Circuit Court of Cook County Mortgage Foreclosure Mediation

Program

Homeowner Advocate Training

Patricia NelsonDirector, Foreclosure Mediation and Access to Justice

Ashley GriffithSupervising 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

January-March

Client misses three

payments

AprilPlaintiff

files Complaint

Late April

Borrower is served

MayMeets with Chicago

Legal Clinic for assistance with drafting an Appearance, Answer

to the Complaint to Foreclose Mortgage,

and Motion for Mediation

JuneCase 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.   

JulyBorrower’s Motion for

Mediation was granted due to either a denial of a loan modification, pending trial

payment plan offer, or other legal issue

October

First Mediation

December

Second Mediation—results in no agreement

Late Decembe

rCase is

returned to the trial call

Year One

When is Mediation?Sample Foreclosure Timeline

February-May

Defendant issues

discovery and Plaintiff

answers.

JunePlaintiff 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.

OctoberSummary Judgment Entered

JanuarySale: The sale cannot take place until the redemption period

expires; 3 months after judgment or 7 months

after service, whichever is later

FebruaryCourt approves

the sale and stays possession for 30 days by

statute

March Client must vacate the property

Year Two

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 OptionsBorrower 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 OptionReinstatement

• 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 OptionRepayment 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 HAMPWhat 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 samplesof 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 EligibilityIncome 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 QualificationIncome 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 QualificationSteps 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 QualificationWaterfall 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 QualificationWaterfall 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 QualificationWaterfall 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 QualificationWaterfall 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 QualificationNet 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 QualificationNet 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/CheckMyNPV-WP.pdf

HAMP – Borrower QualificationReasons 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 re-review 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/for-partners/understanding-guidelines/Documents/ServicerExp_DTI_11-06-13.pdf

HAMP Tier 2 – Borrower QualificationWaterfall 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 SettlementIt 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 modificationsFannie 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 FHA-HAMP 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.cfm

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 OptionsBorrower 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 Spottingfor 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

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