Rate red
(step increases), increase payback, forbear (if
first forbear then second must in same amount)
• Waive late fees and other fees
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Short Sales
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What is a short sale?
Why would someone want
to short sale their house?
Credit issues
– Short Sale vs. Foreclosure?
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HAFA Short Sale Program
Home Affordable Finance Program
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$3K relocation
$1.5K to servicer for admin costs
$6k (max.) to junior lienholder
Up to $2,000 for investors who allow a
total of up to $6,000 in short sale proceeds
to be distributed to subordinate lien
holders, on a one-for-three matching
basis.
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Foreclosure
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Judicial
– Breach of Contract
1.
2.
3.
4.
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File lawsuit
Wait for Trial
Trial
Sheriff’s Sale
Not very popular
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Foreclosure
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Non judicial
– Deed of Trust
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2.
3.
4.
Record Notice of Default
Wait Statutory Period
Publish Notice of Sale
Sale
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Civil Code Sec. 2923.5 (2008)
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Loans 1/03-12/31/08
Lender must contact borrower
Must wait 30 days to file NOD
HO has right to meeting within 14 days
and HUD counselling
• Statute has special methods of contact
• NOD must state lender has complied
• Also owner must maintain property
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California Civil Code 2923.6 (2008)
• Appeared to create an obligation of
servicers to offer modification
• The terms basically mirrored the Obama
plan.
• Cases on appeal-only one case where
Judge found a right to stay foreclosure
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Income Taxes - Fed
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The Mortgage Forgiveness Debt Relief Act and Debt Cancellation
If you owe a debt to someone else and they cancel or forgive that debt, the
canceled amount may be taxable.
The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude
income from the discharge of debt on their principal residence. Debt
reduced through mortgage restructuring, as well as mortgage debt forgiven
in connection with a foreclosure, qualifies for the relief.
This provision applies to debt forgiven in calendar years 2007 through 2012.
Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if
married filing separately). The exclusion does not apply if the discharge is
due to services performed for the lender or any other reason not directly
related to a decline in the home’s value or the taxpayer’s financial condition.
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Income Taxes - CA
• Mortgage Forgiveness Debt Relief
Extended - Updated 04/13/10
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On April 12, 2010, SB 401, the Conformity Act of 2010 was enacted. It
allows taxpayers who had all or part of the loan balance on their principal
residence forgiven by their lender to exclude the forgiven debt from
California gross income. The new law applies to discharges of qualified
principal residence indebtedness on or after January 1, 2009, and before
January 1, 2013.
http://www.ftb.ca.gov/aboutFTB/Newsroom/Mortgage_Debt_Relief_Law.shtml
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William T. Tanner
Legal Aid Society of Orange County
714-571-5204
[email protected]
Patrick Ulibarri
Law Offices of Sanford Parke
714-740-8009
[email protected]
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• The following slides were intentionally
provided. They include graphs that help
show the dire circumstances of the current
housing market.
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