REPRESENTING HOMEOWNERS AT MANDATORY SETTLEMENT CONFERENCES 

Copyright © March 2010 Empire Justice Center 

Empire Justice Center is certified by the New York State Continuing Legal Education Board as an Accredited Provider of continuing legal education in the State of New York.  This transitional continuing legal education program has been approved in accordance with the requirements of the Continuing Legal Education Board for up to 2.0 credit hours, of which up to 2.0 can be applied toward Professional Practice requirement. 

Mandatory settlement conferences are now an  integral component to the foreclosure process for subprime loans.  Pro bono lawyers have been approved to represent homeowners for the limited capacity of these settlement       conferences.  This training will address           important considerations for lawyers willing to represent homeowners in this capacity.  Topics covered will include an overview of subprime lending, the NYS foreclosure       process, common legal claims and defenses, as well as evaluating long‐term affordability, loss mitigation options, working and negotiating with lenders, working with housing counsel‐ors, and a review of realistic and successful settlements. 

Empire Justice Center Board of Directors All directors serve as volunteers

John T. O’Connell (Chair) Tom Maligno (Vice Chair) Joseph Casion (Treasurer) Mary A. Lynch (Secretary) Mary A. Lynch (Secretary) Anne Erickson Hon. Andrea Phoenix James C. Moore Hermes Fernandez Laura Gonzalez-Murphy, Ph.D. David A. Munro Christine Rutigliano Candice Lucas Lyn Kelly Melanie S. Wolk

Empire Justice Center

Anne Erickson, President/CEO Bryan Hetherington, Chief Counsel

One West Main Street, Suite 200 Telesca Center for Justice

Rochester, NY 14614 (585) 454-4060

119 Washington Avenue 80 No. Broadway Albany, NY 12210 White Plains, NY 10603 (518) 462-6831 (914) 422-4329

Empire Justice Center at the Public Advocacy Center Touro Law School

225 Eastview Drive - Room 222 Central Islip, NY 11722

Empire Justice is a statewide, multi-issue, multi-strategy public interest law firm focused on changing the “systems” within which poor and low income families live. With a focus on poverty law, Empire Justice undertakes research and training, acts as an informational clearinghouse, and provides litigation backup to local legal services programs and community based organizations. As an advocacy organization, we engage in legislative and administrative advocacy on behalf of those impacted by poverty and discrimination. As a law firm, we provide legal assistance to those in need and undertake impact litigation in order to protect and defend the rights of disenfranchised New Yorkers.

Special Thanks to… This training is a part of the NYS Subprime Foreclosure Prevention Services program, developed to help New York homeowners facing default or foreclosure by providing counseling and legal services. The program is administered by the NYS Division of Housing and Community Renewal/Housing Trust Fund Corporation. The Program provides training and support for housing counselors, mediators and lawyers who are assisting residents with subprime or unconventional mortgages. Information on the program can be found at www.nysdhcr.gov.

Representing Homeowners at Mandatory Settlement Conferences

TABLE OF CONTENTS The New York Foreclosure Process Paths of a Foreclosure in New York State – Flow Chart……………………………1 Paths of a Foreclosure in New York State – Definitions………………………….2-5 The Settlement Conference McKinney’s CPLR Rule 3408 ................................................................................ 6-7

Settlement Conference Process– Flow Chart (Monroe County) ........................... 8 OCA 7th District – Points of Contact for the Court ................................................. 9 RPAPL 1304 Notice – Notice to Borrower Foreclosure Begins ........................... 10 RPAPL 1303 Notice – Notice to Borrower with Summons and Complaint .......... 11 Letter from Court Scheduling Mandatory Conference ......................................... 12-13 Form Order Ending Settlement Conference Process .......................................... 14 Sample Order of Appearance Requiring Plaintiff to Appear ................................ 15 RESPA Qualified Written Request Sample Letter ............................................... 16 Sample Notice of Limited Appearance ................................................................ 17 Sample Settlement Proposal Letter ..................................................................... 18 Credit Reports – Sample Dispute Letter .............................................................. 19 Working with the Housing Counselor

Housing Counseling in NYS and Loss Mitigation: Options and Limitations ........ 20-29 What is Loss Mitigation - The Housing Council ................................................... 30-31 Sample Loss Mitigation Packet ........................................................................... 32-67 More Sample Lender Loss Mitigation Worksheet ................................................ 68-73 HAMP and HAMP - FHA Considerations

Home Affordable Modification Program – PowerPoint ........................................ 74-81 Summary - Obama Administration Making Home Affordable Program Plan ....... 82-89

HAMP and HARP - Q&A for Borrowers ............................................................... 90-91 FHA - HAMP Overview ........................................................................................ 92-93 FHA - HAMP Guidelines ...................................................................................... 94-99 FHA - HAMP Questions and Answers ............................................................... 100-117 HUD Mortgagee Letter – Dated July 30, 2009 .................................................. 118-121

HAMP Escalation Process ................................................................................ 122-123 Sample Form for HAMP Escalation ................................................................... 124 Closing the Deal – Obtaining A Settlement Agreement

Workout Plans and Settlement Agreements: Considerations and Concerns .... 125-130

THE

NE

W Y

OR

K F

OR

CLO

SU

RE

PR

OC

ES

S

The New York Foreclosure Process

MORTGAGE DEFAULT (entire balance due)

(= default in foreclosure case)

Lender sends notices, bills, letters to borrower stating that he/she is delinquent

at least 30 days

BORROWER DELINQUENT

PATHS OF A FORECLOSURE IN NEW YORK STATE

Lender sends borrower:

Lender files lis pendens, summons, and complaint

with the court:

ACCELERATION LETTER

ANSWER DUE

Borrower doesn’t answer

30 days

20 days (borrower served in person)

(borrower served by mail)

AUCTION Right of

Redemption ENDS

2-3 months late with mortgage payments

granted

Real Estate Owned (REO) (Lender takes title)

Third-party buyer

Surplus / Deficiency

Trial or Settlement

Borrower answers: defenses against foreclosure and counter-claims

“DISCOVERY”

Motion for SUMMARY JUDGMENT

denied

Lender files with court

FORECLOSURE CASE INITIATED

Borrower has multiple options until Right of Redemption period ends, including: - pay arrears, become current on loan - negotiate loss mitigation with lender (including loan modification) - sell property; negotiate a short sale - refinance with another lender

©2008 - Neighborhood Economic Development Advocacy Project | 212- 680-5100 | www.nedap.org

Note: This diagram applies to foreclosures in New York State. Each state has its own laws and regulations governing the process.

90-DAY PRE-FORECLOSURE NOTICE* for all subprime and non-traditional loans

(as defined by state law)

MANDATORY SETTLEMENT CONFERENCE*

within 60 days from lender filing proof of service for all subprime and non-

traditional loans (as defined by state law)

KEY

S/P = subprime loan N/T = non-traditional loan

*See summary on following page

Order of Reference signed by judge, court appoints Referee

Lender files with court:

Lender files with court:

Motion for JUDGMENT OF FORECLOSURE AND SALE

Referee computes amount owed by borrower

Court signs Judgment

Lender schedules auction with referee, advertises auction in

newspaper

Borrower may also file notice of appearance

Motion for ORDER OF

REFERENCE

Summons and Complaint served on borrower

if S/P or N/T

if S/P

or N/T

9/08 1

©2008 - Neighborhood Economic Development Advocacy Project. September 2008. www.nedap.org

PATHS OF A FORECLOSURE IN NEW YORK STATE Glossary of Terms: Acceleration letter: A letter sent from the lender (or its representative) to the borrower, which “calls in” the loan – effectively stating that the borrower must pay the entire loan amount by a specified date, otherwise the lender will file a foreclosure lawsuit. Once the mortgage has been accelerated, the lender is no longer compelled to accept arrears, though may still do so. Answer: A written response to the complaint, submitted by the borrower to the lender’s attorney, and filed with the court. The answer is due 20 calendar days from the date of service if the borrower is served in person, or 30 calendar days if the borrower is not personally served. The answer can be submitted with the help of an attorney, or pro se (representing yourself without an attorney). The answer contains defenses to the foreclosure and may also include counterclaims. Arrears: The amount of back payments - plus late fees and other charges - owed by the borrower to the lender. Auction: A public sale of foreclosed properties. Anyone can place a bid to purchase a property. Properties are sold to the highest bidder. Once the property has been sold at auction, the original homeowner loses all “right of redemption,” or opportunity to regain ownership of the property by paying the amount due. Complaint: A written document served to the borrower by the lender’s attorney, indicating that the lender has filed a foreclosure lawsuit, and explaining the grounds for that action against the borrower. Counterclaims: As part of the answer to the complaint, the borrower may include counterclaims, or claims that that the lender owes the borrower money due to violations of the law, thereby reducing the amount that the borrower may owe the lender. Deed-in-lieu of foreclosure: To avoid going through a foreclosure, the borrower voluntarily turns over the deed to the property to the lender. In exchange, the lender agrees that the borrower does not owe any additional debt -- allowing him/her to walk away from the property without a deficiency judgment, and without a foreclosure sale on his/her credit report. This option, as well as other loss mitigation options, may have tax consequences. Default: If the borrower fails to answer the complaint, the borrower has defaulted in the foreclosure case -- meaning that the lender automatically prevails. The lender is not required to serve the borrower with any further notices as the foreclosure case proceeds through the courts. Defendant: The person or entity who is being sued in court. In the case of a foreclosure proceeding, the defendant is the homeowner who has defaulted on his/her mortgage. Defenses: As part of the answer to the complaint, the borrower includes defenses, or claims that contest the foreclosure. These claims may be based on deficiencies in the

2

©2008 - Neighborhood Economic Development Advocacy Project. September 2008. www.nedap.org

foreclosure process (e.g. improper service or lack of standing), or illegalities in the loan itself. Deficiency: After a foreclosed property is sold at auction, the proceeds of the sale go to reimburse the lender and other lien-holders. If the sale price does not sufficiently cover the amount owed, the amount still owed to the lender is called a deficiency. Delinquent: When the borrower initially falls behind on the mortgage (usually 2-3 months), but before the mortgage has defaulted, he/she is said to be “delinquent” on the mortgage. Discovery: The process by which parties gather information through document requests, written questions (called interrogatories), and depositions. Discovery can take a long time. Forbearance: An agreement between the lender and a delinquent borrower wherein the borrower typically pays a lump sum up front, and then enters into a payment plan for the remainder of the arrears. Borrowers need to be cautioned that when they enter into these agreements, they usually waive certain key rights, such as their ability to raise defenses to contest a foreclosure case. Foreclosure: The legal process by which a lender forces a property to be sold, in order to collect on a mortgage loan it claims is owed. Judgment of Foreclosure and Sale: Once signed by a judge, this legal order gives the lender permission to sell the property through a referee, and confirms the total amount owed by the borrower to the lender. Lien / Lien holder: A lien is a legal claim placed on a property as security to repay a debt. For example, if a homeowner does not pay his/her property taxes, the city can place a lien on the property for the amount owed. In New York City, these tax liens are typically sold to private entities, which can lead to foreclosure. The entity that owns the lien on the property is called the lien holder. Lis pendens: Literally meaning, “suit pending” in Latin, lis pendens is a filing with the county clerk that indicates to the public that the property’s ownership is being disputed. This notice formally begins the foreclosure process. Loan Modification: An agreement between the lender and the borrower wherein one or more of the original terms of the mortgage is changed in order to make the mortgage more affordable to the borrower. As with forbearance agreements, borrowers who agree to loan modifications usually waive many key rights, such as their ability to raise defenses to contest a foreclosure case. This option, as well as other loss mitigation options, may have tax consequences. Loss Mitigation: The process by which a lender and borrower who is behind on his/her mortgage attempt to negotiate a deal that is mutually agreeable to both parties. Some possible avenues of loss mitigation include: loan modification, forbearance, short sale, and deed-in-lieu of foreclosure. The earlier the borrower pursues loss mitigation the better, since negotiating a workable deal also becomes more and more difficult as time passes and arrears accumulate. Loss mitigation becomes more difficult when the borrower has multiple mortgages. For example, the borrower may be able to negotiate a loan modification for one loan that is sustainable and affordable. However, if the borrower is also in default on a

3

©2008 - Neighborhood Economic Development Advocacy Project. September 2008. www.nedap.org

second mortgage, and the lender is not willing to negotiate, this second lender may still initiate a foreclosure case against the borrower. Motion: A legal term for a formal request to the court to take action in a case. Mortgage Default: After a delinquent borrower’s loan is accelerated by the lender, he/she is said to be in default. Notice of Appearance: If the borrower does not have any defenses or counter-claims to contest the foreclosure, but still wants to be served with all legal papers during the course of the foreclosure case, he/she can file a Notice of Appearance with the court. A copy of the Notice of Appearance must also be sent to the lender’s attorney. Order of Reference: An Order of Reference sends a foreclosure case to a referee, who will then determine the full amount owed by the borrower to the lender. Plaintiff: A person or entity suing another in court. In the case of a foreclosure action, the plaintiff is the owner of the mortgage. Pro se: When a defendant represents him/herself in a court case (as opposed to having an attorney represent him/her). Pro se is Latin for “for self.” Real Estate Owned (REO): When a foreclosed property does not sell at auction, the lender takes title to the property. The property is then said to be in REO status. The lender may then try to evict the former homeowner, which the lender usually does through the Housing Court. Referee: Once an Order of Reference is signed, a foreclosure case is sent to a referee. The referee computes the total amount owed to the lender by the borrower. Once the lender has obtained a Judgment of Foreclosure and Sale, the referee oversees the auction of the property. This responsibility includes physically conducting the sale, as well as distributing the proceeds following the sale. Referees are typically attorneys. Right of Redemption period: The period in which a borrower may avert a foreclosure through a number of means, including selling the property or refinancing the mortgage. The right of redemption period ends the moment the property is sold at auction. In other states, there is a redemption period even after auction, but not in New York State. Service of Process: The delivery of the summons and complaint to the borrower is called service of process. The lender, through a process server, must attempt to serve the borrower in person. If the process server cannot serve the borrower at his/her home, he may deliver the summons and complaint to another adult residing at the borrower’s address. The process server must then send another copy by mail. If no one is home, the process servicer may leave the notice at the door, as well as send it by mail. This is often called “nail and mail” service. Settlement: The lender and borrower may decide to resolve a foreclosure case outside of court by negotiating a agreement, or settlement. Short-sale: When the amount due on the loan is more than the value of the property, lenders will sometimes agree to accept a short sale. In a short sale, the homeowner sells the property to a third party at fair market value and the lender agrees to accept less than

4

©2008 - Neighborhood Economic Development Advocacy Project. September 2008. www.nedap.org

the full balance in satisfaction of the loan. This option, as well as other loss mitigation options, may have tax consequences. Summary Judgment: A decision granted by a judge based on a motion filed by one of the parties. In a foreclosure case, the judge can issue a summary judgment if he/she decides that the facts in the case are not in dispute, and therefore there is no need for the case to proceed to trial. Summons: A plaintiff in a legal case must file and serve a summons along with a complaint. The summons advises the defendant that they must either appear in court on a specified date, or answer the complaint within a specified period of time. Surplus: After a foreclosed property is sold at auction, the proceeds of the sale go to reimburse the lender and other lien-holders. If the sale price exceeds the amount owed, the extra amount is called a surplus. This money goes to the clerk of the court for keeping. The borrower must file a motion to claim this money. Stay: A stay is a temporary stop to a foreclosure. Borrowers may file an emergency motion with the court to stay the foreclosure sale (called an Order to Show Cause) , but must show that they have a meritorious defense and a compelling reason for the stay. Filing for a Chapter 13 bankruptcy can automatically stay a foreclosure sale. Trial: If the facts of the case are in dispute - the borrower has presented defenses or counter-claims to the foreclosure - the case may go to trial, and ultimately be decided by a judge (where fraud is alleged, a jury may decide the case). If the judge decides in favor of the lender, then the lender proceeds with filing a motion for an Order of Reference, as a first step towards a foreclosure sale. If the judge decides in favor of the borrower, then the foreclosure may be averted.

5

THE

SE

TTLE

ME

NT

CO

NFE

RE

NC

E

The Settlement Conference

McKinney's CPLR Rule 3408

© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.

Effective: February 13, 2010

Mckinney's Consolidated Laws of New York Annotated Currentness

Civil Practice Law and Rules (Refs & Annos) Chapter Eight. Of the Consolidated Laws

Article 34. Calendar Practice; Trial Preferences (Refs & Annos) Rule 3408. Mandatory settlement conference in residential foreclosure actions

(a) [Eff. until Feb. 13, 2015, pursuant to L.2009, c. 507, § 25, subd. e. See, also, subd. (a) below.] In any residential foreclosure action involving a home loan as such term is defined in section thirteen hundred four of the real property actions and proceedings law, in which the defendant is a resident of the property subject to foreclosure, the court shall hold a mandatory conference within sixty days after the date when proof of service is filed with the county clerk, or on such adjourned date as has been agreed to by the parties, for the purpose of holding settlement discussions pertaining to the relative rights and obligations of the parties under the mortgage loan documents, including, but not limited to determining whether the parties can reach a mutually agreeable resolution to help the defendant avoid losing his or her home, and evaluating the potential for a resolution in which payment schedules or amounts may be modified or other workout options may be agreed to, and for whatever other purposes the court deems appropriate. (a) [Eff. Feb. 13, 2015. See, also, subd. (a) above.] In any residential foreclosure action involving a high-cost home loan consummated between January first, two thousand three and September first, two thousand eight, or a subprime or nontraditional home loan, as those terms are defined under section thirteen hundred four of the real property actions and proceedings law, in which the defendant is a resident of the property subject to foreclosure, the court shall hold a mandatory conference within sixty days after the date when proof of service is filed with the county clerk, or on such adjourned date as has been agreed to by the parties, for the purpose of holding settlement discussions pertaining to the relative rights and obligations of the parties under the mortgage loan documents, including, but not limited to deter-mining whether the parties can reach a mutually agreeable resolution to help the defendant avoid losing his or her home, and evaluating the potential for a resolution in which payment schedules or amounts may be modified or other workout options may be agreed to, and for whatever other purposes the court deems appropriate. (b) At the initial conference held pursuant to this section, any defendant currently appearing pro se, shall be deemed to have made a motion to proceed as a poor person under section eleven hundred one of this chapter. The court shall determine whether such permission shall be granted pursuant to standards set forth in section eleven hundred one of this chapter. If the court appoints defendant counsel pursuant to subdivision (a) of section eleven hundred two of this chapter, it shall adjourn the conference to a date certain for appearance of counsel and settlement discussions pursuant to subdivision (a) of this section, and otherwise shall proceed with the conference. (c) At any conference held pursuant to this section, the plaintiff shall appear in person or by counsel, and if appearing by counsel, such counsel shall be fully authorized to dispose of the case. The defendant shall appear in person or by counsel. If the defendant is appearing pro se, the court shall advise the defendant of the nature of the action and his or her rights and responsibilities as a defendant. Where appropriate, the court may permit a representative of the plaintiff to attend the settlement conference telephonically or by video-conference. (d) Upon the filing of a request for judicial intervention in any action pursuant to this section, the court shall send either a copy of such request or the defendant's name, address and telephone number (if available) to a housing counseling agency or agencies on a list designated by the division of housing and community renewal for the judicial

6

McKinney's CPLR Rule 3408

© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.

district in which the defendant resides. Such information shall be used by the designated housing counseling agency or agencies exclusively for the purpose of making the homeowner aware of housing counseling and foreclosure pre-vention services and options available to them. (e) The court shall promptly send a notice to parties advising them of the time and place of the settlement conference, the purpose of the conference and the requirements of this section. The notice shall be in a form prescribed by the office of court administration, or, at the discretion of the office of court administration, the administrative judge of the judicial district in which the action is pending, and shall advise the parties of the documents that they should bring to the conference. For the plaintiff, such documents should include, but are not limited to, the payment history, an ite-mization of the amounts needed to cure and pay off the loan, and the mortgage and note. If the plaintiff is not the owner of the mortgage and note, the plaintiff shall provide the name, address and telephone number of the legal owner of the mortgage and note. For the defendant, such documents should include, but are not limited to, proof of current income such as the two most recent pay stubs, most recent tax return and most recent property tax statements. (f) Both the plaintiff and defendant shall negotiate in good faith to reach a mutually agreeable resolution, including a loan modification, if possible. (g) The plaintiff must file a notice of discontinuance and vacatur of the lis pendens within one hundred fifty days after any settlement agreement or loan modification is fully executed. (h) A party to a foreclosure action may not charge, impose, or otherwise require payment from the other party for any cost, including but not limited to attorneys' fees, for appearance at or participation in the settlement conference. CREDIT(S) (Added L.2008, c. 472, § 3, eff. Aug. 5, 2008; amended L.2009, c. 507, § 9, eff. Feb. 13, 2010.) Current through the Laws of 2009. Copr © 2010 Thomson Reuters END OF DOCUMENT

7

Settlement conference process for homeowners in default of their mortgage

Borrower receives notice from court about SettlementBorrower receives notice from court about SettlementConference with date and time and referral information to housing counseling agency.

Borrower either obtains an attorney or does not.

Borrower meets with housing counseling Intake

Borrower shows up to settlement conference WITHOUT an attorney

Parties appear before referee for first

Borrower shows up to settlement conference WITH an attorney

Borrower receives appointment at Housing Council, sheet of paper with date of appt. to hand to referee,

And pamphlet designed by Empire Justice about the

Borrower meets with housing counseling Intake person on site before the settlement conference

Parties appear before referee for first Settlement conference and negotiate

an adjournment date

Adjournment date scheduled

Settlement conference process

Borrower either hires private attorney for representation or borrower appears

pro se at settlement conferenceReferee schedules next settlement

conference 90 days out

Housing Council screens case for income eligibility and either presents to Empire Justice for review or refers to list of private attorneys

Empire Justice Center screens case and either accepts case OR

recommends one of two options

Parties begin negotiations with assistance of referee

Legal Aid Society represents client for sale or deed in lieu of foreclosure

VLSP or Legal Aid Society assigns

VLSP locates pro bono Attorney for representation

VLSP or Legal Aid Society assigns attorney and attorney appears at next settlement conference

Case sent back to the Housing Council and counselor makes referral to

VLSP or Legal Aid Society

8

OCA 7th District – Points of Contact for the Court  

County Housing Counseling 

Organization Telephone Number 

Physical Address 

Cayuga  The Housing Council 585‐546‐3700 x 3015 716‐240‐1123 

75 College Ave., Suite 412 Rochester, NY 14607 

Livingston Genesee Valley Rural Preservation Co.  585‐658‐4860 

Route 63 Hampton Corners 5861 Groveland Station Road Mt. Morris, NY 14510 

Monroe  The Housing Council 585‐546‐3700 x 3015 716‐240‐1123 

75 College Ave., Suite 412 Rochester, NY 14607 

Ontario Community Unified Today, Inc.  315‐781‐0534 

152 Genesee Street PO Box 268 Geneva, NY 14456 

Seneca Community Action and Self Help  315‐946‐6992 x 302 

48 Water Street Lyons, NY 14489 

Steuben Tri County Housing Council  607‐562‐2477 x 230 

143 Hibbard Road PO Box 451 Big Flats, NY 14814 

Wayne Community Action and Self Help  315‐946‐6992 x 304 

48 Water Street Lyons, NY 14489 

Yates  Keuka Housing Inc.  315‐536‐8707 x 3 160 Main Street Penn Yan, NY 14527 

 

9

Notice to borrowers with home loans 90 days prior to initiation of legal action (Pursuant to RPAPL § 1304)

You Could Lose Your Home. Please Read the Following Carefully

As of ___________, your home loan is _____ days in default. Under New York State Law, we are required to send you this notice to inform you that you are at risk of losing your home. You can cure this default by making the payment of _______dollars by ____________. If you are experiencing financial difficulty, you should know that there are several options available to you that may help you keep your home. Attached to this notice is a list of government approved housing counseling agencies in your area which provide free or very low-cost counseling. You should consider contacting one of these agencies immediately. These agencies specialize in helping homeowners who are facing financial difficulty. Housing counselors can help you assess your financial condition and work with us to explore the possibility of modifying your loan, establishing an easier payment plan for you, or even working out a period of loan forbearance. If you wish, you may also contact us directly at ____________________ and ask to discuss possible options. While we cannot assure that a mutually agreeable resolution is possible, we encourage you to take immediate steps to try to achieve a resolution. The longer you wait, the fewer options you may have. If this matter is not resolved within 90 days from the date this notice was mailed, we may commence legal action against you (or sooner if you cease to live in the dwelling as your primary residence) If you need further information, please call the New York State Banking Department’s toll-free helpline at 1-877-Bank-NYS (1-877-226-5697) or visit the department’s website at http://www.banking.state.ny.us.

10

[RPAPL 1303 NOTICE]

Help for Homeowners in Foreclosure New York State Law requires that we send you this notice about the foreclosure process. Please read it carefully.

Summons and Complaint

You are in danger of losing your home. If you fail to respond to the summons and complaint in this foreclosure action, you may lose your home. Please read the summons and complaint carefully. You should immediately contact an attorney or your local legal aid office to obtain advice on how to protect yourself.

Sources of Information and Assistance

The State encourages you to become informed about your options in foreclosure. In addition to seeking assistance from an attorney or legal aid office, there are government agencies and non-profit organizations that you may contact for information about possible options, including trying to work with your lender during this process.

To locate an entity near you, you may call the toll-free helpline maintained by the New York State Banking Department at 1-877-BANK-NYS or visit the Department’s website at www.banking.state.ny.us.

Foreclosure rescue scams

Be careful of people who approach you with offers to “save” your home. There are individuals who watch for notices of foreclosure actions in order to unfairly profit from a homeowner’s distress. You should be extremely careful about any such promises and any suggestions that you pay them a fee or sign over your deed. State law requires anyone offering such services for profit to enter into a contract which fully describes the services they will perform and fees they will charge, and which prohibits them from taking any money from you until they have complete all such promised services.

11

SAMPLE LETTER TO HOMEOWNER – MANDATORY CONFERENCE

Judge’s Letterhead

IMPORTANT NOTICE

May 1, 2009

Joseph P. Smith 123 Any Street Rochester, New York 14607 RE: Wells Fargo Bank, N. A. v, Smith, Joseph P., et al Dear Homeowner: A mortgage foreclosure action has been commenced against you by your mortgage lender. It is important that you do not ignore this notice or any court papers you receive or YOU MAY LOSE YOUR HOME. A CONFERENCE WITH YOU AND YOUR LENDER IS SCHEDULED BEFORE HON. ON June 7, 2009 at 9:30 a.m. AT THE FLOOR OF THE MONROE COUNTY HALL OF JUSTICE, 99 EXCHANGE BLVD., ROCHESTER, NY.

FOR THE HOMEOWNER

If you wish to have an attorney appear with you at the above conference, you must immediately call 585-546-3700 ext 3015 to schedule an appointment with The Housing Council. You should schedule this appointment at least thirty days before the court conference date above so that there is enough time to refer you to an attorney who can appear with you in Court. You should bring with you all your mortgage papers, including mortgage note and mortgage, and any other closing documents, and notices regarding arrears, as well as a copy of your most recent tax return and pay stub.

12

Joseph P. Smith May 1, 2009 Page 2 PLEASE BE ADVISED, that in addition to appearing at the conference, you must respond to all court papers received from your lender, its process server or attorneys. The number of days you have to respond is stated in the “Summons.”

FOR THE LENDER

Please bring a copy of the note, mortgage, payment history, and any notices regarding arrears. YOUR ARE HEREBY ADVISED, that pursuant to CPLR §3408 and 22 NYCRR 202.27, your failure to appear at the scheduled court conference will result in the foreclosure action against your property going forward. Very truly yours, Hon. Supreme Court Justice Seventh Judicial District xc. David A. Jones, Esq. Bank Counsel Law Firm, P. C. 456 Main Street Rochester, New York 14614

13

STATE OF NEW YORK SUPREME COURT COUNTY OF MONROE Plaintiff(s), Index Number: Date: IAS Justice: -against- Residential Foreclosure Conference Order Defendant(s) A Residential Foreclosure Conference having been held on and the following parties having appeared: Plaintiff, Defendant, it is hereby Ordered that,

This case does not meet the criteria of the Residential Foreclosure Part.

This case meets the criteria of the Residential Foreclosure Part.

This case has been settled

This case has not been settled and shall proceed by Order of Reference Motion.

The parties have entered into a forbearance agreement. On or before . Plaintiff shall either file an Order cancelling the Lis Pendens and discontinuing the action or an Order of Reference/Motion.

Other

So Ordered:

Dated: Hon. J.S.C.

14

At a term of the Supreme Court held in and for The State of New York, Part ,held in and for the County of at , N.Y. , on , 200 . Plaintiff’s Name, Plaintiff INDEX NO. ORDER OF APPEARANCE Defendant’s Name, Defendant, IT IS HEREBY ORDERED THAT a representative of the Plaintiff appear in person or

telephonically with authorization to fully dispose of the above referenced matter at the settlement

conference to be held at , on , 200 , at :

A.M./P.M., pursuant to CPLR §3408.

ENTER

Hon. Justice of the Supreme Court

15

Wednesday, May 13, 2009 [LENDER] ADDRESS Re: [BORROWER’S NAME] Loan No. xxxxxxxxxxxxxxxx Dear Sir or Madam: This office is assisting [BORROWER] to pay his arrears with his mortgage currently held by [LENDER], [and serviced by [ SERVICER]], (loan number- xxxxxxx). This mortgage was originated with [BROKER/ORIGINAL LENDER] on [DATE OF ORIGINATION] for [AMOUNT]. [BORROWER] has received notification that a settlement conference has been scheduled for [DATE/TIME]. We are writing to request clarification of the terms of the refinanced mortgage between [LENDER], [and serviced by [SERVICER]], and [BORROWER]. Please treat this letter as a “qualified written request” under the Real Estate Settlement and Procedure Act, 12 U.S. C. § 2605(e). Specifically, we are requesting an itemization of the following: • Copies of documentation that indicates when [LENDER] obtained ownership of [BORROWER] note. • Copies of documentation that indicates when [SERVICER] obtained servicing rights to [BORROWER]

mortgage. • A copy of [BORROWER] payment history that details payment due date, date payment was posted, late

fees, amounts paid to principal, interest, fees, and escrow account, and any other entries of any nature in the form of a debit, credit, or transfer;

• A key code if necessary to decipher the account history; and • Copies of all loan documents, agreements and contracts between [BORROWER] and [LENDER],

[ORIGINAL LENDER], and/or [BROKER].

Our client does not want to be contacted directly concerning this matter, and any further communications should be addressed to my attention. Please find enclosed an “Authorization to Inspect Records” to facilitate our communications.

I look forward to hearing from you. Sincerely, Rebecca Case Grammatico, Esq. CC: OPPOSING ATTORNEY FIRM NAME

16

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF MONROE _________________________________________________ PLAINTIFF’S NAME, Plaintiff INDEX NO. -against- DEFENDANT’S NAME JOHN DOE (Said name being fictitious, it being the intention of Plaintiff to designate any and all occupants of premises being foreclosed herein, and any parties, corporations or entities, if any, having or claiming an interest or lien upon the mortgaged premises.) Defendant. __________________________________________________

NOTICE OF LIMITED APPEARANCE

Please take notice that Defendant [NAME HERE] hereby appears in this proceeding by

the Empire Justice Center, [ATTORNEY NAME] Esq., of counsel for the limited purpose of

representation at the Mandatory Settlement Conference in Residential Foreclosure Actions,

scheduled on [DATE AND TIME], pursuant to NY CPLR § 3408. Take further note that all

pleadings and court filings entered subsequent to this notice shall be served on both the Empire

Justice Center, as attorney for the Defendant, and the Defendant [him/her]self unless otherwise

stipulated.

Respectfully Submitted,

____________________________________ [ATTORNEY NAME] Attorney for Defendant Empire Justice Center Hon. Michael A. Telesca Center for Justice One West Main Street, Suite 200

Rochester, New York 14614 Date: (585) 454-4060

17

 

 

 

 

Wednesday, May 13, 2009

Plaintiff’s Counsel Address Rochester, NY RE: Plaintiff vs. Defendant Index No. xxxx/xx Property Address: 123 Main Street, Rochester, NY Loan Number: xxxxxxxxxx Dear Mr. xxxxxx: In an effort to encourage settlement in the above matter, I have been authorized by my client to settle this matter in accordance with the terms set forth below. 1. The loan is modified to reflect a total principal balance of $89,900; the interest is reduced and fixed at 8.5% for the life of the loan; the total monthly, including an escrow payment for property taxes and hazard insurance is reduced to $1,000. The term of the mortgage shall remain the same. 2. The mortgage is modified to provide that only force placement of conventional property hazard insurance is authorized should I not maintain property insurance. 3. Defendant agrees to begin making regular monthly payments upon settlement and Plaintiff agrees to dismiss the claims pending in the foreclosure action. 4. Plaintiff agrees there will be no 1099’s issued in connection with this settlement. We hope this proposal will open the lines of communication and ultimately lead to an amicable resolution for all parties. Sincerely, Rebecca Case-Grammatico, Esq. Attorney for the Defendant.

18

  These materials are made possible by a grant through the NYS Subprime Foreclosure Prevention Services program, developed to help New York homeowners facing default or foreclosure by providing counseling and legal services.  The program is administered by the NYS Division of Housing and Community Renewal/Housing Trust Fund Corporation. Information on the program can be found at www.nysdhcr.gov. 

Copyright ©2008 Empire Justice Center www.empirejustice.org  

 

119 Washington Ave. Albany, NY 12210 Phone 518.462.6831 Fax 518.462.6687

www.empirejustice.org

Credit Reports – Sample Dispute Letter

Consumer’s Address

January 1, 2009 Complaint Department Transunion/Equifax/Experian Address City, State, Zip Code Dear Sir or Madam: After reviewing my credit report, I am writing to dispute the following information. I have circled the disputed items on my attached report. These include (list item(s) disputed by name of source, such as creditors, and identify type of item, such as credit account, judgment, etc.) This item(s) is(are) inaccurate because (list exactly why each item is incorrect or incomplete). Supporting documents have been enclosed. Pursuant to the Fair Credit Reporting Act (FCRA), please forward them to the credit furnishers. If you are not going to forward them, please inform me so I may do so myself. Sincerely, Consumer Social Security number of consumer Date of Birth of Consumer Enclosures (list what you are enclosing) Note: The more detailed and specific information you can give to describe the reason it’s inaccurate, the better. You should also list any/all inaccurate personal information and inquiries. For more information about disputing debts: www.creditreportproblems.com  

19

WO

RK

ING

WIT

H T

HE

HO

US

ING

CO

UN

SE

LOR

Working with the Housing Counselor

These materials are made possible by a grant through the NYS Subprime Foreclosure Prevention Services program, developed to help New York homeowners facing default or foreclosure by providing counseling and legal services. The program is administered by the NYS Division of Housing and Community Renewal/Housing Trust Fund Corporation. Information on the program can be found at www.nysdhcr.gov.

Copyright © 2008 Empire Justice Center www.empirejustice.org

 

 

119 Washington Ave. Albany, NY 12210 Phone 518.462.6831 Fax 518.462.6687

www.empirejustice.org

 

Housing Counseling in NYS and 

Loss Mitigation:  Options and Limitations  Part 1 ‐ Housing Counseling in NYS  I.  Introduction to Housing Counseling  

A.  Goals of Housing Counseling “Housing counseling” refers to homeownership education provided primarily by non‐

profit, independent agencies.  Education is provided both in classroom settings and through individual, one‐on‐one sessions.   

 Topics covered include: 

safely navigating the home purchase process  credit repair  budgeting & saving  home improvement   post‐purchase issues   reverse mortgages for seniors   foreclosure intervention 

 Housing counseling promotes sound money management and provides detailed 

education and guidance for any housing need.  Counseling and education empowers households to make informed decisions about their housing futures.   

   B. Training and Standards 

Housing counseling agencies exist in every region of New York State and are staffed by trained professionals. 

 

20

 

1. Training

Counselors providing default and foreclosure assistance receive specialized training. NeighborWorks ® America is responsible for providing training to housing counselors in New York over the next two years through a grant provided under the Foreclosure Prevention Fund through the NYS Division of Housing and Community Renewal (DHCR).Professional certifications in Foreclosure Intervention and Default Counseling are available through NCHEC (NeighborWorks Center for homeownership Education and Counseling). 

2. Standards

A number of housing counseling agencies are HUD-Approved and therefore eligible for HUD’s competitive funding awards annually. In order to become approved by HUD, the agency must meet the requirements set forth in Chapter 2 of HUD Handbook 7610.1 Rev-4, available at: http://www.hud.gov/offices/hsg/sfh/hcc/hccprof7.cfm.

“National Industry Standards for Homeownership Education and Counseling” have been developed by an advisory council including HUD, Fannie Mae and Freddie Mac, national lenders, local counseling organizations, civil rights groups and a number of other entities. The goal is to set a baseline of standards for counseling and to create consistency in the industry. To date, thirty-four housing counseling agencies in New York State have been approved as adopters of the National Industry Standards (having met or exceeded the required benchmarks) and have signed the National Industry Code of Ethics and Conduct. The Standards and more information about this effort are available at: http://www.homeownershipstandards.com.

The NYS Coalition for Excellence in Homeownership Education (CXHE) was created in 2007 to ensure that comprehensive and quality financial literacy, pre- and post-purchase homeownership education and counseling services are available to all New Yorkers. This membership organization represents housing counselors, lenders, state and local government officials, and others that support the promotion of high-quality housing counseling services. The goal of CXHE is to elevate the professionalism of the industry to ensure sustainability of counseling and retention of skilled staff, provide access to training, testing and accreditation for providers, and promote the National Industry Standards for Homeownership Education and Counseling, among other things.

21

 

C. Locating a Housing Counseling Agency

A list of HUD Approved Counseling agencies is available at: http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm?webListAction=search&searchstate=NY, or call the toll-free number, (800) 569-4287.

The NYS Division of Housing and Community Renewal (DHCR) maintains a list of agencies which have received funding to provide foreclosure prevention services under the Foreclosure Prevention Fund in New York, available at: http://nysdhcr.gov/Programs/ForeclosurePrevention/CounselListing.htm.

II. The Role of Housing Counseling in Foreclosure Intervention

A. First Point of Contact for Homeowners

Counselors are often the first point of contact for homeowners seeking professional assistance. HUD-Approved housing counseling agencies will be listed as resources for homeowners in distress on the letters sent by the Office of Court Administration (OCA) and/or by local courts regarding a homeowner’s right to request a settlement conference pursuant to Ch. 472, 2008 N.Y. Laws § 3-a. HUD-certified agencies should also be listed on the 90 Day Notice sent by lenders to homeowners, and may also be listed on other collection letters from the lenders/servicers to homeowners.

The role of the counselor is to be a “trusted advisor” to the homeowner and promote cooperation with the lender/servicer. Counselors try to arrive at a realistic, mutually beneficial resolution for both the lender/servicer and the homeowner. Homeowners are active participants in this process.

B. Intake and Evaluation

Counselors must first determine, based on the individual’s circumstances, the loan and other factors, if a homeowner’s default is “curable” or “incurable.” During this process, counselors spend about 10 to 20 hours with the homeowner and work to essentially underwrite the file. The housing counselor will then make recommendations for the homeowner based on the homeowner’s current finances and what makes sense.

The intake and evaluation process consists of the following:

• Conduct an intake including basic demographic information, lender and loan information, and reason for delinquency.

• Collect all required verbal or written authorization forms that will allow organization to (a) submit data for grant purposes, (b) open files for program monitoring, (c) pull credit record, and (d) release information from/to lender/servicer.

22

 

• Verify income and budget. • Develop a written Action Plan that includes a statement as

to why the homeowner is delinquent, an assessment of the property’s condition and calculation of equity, a financial assessment of the homeowner, steps to resolve the delinquency by both the homeowner and counselor, and referrals to other service providers.

• Take steps to obtain a solution outlined in the written Action Plan and document using counseling notes that indicate date counseling occurred.

• Collect supporting documentation and client follow-up. C. Assessing Options

1. Sale of home Housing counselors make reasoned decisions, together with homeowners, regarding whether a homeowner can afford the home. A counselor will not advise a homeowner to stay in a home where they do not have a reasonable chance to succeed as an owner.

2. Loss mitigation If the counselor determines, together with the homeowner, that the

homeowner has a reasonable chance to keep the home, the housing counselor will engage in loss mitigation negotiations with the mortgage servicer or owner of the loan.

3. Referral to Legal Assistance Housing counselors receive training regarding issue spotting in subprime

and other loans, as well as how and when to refer homeowners for legal assistance. Housing counselors are very cognizant of their role and are very careful not to engage in the practice of law. Most legal referrals will be made to local legal aid organizations in their community. DHCR has strongly encouraged housing counseling agencies who receive funding through the Foreclosure Prevention Fund to work together with legal aid programs. The result has been a closer relationship between housing counselors and legal aid lawyers and a more cohesive referral process. In some cases, housing counselors may continue to work in unison with lawyers to provide assistance to a homeowner (for example, the lawyer may be representing the homeowner in the foreclosure while the counselor continues to negotiate with the lender’s loss mitigation department).

23

 

III. The Role of Counselors in Preparing Homeowners for Settlement Conferences

The goal is for housing counselors to work directly with attorneys from legal aid organizations or with a private lawyer representing a homeowner pro bono if available, as well as with the homeowner, to prepare 2 to 3 preferred resolutions to be presented at the Settlement Conference. As detailed above, the decisions are based on verified finances and discussions with the servicer when possible. The new loan proposal will basically be underwritten by the counselor before it is presented and all relevant information will be brought to the conference.

In some instances, if legal representation is not available for the homeowner, a housing counselor may accompany a homeowner to the Settlement Conference for purposes of advising on loss mitigation options, but will not engage in legal representation.

Part II - Loss Mitigation: Options and Limitations

I. Basic Loss Mitigation Terms

Arrears refers to the total amount that is past due, including missed monthly payments, fees and costs.

Default is defined in the loan note; homeowners are generally considered to be in default after missing one monthly payment though lenders typically will not institute foreclosure proceedings until after a homeowner has missed at least 3 monthly payments.1 Delinquency is another term for default.

Reinstatement means paying off all of the arrears due, thus bringing the loan current. Another term for reinstatement is to cure the arrears.

Workout refers to an agreement between the lender and the borrower to resolve a default.

II. Loss Mitigation Options

Lenders often will not engage in loss mitigation until a homeowner is 3 or more months behind. Loss mitigation may continue after a foreclosure has been filed. Lenders generally do not stay foreclosure proceedings even though the loan is in the loss mitigation process, unless specifically requested to do so.

                                                            1 As of September 1, 2008, lenders must send borrowers with “subprime,” “high-cost” and “non-traditional” home loans a notice of their intent to foreclose at least 90 days prior to the initiation of the foreclosure.

24

 

Loss mitigation options available to a homeowner in default depend on a number of factors including the type of loan, the owner, investor or trustee of the loan, the number of months in arrears, the loan’s status in the foreclosure process, and the homeowner’s circumstances.

A. Borrowers Experiencing Temporary Hardship

For borrowers experiencing a temporary reduction in income or economic hardship (such as job loss, medical expenses, car repair, etc.), but who will be able to resume mortgage payments after a specified period, options include:

Repayment plan - a written agreement between the borrower and lender outlining how to handle missed payments. Generally, these agreements require higher payments than the regular mortgage amount for a short period of time until the loan is brought current. Full reinstatement – borrower pays the entire

amount due, including all fees and costs owing. Partial re-instatement – lender allows the

borrower to pay an amount that is less than the total amount due and owing; a repayment agreement is established (usually for up to 12 months) to allow the borrower to repay the balance of the arrears.

Forbearance agreement - lender allows borrower to make

either lower payments or no payments for a specified period of time (usually 3 to 6 months). The loan term can be extended to allow the borrower to pay the arrears at the end of the loan term, or the borrower will make a payment each month, in addition to the regular monthly payment, after the forbearance period ends (like a repayment plan).

Special forbearance agreement – allows the borrower to make partial monthly payments, usually for up to 1 year; at the end of the forbearance period, borrower is generally required to pay entire amount past due.

B. Borrowers with Unaffordable and/or Subprime Loans

Borrowers with subprime loans that were unaffordable from the outset or that have become unaffordable because of a change in the terms of the loan (such as an increase in the interest rate) or because the monthly payments encumbered too much of their income, may have the

25

 

following additional options, or a combination of all possible options, available to them:

Loan modification- involves changing one or more terms of the note in order to help borrowers bring a defaulted loan current or make a loan affordable. Loan modifications may include some or all of the following, among others:

• Change of the loan product, such as from an adjustable rate to a fixed rate mortgage;

• Reduction of the interest rate, either for al limited number of years or for the entire term of the loan;

• Reduction of the principal owed on the mortgage and note;

• Extension of term of mortgage Waiving certain fees – servicers keep all fees (except attorneys fees) charged to a borrower in default. Therefore, they have discretion to waive these fees to effectuate a workout.

Loan modifications may require the borrower to waive any defenses and claims with respect to the underlying transaction.

C. Borrowers Experiencing Long-Term Hardship – Cannot save home

For borrowers who do not want to or are unable to maintain their home (typically due to a permanent loss of income, increase in expenses, unaffordable property taxes or age of homeowner and/or home) but want to avoid foreclosure, options include:

Assumption of the loan - transfers home and mortgage to a third party who agrees to take responsibility for (assumes) the existing mortgage. Not all mortgages are assumable.

Pre-foreclosure sale - borrower sells home at its current market value. If the current market value is less than the amount due under the mortgage and note, the borrower petitions the owner to accept the market value in full satisfaction of the mortgage and note, also known as a “short sale”. If the sale is for more than the amount owed, it is considered a “full sale.”

Deed-in-lieu of foreclosure - borrower voluntarily signs the

deed over to the owner of the loan in exchange for full satisfaction of the note and mortgage.

26

 

D. Borrowers with FHA-Insured Loans

For loans that are insured by the U.S. Department of Housing and Urban Development (HUD), known as “FHA-Insured” loans, HUD requires lenders to consider all loss mitigation options available under their guidelines before the lender can proceed with foreclosure. HUD offers cash incentive payments to lenders to engage in loss mitigation. Loss mitigation options include:

Special forbearance – a written repayment agreement. Streamline refinance – refinancing the loan with a new FHA-

insured loan; does not require lender to underwrite the refinanced loan.

Loan modification – a permanent change of the loan terms. Partial claim – HUD pays up to 12 months of arrears and

takes a junior lien on the home in the amount of the partial claim.

Pre-Foreclosure Sale – allows homeowner to sell home for the fair market value, even if that market value is less than the amount owed. HUD waives its right to any deficiency.

Deed in lieu of foreclosure – transfers ownership of the home to HUD in exchange for cancellation of the mortgage and note.

E. Borrowers with VA-Insured Loans

Similarly, the Department of Veteran’s Affairs requires lenders to exhaust loss mitigation options before foreclosure can be initiated on loans they insure. Loss mitigation options include:

Forbearance – a written repayment agreement. Modification - a permanent change of the loan terms. Assumption of mortgage – a third party may assume

repayment obligations for the loan, though the original mortgagor remains liable.

Compromise Claim – similar to a “pre-foreclosure sale” or a “short-sale.”

Refinance – the VA has an interest rate reduction program that can allow a homeowner to refinance a high rate loan.

Refunding – the VA can buy back a loan in default and assume servicing.

Deed in lieu of foreclosure - transfers ownership of the home to the VA in exchange for cancellation of the mortgage and note.

F. Borrowers with RHS Loans

Loans made through the U.S. Department of Agriculture, the Rural Housing Services (RHS) (f/k/a Farmers Home Administration) may have the following options specifically available to them:

27

 

Interest credit and payment assistance – provides direct payment assistance to homeowner, payable at sale or move from home.

Payment moratorium – may defer payments for up to 2 years.

Delinquency workout agreement – like a repayment agreement.

Protective advances – provides for advance payments for taxes, repairs, or insurance to be paid back by the homeowner.

Special forbearance – a written repayment agreement. Modification - a permanent change of the loan terms. Pre-foreclosure sale - allows homeowner to sell home for the

fair market value, even if that market value is less than the amount owed. RHS waives its right to any deficiency.

Deed in lieu of foreclosure - transfers ownership of the home to RHS in exchange for cancellation of the mortgage and note.

III. Limitations to Loss Mitigation

A. Timing It is increasingly difficult to negotiate with lenders and servicers.

They are taking anywhere from 3 to 6 months to process files. Information valid at submission of the loss mitigation request may have significantly changed by the time the file is reviewed. The homeowner has fallen even further behind and foreclosure fees and costs have significantly increased. When servicers finally present a homeowner with a loss mitigation or loan modification package, borrowers frequently are given only limited time to review what my be a complex legal document.

B. Investor Restrictions As a result of securitization, oftentimes, an agreement between

the servicer and the investor in the loan (the “pooling and servicing agreement” controls what options are available to the homeowner. It can be frustrating if the homeowner presents a proposal that is affordable for them, makes business sense to the lender/servicer, but is ultimately rejected because the investor will not allow it.

C. Fees and Costs

Once a loan goes into default, fees and costs begin to accumulate. These costs accelerate when the loan file is referred to a lawyer to initiate foreclosure proceedings. Fees and costs are especially high in New York and can be the prohibiting factor for homeowners who are trying to cure a default. Most notes require the borrower to pay those fees and costs that are “reasonable and actually incurred.” Fees and

28

 

costs should be carefully scrutinized to make sure they meet the terms of the note.

D. Compensation Structure for Servicers and Attorneys

Mortgage servicers, as well as foreclosing attorneys, may actually get paid more or receive better compensation if they foreclose rather than if they reach a loss mitigation resolution. The compensation structure for these entities can be a real disincentive to reach a settlement.

E. Poor Customer Service

Common problems with lender or servicer customer service include inadequate staffing, lack of training, the fact that borrowers or counselors rarely work with the same loss mitigation representative throughout the process, and inability to reach someone with authority to make decisions about the loan, outside prescribed guidelines. These problems are now compounded by the increased volume of cases being referred to loss mitigation departments.

Resources:

National Consumer Law Center, Foreclosure Prevention Counseling: Preserving the American Dream (2007).

Department of Housing and Urban Renewal, “Servicing and Loss Mitigation Frequently Asked Questions,” at <http://www.hud.gov/offices/hsg/sfh/nsc/faqnsctc.cfm>.

Prepared by: Kirsten Keefe Stephanie Galvin Senior Staff Attorney Housing Counselor Empire Justice Center Albany County Rural Housing Alliance, Inc. kkeefe@empirejustice.org sgalvin@acrha.org

December 2008

29

30

31

SA

MP

LE L

OS

S M

ITIG

ATIO

N P

AC

KE

T

Sample Loss Mitigation Packet

32

33

34

35

36

37

38

39

40

41

42

43

44

45

46

47

48

49

50

51

52

53

54

55

56

57

58

59

60

61

62

63

64

65

66

67

FINANCIAL WORKSHEET WELLS FARGO HOME MORTGAGE, INC. LOAN NUMBER:

MIC/LGIC No: ___________________ Primary Insurance Certificate No: ____________

Borrower’s Name Social Security Number

Borrower’s Name Social Security Number

Home Telephone Number ( ) Work Telephone Number(s) ( ) ( )

If necessary, who should we call to set up an appointment to appraise the property:

PROPERTY ADDRESS Street Address, City, State, Zip Code

MAILING ADDRESS (If different than property address) Rent Own How Long _________ Street Address, City, State, Zip Code

I. MONTHLY INCOME DATA

DESCRIPTION INCOME BORROWER INCOME CO-BORROWER TOTAL

NET SALARY/WAGES COMMISSION/BONUSES OTHER (IDENTIFY) TOTAL NET INCOME

II. ASSETS III. LIABILITIES

DESCRIPTION ESTIMATEDVALUE

DESCRIPTION MONTHLY PAYMENT

BALANCE DUE

HOME MORTGAGE

OTHER REAL ESTATE (explain) OTHER MORTGAGE/RENT

AUTOMOBILE ALIMONY/CHILD CARE

AUTOMOBILE AUTOMOBILE

CHECKING ACCOUNTS AUTOMOBILE

SAVINGS/MONEY MKT. UTILITIES (total)

IRA/KEOGH ACCOUNTS INSURANCE

401K/ESOP ACCOUNTS STUDENT LOAN

STOCKS/BONDS, CD’S CREDIT CARDS (total)

OTHER INVESTMENT (explain) OTHER EXPENSES (identify)

TOTAL

Please briefly explain your hardship or reason for being delinquent:

I (we) certify that the financial information stated above is true, and is an accurate statement of my/our financial condition. I/We understand and acknowledge that any action taken by the lender of my/our mortgage loan on my/our behalf will be made in strict reliance on the financial information provided. My/Our signature(s) below grants the holder of my/our mortgage the authority to obtain a credit report to verify the information in this financial to be accurate. NOTICE: ATI Title Co. is a subsidiary of Wells Fargo Home Mortgage, Inc. A lender is allowed to require the use of an Attorney, Escrow Agent, Credit Reporting Agency or Real Estate Appraiser chosen to represent the lender’s interest. By _________________________ Date _____ / _____ / _____ By _______________________ Date _____ / _____ / _____

FINAL INSTRUCTIONS• Make sure you have signed and dated the form • Include copy of your last year’s Federal Tax Return with all attachments • Include copy of your most recent paystubs or proof of income if self-employed

68

Borrower Financial Form

Loan # ________________

Property Address :Borrower Information

Borrower's Name Co-Borrower's Name

Social Security # Home Phone # Work Phone # Social Security # Home Phone # Work Phone #

Mailing Address Mailing Address

Do you occupy the property? Yes_____ No_____ If Rental: Monthly Rental income $______

If No: Is the property a Rental property? Yes_____ No_____ Last date owner occupied __________

Have you filed Bankruptcy? Yes_____ No_____ If Yes: Chapter 7 _____ Chapter 13_____ Filing Date:______

Any other liens on subject property? Yes_____ No_____ If Yes: Is it Current? Yes_____ No_____ Balance Due $______________

Monthly IncomeBorrower-Employer Position Years Co-Borrower-Employer Position Years

Gross Wages: $ Gross Wages: $

Net Wages: $ Net Wages: $

Child Support: $ Child Support: $

Alimony: $ Alimony: $

Rental Income: $ Rental Income: $

Other Income: ( ) $ Other Income: ( ) $

Other Income: ( ) $ Other Income: ( ) $

Other Income: ( ) $ Other Income: ( ) $Monthly Expenses Assets (Estimated Values)

Food $ Auto Loans $ / $ Home $

Utilities $ Personal Loans $ / $ Other Real Estate $

Transportation $ Student Loans $ Checking Accounts $

Auto Insurance $ Tuition $ Savings/Money Market $

Life Insurance $ Other Mortgages/Rent $ / $ IRA/Keogh Accounts $

Child Support $ Other expenses $ 401K/ESOP Accounts $

Alimony $ Other expenses $ Stocks, Bonds, CD's $

Child Care $ Other expenses $ Other Investments $

Credit Cards $ Other expenses $ Other Investments $

I Agree that the financial information provided is an accurate statement of my financial status. I understand and acknowledge that any action taken by the lender of my mortgage loan on my behalf will be made in strict reliance on the financial information provided. My signature below grants the mortgagee the authority to confirm the information I have disclosed in this financial statement, to verify that it is accurate by ordering a credit report and to contact myreal-estate agent and / or credit counseling service representative if applicable. Discussions and negotiations of a possible foreclosure alternativewill not constitute a waiver of or defense to my lender's right to commence or continue any foreclosure or other collection action and an alternative toforeclosure will be provided only if an agreement has been approved in writing by my lender. I may be required to provide additional information.

A property appraisal and a brokers price opinion may be required as part of the review process. The cost of these could be charged to your mortgage.If the workout is denied and an appraisal and/or BPO have been ordered, the cost of these will be billed to your account and you could be responsible for repayment. Access will be required to the property by the appraiser and/or broker.

Signature of Borrower Date

Signature of Co-Borrower Date

69

CHSCHKLST-0509

Borrower(s) Name: ________________________________________________________________________________________ Loan Number(s): _______________________________________________________________________________________ �� Owner Occupied �� Non-Owner Occupied

SECTION 1: Required Documentation for Borrower and Co-Borrower

If you are a Wage Earner (you receive a W-2 from your employer) please use the following checklist:

�� Two (2) most recent Pay Stubs (two for each borrower)Length of service with Current Employer: Borrower Year(s):________ Month(s):________ Co-Borrower Year(s):________ Month(s):________

�� Most recent one (1) month’s of Complete Bank Statement (must provide all pages)�� Most recent statement(s) supporting assets listed on page 2 of the Financial Information Form (must provide all pages of statements)

�� Most recent Tax Return Completed (signed with all pages) or most recent filed and proof of extension (signed with all pages)

�� Proof of Income for other household members living in the home (Alimony, Child Support, Pension, etc.)if you want such income considered for a loan workout

�� Proof of any other Income received (Alimony, Rental, Child Support, Pension, etc.)�� Proof of occupancy – a recent utility bill in your name at property address�� If loan is Non-Escrowed

A) Copy of the most recent property tax bill(s) with a copy of the canceled check for all applicable taxes (County, City, School, etc.)B) Copy of the current insurance declaration page for all applicable coverage types (must show premium amount for homeowner's,

flood, and wind)C) Proof of payment of Homeowner’s Association Fees (if applicable)

�� Non-Owner Occupied (ONLY)A) Rental Income with copies of Rental AgreementB) Principal, Interest, Taxes, and Insurance for Primary Residence $____________________________________C) Mortgage Holder(s) for Primary Residence ______________________________________________________D) Primary Residence Address (input below)

�� Completed Financial Information Form (enclosed)

�� Completed Hardship Affidavit (enclosed) – completed and signed by all Borrowers (no notary required)

�� Completed 4506-T – Request for Transcript of Tax Return (enclosed)

If you are Self Employed, please use the following checklist:

�� P & L Statement / Audited or reviewed YTD Income Statement (must provide)

�� Most recent two (2) years’ Tax Returns Completed (personal and business, signed with all pages) or 1099s or most recent two (2) yearsfiled and proof of extension

�� Last four (4) months’ of complete Business and Personal Bank Statements (must provide all pages. If a business account is not used, provide a written statement stating a business account is not used.)

�� Most recent statement(s) supporting assets listed on page 2 of the Financial Information Form (must provide all pages of statements)

�� Length of time of Business Ownership: Borrower Year(s):________ Month(s):________ Co-Borrower Year(s):________ Month(s):________

�� Proof of Income for other household members living in the home (Alimony, Child Support, Pension, etc.)if you want such income considered for a loan workout

�� Proof of any other Income received (Alimony, Rental, Child Support, Pension, etc.)

�� Proof of occupancy – a recent utility bill in your name at property address

�� If loan is Non-EscrowedA) Copy of the most recent property tax bill(s) with a copy of the canceled check for all applicable taxes (County, City, School, etc.)B) Copy of the current insurance declaration page for all applicable coverage types (must show premium amount for homeowner's,

flood, and wind)C) Proof of payment of Homeowner’s Association Fees (if applicable)

�� Non-Owner Occupied (ONLY)A) Rental Income with copies of Rental AgreementB) Principal, Interest, Taxes, and Insurance for Primary Residence $____________________________________C) Mortgage Holder(s) for Primary Residence ______________________________________________________D) Primary Residence Address (input below)

�� Completed Financial Information Form (enclosed)

�� Completed Hardship Affidavit (enclosed) – completed and signed by all borrowers (no notary required)

�� Completed 4506-T – Request for Transcript of Tax Return (enclosed)

Primary Address:

Comments:

70

SECTION2: Financial Information FormLoan Number: Page 1 of 3

Months Past Due Second Loan Months Past Due

Balance

$___________

How long employed?

Self Employed?

□ Yes □ No

How long employed?

Self Employed?

□ Yes □ No

Employer Phone ( )

Employer Phone ( )

Social Security Number __________-________-__________ Social Security Number __________-________-__________

Home Phone ( ) Best Time to Call: Home Phone ( ) Best Time to Call:

Work Phone ( ) Best Time to Call: Work Phone ( ) Best Time to Call:

Other Phone ( ) Best Time to Call: Other Phone ( ) Best Time to Call:

Employer Employer

Employer Address Employer Address

Date Process Began

If you are in an active bankruptcy, we will need to work with your attorney on a possible resolution.

Borrower Co-Borrower

Date of Bankruptcy Filing

EMPLOYMENT INFORMATION

Bankruptcy Case NumberBankruptcy Chapter TypeAre you in an Active Bankruptcy?

□ Yes □ No

Bankruptcy Associate Name Bankruptcy Attorney Address Bankruptcy Attorney Phone ( )

Realtor Name Realtor Address Realtor Phone ( )

BANKRUPTCY STATUS

LOAN INFORMATIONLoan Account Number Second Loan Account Number

Mortgage Company Are you currently working with Chase on a foreclosure prevention resolution?

□ Yes □ No

Which foreclosure resolution is in process?

□ Refinance □ Repayment Plan □ Short Sale

□ Modification □ Deferment □ Deed-in-Lieu

Chase Associate Phone ( )

PROPERTY INFORMATIONProperty Address (street, city, state & zip code) Mailing Address (If different than Property Address)

# of Dependents

# of Units at Property Property Condition?

□ Good □ Fair □ Poor

Chase Associate Name

Reside at Property?

□ Borrower □ Co-Borrower

BORROWER INFORMATIONChase offers options for resolving your home loan issues. Please answer the questions below as completely and accurately as possible.

This information will only be used to aid in the evaluation of homeownership preservation options, not for any other purpose.

Co-BorrowerBorrower

Want to Retain Property?

□ Yes □ No

Is the Property for sale? Listing Amount:

□ Yes □ No $_______________

# of People in Household

Name (Include Jr. or Sr. if applicable) Name (Include Jr. or Sr. if applicable)

Marital Status

□ Unmarried □ Married □ Separated □ Divorced

Marital Status

□ Unmarried □ Married □ Separated □ Divorced

E-mail Address

Permission to Contact Via E-mail? □ Yes □ No

E-mail Address

Permission to Contact Via E-mail? □ Yes □ No

CHOCFIF-0509

71

Borrower Name: SECTION2: Financial Information FormLoan Number: Page 2 of 3

Amount Owed Value Vehicle Model/Year Amount Owed Value

$ $ Automobile $ $

$ $ Automobile $ $

$ $ Automobile $ $

$ $ Motorcycle $ $

$ $ Boat $ $

$ $ Motor Home $ $

$ $ Airplane $ $

$ $ Other: $ $

$ $ Other: $ $

$ $ $ $

$

$

Monthly Gross Income

$

$

$

$

Monthly Amount

Asset

MONTHLY INCOME INFORMATION

ASSETS

Co-Borrower

$

$

$

$

$

$

Investments

Retirement Funds

Other Real Estate

Home

Employer:

Employer:

Employer:

Employer:

Total

Other:

Other:

Total

Other:

Other:

Other:

Savings Balance

Checking Balance

Income Source (Employer Name, Rental, etc.)

$

$

$

$

$

$

$

Monthly Gross Income

Rental Income:

Income Source (Employer Name, Rental, etc.)

Employer:

Employer:

Employer:

$ Total

Employer:

Rental Income:

Other:

Other:

Total

Borrower

Additional Income DescriptionAlimony, child support, or separate maintenance income need not be

revealed if Borrower or Co-Borrower does not choose to have it considered for approval of a loan workout.

Borrower / Co-Borrower

Total

CHOCFIF-0509

72

Borrower Name: SECTION2: Financial Information FormLoan Number: Page 3 of 3

Date

Date

Other Home Loans, Rents & Liens

$

Monthly Expense

TOTAL

Other

Communications (Phone, Cell Phone, Internet)

Utilities

Miscellaneous Spending Money

Food

Child Care, Child Support & Alimony

Medical Expenses

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

Co-Borrower Signature

Borrower Signature

Health Insurance

Credit Cards & Installment Loans

I agree that the financial information provided is true and accurate as of the date set forth opposite my signature and that any intentional or negligent misrepresentation of the information contained in this document may result in civil liability, including monetary damages, to any person who may suffer any loss due to reliance upon the document, and/or in criminal penalties including but not limited to fine or imprisonment or both under the provisions of Title 18 United States Code, Sec. 1001, et seq. I understand and acknowledge that any action taken by the lender is in strict reliance on the financial information provided. My signature/acceptance below grants the holder of my mortgage or its designee the authority to confirm the information that I have disclosed in this financial statement, to verify it as accurate by ordering a credit report, and to contact my realtor and/or credit counseling service.

By providing a wireless telephone number, you consent to receiving autodialed and pre-recorded message calls from the lender or its third-party debt collector at that number.

I represent that

□ I am

□ I am not currently occupying the property securing the loan as my primary residence and that I intend to continue occupying the property as my primary residence.

$

$

$

$

$

MONTHLY EXPENSES

$

$

$

$

Auto Insurance & Other Auto Expenses

Auto Loan(s)

$

Borrower Co-Borrower

CHOCFIF-0509

73

HA

MP

& H

AM

P-F

HA

CO

NS

IDE

RAT

ION

S

HAMP & HAMP-FHA Considerations

2/26/2010

1

Home Affordable Modification Program

An overview of the Obama Administration’s attempt to help ease the foreclosure crisis

Representing Homeowners at Settlement ConferencesContinuing Legal Education

March 3, 2010

AN OVERVIEW

• The goal of the Housing Affordable Modification Program (“HAMP”) is to lower the monthly mortgage payments (includingthe monthly mortgage payments (including escrow) of qualified borrowers to, at most, 31% of their gross monthly income.

1

WHO QUALIFIES?

• What are the initial eligibility requirements for the Home Affordable Modification Program?

– 1) Owner‐occupied, it must be the primary residence, and it cannot be investor‐owned, vacant or condemned.

– 2) Origination date before January 3, 2009.– 3) All mods must be completed prior to December, 2012.

2

74

2/26/2010

2

QUALIFICATION PROCESS  (In theory)

• Depending on lender/servicer, some will do qualification over phone and some require upfront paperwork to be sent itupfront paperwork to be sent it

– As of March 1, 2010, ALL HAMP applications will require upfront documentation

• First test ‐ is homeowner over the 31% threshold?

• If so, servicer will do an NPV test to determine if loan qualifies

3

What’s an NPV?

• The goal of the NPV test is to determine the loss a lender would take on any particular loan if the lender were to foreclose, and compare it to the loss a lender would take if it were toto the loss a lender would take if it were to modify the loan in such a way as to satisfy the 31% debt‐to‐income ratio 

• If Mod is cheaper  HAMP Step 1

• If FC is cheaper  FAIL

4

What’s an NPV? (cont’d)

• Original model created by FDIC

• Lots of variables, and each servicer does it li h l diff lslightly differently

• Not released to public

5

75

2/26/2010

3

6

7

QUALIFICATION PROCESS (cont’d)• Docs required

– HAMP affidavit

– 4506‐T EZ IRS transcript request

Two recent consecutive pay stubs– Two recent, consecutive pay stubs

– Proof of any other income

– Household expenses

• Some lenders want these upfront, others after Trial Period

8

76

2/26/2010

4

QUALIFICATION PROCESS (cont’d)• If NPV passes, how does payment get lowered to 31% of monthly income?– “Waterfall” approach

1 Interest rate reduction1. Interest rate reduction

2. Term extension

3. Balloon payment

• All automated process through NPV model

9

HAMP “Waterfall” Example

• 2005: Home purchased

for $75,000, mortgage is for $70,000 with 30‐year loan at 8% fixed rate

• 2009: Homeowner’s income

• Homeowner’s Current Monthly Mortgage Expenses

• Principal and Interest $513

• Taxes $325

• 2009: Homeowner s income drops from $55,000 to $30,000 and HO falls 6 months behind on payments to bank.  UPB is $66,755 when homeowner falls behind

• Homeowner’s Insurance $62

• TOTAL PITI PAYMENT $ 900

• 6 months of interest arrearages = $2,940• Missed escrow payments = $2,322

• FC costs = $2,738

• TOTAL payments to be capitalized=  $8,000

1110

HAMP “Waterfall” Example (cont’d)

• Step 1: Is homeowner paying more than 31% threshold?

• Step 2: Capitalize arrearages and FC costs

• Step 3: Lower interest rate (0 125% at a time)

YES. Homeowner grosses $2,500/month.  PITI payment is $900, or 36% of  gross income. 

UPB increases from $66,755 to $74,755. 

Interest rate of 3.750% would result in monthly• Step 3: Lower interest rate (0.125% at a time) until 31% target is hit, with 2% interest rate as floor

Interest rate of 3.750% would result in monthly principal 

and interest payment of $375.  With taxes and insurance, total PITI payment would then be $762.  

With the current $2,500 monthly income, that equals 

30.48% debt‐to‐income ratio.  Threshold has been reached, and therefore no further steps necessary.

1211

77

2/26/2010

5

HAMP “Waterfall” Example

• 2005: Home purchased

for $125,000, mortgage is for $120,000 with 30‐year loan at 8% fixed rate

• 2009: Homeowner’s income

• Homeowner’s Current Monthly Mortgage Expenses

• Principal and Interest $880

• Taxes $325

• 2009: Homeowner s income drops from $75,000 to $50,000 and HO falls 6 months behind on payments to bank.  UPB is $114,321 when homeowner falls behind

• Homeowner’s Insurance $62

• TOTAL PITI PAYMENT $ 1,267

• 6 months of interest arrearages = $4,596• Missed escrow payments = $2,322

• FC costs = $3,082

• TOTAL payments to be capitalized=  $10,000

1312

HAMP “Waterfall” Example (cont’d)

• Step 1: Is homeowner paying more than 31% threshold?

• Step 2: Capitalize arrearages and FC costs

• Step 3: Lower interest rate (0.125% at a time) until 31% target is hit

YES. Homeowner grosses $2,500/month.  PITI payment is $1,267, or 51% of  gross income. 

UPB increases from $114,321 to $124,321. 

Interest rate of 2% would result in monthly principal and interest payment of $511.  With taxes and 

i l PITI ld h b $898g

• Step 4: Extend term to 40 years

• Step 5: Forbear principal

insurance, total PITI payment would then be $898.  

With the current $2,500 monthly income, that equals 

35.92% debt‐to‐income ratio.  Threshold has NOT 

been reached, and therefore further steps AREnecessary.

Brings P&I payment down to $403.  Brings DTI down to 

31.60%.  Still above threshold.

Forbear $4,904.  This brings UPB down to $119,417, which 

Equals monthly PITI payment of $775 (exactly 31% of DTI)

1413

14

78

2/26/2010

6

QUALIFICATION PROCESS (cont’d)• STEP 1

– 3‐month “trial” period

• BANK REVIEW OF ALL DOCS (even if they reviewed once already)

• STEP 2– Permanent loan mod

• Locked‐in interest rate for 5 years• No down payment• All old late fees waived• Capitalize all arrearages and FC costs

15

AND THEN THERE IS THE REALITY…• Upfront qualification issues• Step 2 happening slowly or not at all

– Docs not getting in– Servicers dragging feetServicers dragging feet– Recent push by Obama administration?

• Denials without any reason• Miscomputed 31% payment• Receipt of Multiple HAMP offers

16

QUICK AND DIRTY ‐‐‐ HOW WE LOOK AT BUDGET

– Look for income‐to‐mortgage ratio – if anywhere between 30% and 50% you have a good shot

– Submit everyone‐ The docs required for HAMP are requested for all modification consideration anyway

17

79

2/26/2010

7

THE COURT’S ROLE IN ALL THIS• Adjournments common

• If rejected from HAMP, leverage the settlement conference process for answers

G t t t t i– Get contacts at servicers

– Get reason why NPV failed

– Never hurts to ask

18

COMMON MISTAKES (BY BOTH CLIENTS AND ATTORNEYS!)

• PAPERWORK!– Authorization form (CALL TO CONFIRM!)

– Tax return not signed

– Rental income w/out Schedule E

– Docs sent to servicer and magically never arrive (CALL TO CONFIRM!)

19

WHAT IF THEY DON’T QUALIFY

• In‐house loan mod programs

• Short sale

• Deed‐in‐lieu

• Scheduled move‐out date

20

80

2/26/2010

8

QUESTIONS?

21

81

Prepared on March 20, 2009

Summary of the Obama Administration’s

MAKING HOME AFFORDABLE PROGRAM Prepared By: Empire Justice Center Kevin Purcell and Salah Maker The Telesca Center for Justice One West Main Street, Suite 200 Rochester, NY 14614

82

1

Prepared by Empire Justice Center March 20, 2009

Home Affordable Refinance Program Guidelines

I. Program Goal – how does this help borrowers?

A. The goal of the program is to provide low-cost refinancing for responsible homeowners suffering from falling home prices

1. Homeowners will have the opportunity to refinance into a 30 or 15-year fixed rate loan

II. Eligibility Requirements – Who is considered for loan Refinancing?

A. The plan is only for those loans owned or guaranteed by Fannie Mae and Freddie Mac

1. To determine if a loan is owned or guaranteed by Fannie or Freddie, contact them via phone

or web submission

a. Fannie Mae: 1-800-7FANNIE – 8am – 8pm EST www.fanniemae.com/homeaffordable

b. Freddie Mac: 1-800-FREDDIE – 8am – 8pm EST www.freddiemac.com/avoidforeclosure

B. Amount due on mortgage must be less than 105% of the property value

83

2

Prepared by Empire Justice Center March 20, 2009

Home Affordable Modification Program Guidelines

I. Program Goal – how does this help borrowers?

A. The program goal is to lower borrowers Front-End Debt-to-Income (“DTI”) Ratio to 31%

1. Ratio is calculated by dividing the sum of the borrower’s “PITIA” by their gross income

a. “PITIA” includes principal monthly mortgage payments, interest, taxes, insurance and homeowners and association/condo fees

b. “Income” is monthly gross income

i. If only net income figures are available, multiply net income by 1.25 for initial estimate

II. Eligibility Requirements – Who is considered for loan modifications?

A. Who is Eligible to be Considered for a Loan Modification?

1. Home must be owner occupied (including co-op, condo, and 1 to 4-unit properties), must be

primary residence, must not be investor owned and must not be vacant or condemned 2. Mortgage must have originated before January 3, 2009 3. Borrowers currently in foreclosure may qualify 4. Borrowers in bankruptcy still may qualify, and borrowers in active litigation may still qualify

without waiving their legal rights 5. Participating servicers are required to consider ALL eligible loans unless prohibited by rules

of applicable Pooling and Service Agreement and/or other service agreements 6. No minimum or maximum Loan-to-Value ratio will limit eligibility

B. How Long Will the Program Run?

1. All modifications under this program must be completed prior to December 31, 2012

C. How Many Times Can I Modify a Loan?

1. Loans can only be modified once under the program

D. How Big Can The Mortgage Be?

1. First lien loans must have an unpaid balance equal to or less than:

a. 1 Unit: $729,750 b. 2 Units: $934,200 c. 3 Units: $1,129,250 d. 4 Units: $1,403,400

84

3

Prepared by Empire Justice Center March 20, 2009

E. What Documentation Must Homeowner Provide?

1. Most recent tax return (or an IRS form that will give permission to the servicer/lender to

acquire a copy of the tax return) 2. Two most recent pay stubs 3. Verification that borrower does not have liquid assets to make monthly payments

III. Loan Modification Approval Process – How Does it Work?

A. For Those “Eligible to be Considered”, How Will the Lender Determine if they Actually Will

Modify the Mortgage?

1. The initial step to determine if a servicer must offer a loan modification will be to run a Net Present Value (“NPV”) test

B. Net Present Value Test – What Is it? 1. An NPV Test will be required on each loan that is facing imminent default or already delinquent 2. The goal of the NPV test is to determine the loss a lender would take on any particular loan if the

lender were to foreclose, and compare it to the loss a lender would take if it were to modify the loan in such a way as to satisfy the 31% debt-to-income ratio

a. If the loss that would be incurred through loan modification is SMALLER than through

foreclosure, the lender MUST modify the loan b. If the loss that would be incurred through loan modification is LARGER than through

foreclosure, the lender MAY modify the loan but is not required to do so i. If a lender does not pursue a loan modification in this case, they must seek other

foreclosure prevention alternatives (i.e. short sale, deed in lieu of foreclosure) before foreclosing

2. NPV test only applies to lowering of interest rates, and does NOT include anything in it

regarding forbearance of principal amount of loan

C. NPV Test – How Is It Computed? 1. NPV test is a formula, with numerous different variables 2. The Treasury Department is developing a standard model to be used throughout the industry 3. In order to run the NPV test, certain pieces of data will be needed so that they may be plugged in to the formula

a. Some of this info will be borrower-specific – e.g. the size of the mortgage, original interest

rate, current market value of the house, foreclosure costs, etc. b. To determine property value, servicers will use the Freddie Mac/Fannie Mae automated

valuation model, although they may use an internal valuation model if it is approved by federal regulators

85

4

Prepared by Empire Justice Center March 20, 2009

c. Some pieces of data are based on assumptions developed by looking at the best available data throughout the industry – e.g. percentage drop in housing value due to foreclosure, percentage of borrowers who will redefault after modification, etc.

IV. Loan Modification Terms – What will they be?

A. What Will The New Terms of the Modified Loan Be?

1. The Front-End DTI Target is 31%, and in order to get to this level, the servicer will follow a

standard “waterfall’ process 2. Standard Waterfall Process – Step-by-Step

a. Confirm income and PITIA figures (See Section IA on page 1) b. Capitalize arrearages - servicers may capitalize accrued interest, past due real estate taxes,

insurance premiums, delinquency charges paid to 3rd parties, and any required escrow advances already paid by servicers, but may NOT accrue any late fees due by borrower

c. Reduce the interest rate on the loan in increments of 0.125% until the DTI ratio is 31%, subject to a floor of a 2% interest rate

d. If a 31% DTI ratio has not been reached, extend the term of the loan to 40 years e. If a 31% DTI ratio has still not been reached, reduce principal until a 31% DTI level is

reached

i. If this step is necessary, the amount of principal reduction will be set up as a balloon payment due on maturity date of loan, sale of property, or at time of refinancing

ii. No amount of interest shall accrue on the reduction amount during the life of the loan

3. The resulting interest rate of the loan will remain in place for 5 years, at which point the interest rate will increase 1% per year until it reaches the Interest Rate Cap

a. The Interest Rate Cap is the lesser of (1) the original contractual rate and (2) the current

Freddie Mac Primary Mortgage Market Survey rate of 30-year fixed rate conforming mortgage loans, rounded to the nearest 0.125% as of the date the modification document is prepared

B. Is There a Trial Period?

1. Yes, a trial period of 90 days (3 modified payments) is required, after which the modification is considered “effective” on the first day of the following month

C. Are There Any Fees To Take Part In The Program?

1. No modification fees for borrower 2. Any late fees owed by borrower are waived 3. The cost of obtaining borrower’s credit report will be covered by servicer 4. Any modification fees to the servicer will be reimbursed by investor

86

5

Prepared by Empire Justice Center March 20, 2009

D. What If The Borrower Defaults After Modifying Loan?

1. A loan will be considered to have redefaulted when the borrower reaches a 90-day delinquency status and redefaulting loans will be terminated from the program

E. Are There Any Other Consumer Protections in the Plan?

1. Loan Counseling a. Borrowers who have a Back-End DTI of 55% or higher must complete HUD-approved

counseling before modification is effective i. Back-End DTI is the ratio of borrower’s TOTAL monthly debt (including PITIA, other

mortgage payments, payments on all installment debts, alimony and car lease payments)

2. Disclosure: Servicers must provide borrowers with information designed to help them regarding modification terms and processes, and servicers must provide borrowers with clear and understandable written information about terms, conditions, costs, risk, etc.

3. Fair Lending: Modifications must comply with Equal Credit Opportunity Act and Fair Housing Act

4. Consumer Inquiries and Complaints: Servicers should have procedures and systems in place to be able to respond to inquiries and complaints relating to loan modifications

5. Documentation/Data Collection a. Servicers will be required to maintain records of key data points for verification/compliance

reviews b. Borrowers will be required to provide declarations under penalty of perjury attesting to the

truth of the information that they have provided to the servicer c. Servicers will be required to collect and transmit borrower and property data in order to

ensure compliance with the program as well as to measure its effectiveness

6. Anti-Fraud Measures a. Fraud detection measures, such as documentation and audit requirements, will be described

in the servicer guidelines and the program guidelines in the financial agency agreements with Fannie Mae and Freddie Mac

b. Participating servicers and lenders/investors are not required to modify the loan if there is reasonable evidence indicating the borrower submitted false or misleading information or otherwise engaged in fraud in connection with the modification

F. How should servicers incorporate the Hope for Homeowners program in the modification

process?

1. Servicers will be required to consider a borrower for refinancing into the Hope for Homeowners program when feasible

2. Incentive payments will be paid for Hope for Homeowner refinances (See Section V. below for more information on incentive payments)

87

6

Prepared by Empire Justice Center March 20, 2009

3. If the underwriting process for Hope for Homeowners refinance would delay eligible borrowers from receiving modifications, servicers will use Standard Waterfall to begin the Home Affordability Modification

4. Consideration for a Hope for Homeowners refinance should NOT delay eligible borrowers from receiving a modification offer and beginning the Trial Modification Period

V. Compensation – Why WOULD SERVICERS/lenders go along with this plan?

A. Servicer Compensation

1. One-Time Payments

a. “Upfront Incentive Payment” - $1,000 for each eligible modification meeting guidelines b. “Current Borrower One-Time Incentive Payment”

i. For loans modified while still current, the servicer will receive $500 ii. Servicer has to maintain records that show Trial Period modifications were made while

borrower was less than 30 days delinquent iii. Compensation is paid to the servicer that performs the loss mitigation or modification

activities following a successful trial period

2. Recurring Payments

a. “Pay for Success” Fees i. Up to $1,000 a year for up to 3 years as long as borrower stays in the program ii. To qualify for Pay for Success Payments, the modification must reduce the monthly

payment by a minimum of 6% iii. Payments will be the lesser of a $1,000 OR half the reduction in the borrower’s

annualized monthly payment

B. Borrower Compensation

1. “Pay for Performance” Payments

a. Up to $1,000 a year for up to 3 years as long as borrower stays in the program i. This payment will be directed to the servicer, who shall apply it directly and entirely to

reduce the principal balance ii. To qualify for Pay for Performance Payments, the modification must reduce the monthly

payment by a minimum of 6% iii. Payments will be the lesser of a $1,000 OR half the reduction in the borrower’s

annualized monthly payment

C. Lender/Investor Compensation

1. One-Time Payments

88

7

Prepared by Empire Justice Center March 20, 2009

a. “Current Borrower One-Time Incentive Payment”

i. For loans modified while still current, the lender/investor will receive $1,500

2. Recurring Payments

a. Borrower/lender is only compensated if Front-End DTI is 31% or lower (see section I-A-1 on page 1for definition of DTI)

i. Treasury will pay one half of every dollar difference between the monthly payment for a

31% Front-End DTI Ratio and a 38% Front-End DTI Ratio

D. Program Payment Conditions

1. No payment to lender, investor, servicer or borrower will be made until servicer has entered into program agreements with Treasury’s financial agent, which must occur before December 31, 2009

2. Any reduction below 31% will not be covered by Payment Reduction Cost Share

VI. Other Program Features – MORE DETAILS TO BE PROVIDED IN THE FUTURE

A. Home Price Depreciation Payments: To encourage lenders/investors to modify more mortgages,

compensation will be provided to partially offset probable losses from home price declines This will be structured as simple cash payments on each modified loan while the loan remains active in the program

B. Payments for Short Sales and Deeds-in-Lieu: Compensation will be provided to servicers and

borrowers in order to facilitate short sales or deeds-in-lieu in those cases in which borrowers either fail the NPV test or fail to qualify, or default under the modification program

C. Second Lien Elimination Payments: To reduce the borrowers overall indebtedness and improve loan performance, additional incentives will be provided to extinguish junior liens on homes with first-lien loans that are modified under the program D. Government Loan Programs: FHA, VA and rural housing loans will be addressed through standalone modification programs run by those agencies

89

HOUSING AFFORDABLE PROGRAMS (HAMP AND HARP) FAQ for Borrowers

1) What is the Housing Affordable Refinance Program? The Housing Affordable Refinance Program (“HARP”) is a government program designed to aid borrowers in good standing, who are unable to refinance in this troubled economy due to drastic declines in housing values. Only loans securitized by Fannie Mae and Freddie Mac are eligible for refinance under HARP. It is designed to help homeowners that are not eligible to refinance their homes because they owe more than 80% of the property’s total value. HARP allows borrowers to refinance their homes into 15 or 30-year terms, as long as the amount owed on their mortgage (loan to value ratio) is less than 105% of the value of their home. To see if your loan is securitized by Fannie Mae or Freddie Mae, contact: 1-800-7FANNIE (8am to 8pm EST) – www.fanniemae.com/fomeaffordable 1-800-FREDDIE (8am to 8pm EST) – www.freddiemac.com/avoid/foreclosure 2) What is the Housing Affordable Modification Program? The Housing Affordable Modification Program is a government-sponsored mortgage modification program designed to help troubled homeowners avoid foreclosure. 3) How will the Housing Affordable Modification Program help qualified borrowers? The goal of the Housing Affordable Modification Program is to lower the monthly mortgage payments (including escrow) of qualified borrowers to, at most, 31% of their gross monthly income. 4) What are the eligibility requirements for the Home Affordable Modification Program? 1) The home must be owner-occupied, it must be the primary residence, and it cannot be investor-owned, vacant or condemned. 2) The mortgage must have originated before January 3, 2009. 3) All modifications under this program must be completed prior to December, 2012. 5) I’m late on my mortgage payments / I’m in bankruptcy / I’m in foreclosure. Can I still qualify for the Housing Affordable Modification Program? Yes 6) How many times can I modify my loan under the Home Affordable Modification Program? Once and only once. Redefaulting loans will be terminated from the program. 7) How large can my mortgage be to qualify for the Housing Affordable Modification Program? 1 Unit Property: $729,750 2 Unit Property: $934,200 3 Unit Property: $1,129,250 4 Unit Property: $1,403,400

90

8) What documentation must I provide to qualify for the Housing Affordable Modification Program? 1) Your most recent tax return (or an IRS form that will give permission to the servicer/lender to acquire a copy of the tax return). 2) Your two most recent pay stubs. 3) Verification that you do not have the liquid assets to make your monthly mortgage payments. 9) Will the Housing Affordable Modification Program reduce the principal of my mortgage? For borrowers that stay current on their modified loans, the program offers a “Pay for Performance” feature. Borrowers that remain current on their modification can receive as much as a $1,000 a year for up to 5 years, applied directly to their principal balance.

91

Telesca Center for Justice

One West Main Street, Suite 200 Rochester, NY 14614 Phone 585.454.4060 Fax 585.454.2518

www.empirejustice.org

FHA‐HAMP 

It is widely reported that Federal Housing Administration (FHA)‐backed loans are quickly becoming a major component  in the next wave of foreclosures. At the end of 2009 over 9% of these loans were in default of three months or more, and these numbers are expected to rise.i  

With the expansion of the settlement conference protections in New York, and the rise of FHA back  loans going  into default,  it  is  important  to have an understanding of some of the basics  in  the  FHA  loss mitigation  process.    This  process  is  complex,  and  as with  the  Home Affordability  Modification  Program  (HAMP),  depends  of  separate  directives  and  guidelines issued by HUD in the form of Mortgagee Letters (MLs).ii 

The  focus  of  this  sheet  is  the  FHA‐HAMP  program,iii  which  is  not  subject  to  HAMP directives, but by  the HUD MLs.   Although  this program  is meant  to mirror HAMP,  there are significant structural differences between the two.  

The  FHA‐HAMP  program  is  the  FHA’s  loss mitigation  tool  of  last  resort.    There  is  a prescribed  loss mitigation process whereby a borrower  is considered  for a series of programs.  The lender must determine the borrower eligibility for (1) FHA Forbearanceiv; (2) HUD standard loan modificationv; (3) a partial claimvi and (4) FHA‐HAMPvii in this orderviii.   

How it begins: 

If a borrower does not qualify for the other loss mitigation options, they may qualify for the FHA‐HAMP program.  To be eligible the borrower must: 

Own and occupy the single family residence (1‐4 units); Have a Front‐End Debt to Income Ratio greater than 31%; Have a Back‐End Debt to income Ratio, including modified mortgage payment, less than 55%; Be at least one month, but no more than 12 months, delinquent ix 

The borrower then collects the Home Affordable Affidavit as well as the typical HAMP package, including proof of income.x 

 

 

92

2

How it works: 

FHA‐HAMP  is a combination of two existent  loss mitigation tools, the partial claim and the  loan modification. Note:  there  is NO NPV Test. So  long as  the monthly payments can be lowered to 31% of the gross income through a combination of loan modification and  a  partial  claim,  and  the  borrower meets  the  eligibly  requirements  above,  they qualify. 

Both of the  loss mitigation and the partial claim components of FHA‐HAMP are subject to the guidance found in their respective HUD Mortgagee Letters.   

o Partial Claim  A maximum of 30% of the outstanding principal balance can be deferred 

• This includes the unpaid principal balance, arrearages, and fees associated with any cancelled foreclosure 

o Loan Modification  The resulting loan must be re‐amortized over 30 years (but no more)  The  interest  rate must  be  fixed  for  the  life  of  the  loan  (there  is  no 

incremental increase).  How it ends: 

If  the  borrower  completes  the  trial  period,  the  temporary  modification  is  made permanent.   

If, however,  they do not complete  the  trial,  they are no  longer eligible  for FHA‐HAMP (no so‐called “second bite” at the apple), and must be reconsidered for all potential loss mitigation options  (excluding FHA‐HAMP) again prior to a  foreclosure.xi    If the servicer does not comply with this provision, they may be liable for treble civil damages.xii  

Escalation: 

If there is a problem with the process, do not use the HAMP Escalation process.  Instead, call  the HUD National  Servicing  Center  at  888‐297‐8685,  and  speak with  a HUD  case handler.    You  will  need  the  FHA  case  number,  which  can  be  found  on  the  original mortgage documents, and be prepared to send in written authorization.   

i  D. ElBoghdady and D. Keating, Rising FHA Default Rate Foreshadows a Crush of Foreclosures, Washington Post, Feb. 2 2010, available at http://www.washingtonpost.com/wp‐dyn/content/article/ 2010/02/01/AR2010020103527.html?sid=ST2010020201459 (last visited February 17, 2010). ii Available at www.hud.gov iii See HUD ML 2009‐23 ivHUD ML 2002‐07 vHUD ML 2008‐21 viHUD ML2003‐19 viiHUD ML 2009‐23  viii HUD ML 2000‐05 ix If a borrower is in imminent risk of default, they may still be eligible; however the trial period is FOUR months. x Questions and Answers: ML 09‐23  xi HUD ML 2009‐23 xii HUD ML 2008‐27 

93

Attachment – Guidelines for the FHA-Home Affordable Modification Program

These guidelines supplement requirements outlined in Mortgagee Letter 2009-23

Guidance FHA-Home Affordable Modification Program

Eligibility – Mortgagee

The Servicer of the modified FHA-HAMP mortgage must be FHA-Approved.

Eligibility – Mortgagors

The current mortgagor(s) on the existing FHA-insured single family mortgage must be identical to the mortgagor(s) on the HAMP mortgage, except as provided below. All changes in ownership due to death or divorce of the current owners must be supported by legal documentation. The existing FHA-insured mortgage is in default, but is not more than 12 full mortgage payments past due. A default is defined as 1 payment past due more than 30 days. For default calculation purposes, all months are determined to have 30 days. For example, a mortgage due for the July payment is in default on August 1st. The mortgagor(s) must be an owner occupant, have sufficient resources to make the payment on the HAMP mortgage and continue to occupy the home. A new mortgagor may be added to the HAMP mortgage, provided at least one existing mortgagor(s) is retained. The mortgagor must not have intentionally defaulted on their existing mortgage. (Note: Intentionally defaulted means the mortgagor had available funds that could pay their mortgage and other debts without hardship, but failed to pay).

Eligibility – Existing Mortgage

Must be a FHA-insured single family mortgage (1-4 units). Mortgages previously modified under HAMP are ineligible. There is no net present value (NPV) test for eligibility.

Eligibility – Maximum Mortgage Amounts

Not applicable.

Eligibility – Modified Mortgage

The existing FHA-insured mortgage must be re-amortized to a 30-year fixed rate mortgage, and must be modified in compliance with all FHA Mortgage Modification requirements, except those specifically modified under the FHA-HAMP program.

Property Eligibility

The property securing the FHA-insured property must be the mortgagor’s primary and only residence; and only single family (1 to 4 unit) properties are eligible.

Interest Rate – Modified New Mortgage

The interest rate must be fixed and meet the guidelines in Mortgagee Letter 2008-21.

Current Loan to Value

None.

94

Attachment – Guidelines for the FHA-Home Affordable Modification Program

These guidelines supplement requirements outlined in Mortgagee Letter 2009-23

Requirements Mortgage Loan Purpose FHA-HAMP mortgages are required to have a lower monthly principal and interest

payment than the unmodified FHA-insured mortgage and are made without an appraisal. All existing subordinate financing must be subordinated to maintain the first lien priority of the HAMP mortgage. For more information, please see ML 2003-19.

Credit History No minimum credit score required. (Credit report is only used to verify recurring debts.)

Seasoning Requirements on the Existing Mortgage

The first payment due date must be at least 12 months in the past, and at least 4 full mortgage payments must have been paid.

Property Valuation

No appraisal required.

Trial Modification

The Mortgagee must place the mortgagor(s) under a trial modification payment plan for the modified mortgage payment prior to completing the FHA-HAMP. The mortgagor(s) must have made the first three consecutive trial monthly mortgage payments on time before the FHA-HAMP can be completed, and a partial claim filed.

Documentation Requirements

The Mortgagee must obtain the following additional documentation: To be considered for any of the loss mitigation options, the mortgagor must provide detailed financial information to the Mortgagee. Every borrower and co-borrower must sign a hardship affidavit attesting to and describing the hardship. The document to be used is available for download at: https://www.hmpadmin.com/portal/docs/hamp_borrower/hamphardshipaffidavit.pdf The Department has no objection to situations where a cooperative mortgagor provides complete financial information either written or during a telephone interview. Regardless of how the mortgagor’s financial information was secured, the Mortgagee must independently verify the financial information by obtaining a credit report (the credit report is not used for credit qualification but Mortgagees are to use for determining indebtedness), and any other forms of verification the Mortgagee deems appropriate.

95

Attachment – Guidelines for the FHA-Home Affordable Modification Program

These guidelines supplement requirements outlined in Mortgagee Letter 2009-23

Underwriting Requirements - General

No Credit Alert Interactive Voice Response System (CAIVRS) review is required, but HUD’s Limited Denial of Participation (LDP) and General Services Administration (GSA) exclusion lists are still required checks for all mortgagors.

FHA-HAMP processing and underwriting instructions are described below.

• Where the mortgage is in default and no more than 12 full payments delinquent the Mortgagee combines a partial claim for up to 12 months of arrearages, foreclosure costs, and principal reduction with a modification.

• Except for the new maximum partial claim amount calculation, the partial claim

must meet the requirements of Mortgagee Letters 2000-05, 2003-19 and 2008-21. The mortgagor may not be charged any additional costs for receiving this loss mitigation workout option. On a cancelled foreclosure, Mortgagees are reminded that all such costs must reflect work actually completed to the date of the foreclosure cancellation and the attorney fees may not be in excess of the fees that HUD has identified as customary and reasonable for claim purposes. The financial analysis, Hardship Affidavit, and documentation supporting the decision to provide partial claim relief must be maintained in the mortgagee’s claim review file.

Loss Mitigation – Priority Order

FHA-HAMP can only be utilized if the mortgagor(s) does not qualify for current loss mitigation home retention options (FHA Special Forbearance, Loan Modification and Partial Claim) under existing guidelines (ML 2008-21, 2003-19, 2002-17, 2000-05). To qualify for the FHA-HAMP, Mortgagees must utilize its loss mitigation actions using the aforementioned priority order.

Underwriting – Monthly Gross Income

The mortgagor’s Monthly Gross Income amount before any payroll deductions includes wages and salaries, overtime pay, commissions, fees, tips, bonuses, housing allowances, other compensation for personal services, Social Security payments, including Social Security received by adults on behalf of minors or by minors intended for their own support, annuities, insurance policies, retirement funds, pensions, disability or death benefits, unemployment benefits, rental income and other income.

Underwriting – Front End Debt to Income Ratio

Front-End ratio is the ratio of PITI to Monthly Gross Income. PITI is defined as principal, interest, taxes and insurance. The Front-End ratio must be as close as possible to, but not less than, 31%.

Underwriting - Back End Debt to Income Ratio

The Back-End ratio is the ratio of the mortgagor’s total recurring monthly debts (such as Front-End PITI, payments on all installment debts, monthly payments on all junior liens, alimony, car lease payments, aggregate negative net rental income from all investment properties owned, and monthly mortgage payments for second homes) to the mortgagor’s Monthly Gross Income. This ratio must not exceed 55%. The Mortgagee must validate monthly installment, revolving debt and secondary mortgage debt by pulling a credit report for each mortgagor or a joint report for a married

96

Attachment – Guidelines for the FHA-Home Affordable Modification Program

These guidelines supplement requirements outlined in Mortgagee Letter 2009-23

couple. The Mortgagee must also consider information obtained from the mortgagor orally or in writing concerning incremental monthly obligations.

Underwriting – Subordinate Financing

Subordinate liens are not included in the Front-End ratio, but they are included in the Back-End ratio.

Underwriting – Upfront Mortgage Insurance Premium

Not applicable.

Underwriting – Annual Premium

Remains the same.

Underwriting - Calculation of Maximum Partial Claim Amount

The maximum one-time only principal reduction on the modification is determined by multiplying the outstanding principal balance of the existing mortgage as of the date of default by 30 percent reduced by (i) arrearage amounts advanced to cure the default for up to 12 months PITI and (ii) allowable foreclosure costs. However, the actual principal reduction amount for a specific case shall be limited to such amount that will bring the mortgagor(s) PITI to an amount not to exceed 31 percent of gross monthly income. Whether or not there are previous Partial Claims for a given case number, the arrearage component of this and any previous Partial Claims cannot exceed the equivalent of 12 months PITI and allowable foreclosure costs. This 12 month PITI maximum is NOT affected by any payments that may have been made to reduce the partial claim mortgage balance.

Partial Claim Guidelines

No interest will accrue on the partial claim. The payment of the partial claim is not due until (i) the maturity of the HAMP mortgage, (ii) a sale of the property, or (iii) a pay-off or refinancing of the HAMP mortgage.

In Foreclosure Process

To ensure that a mortgagor currently in the process of foreclosure has the opportunity to apply, Mortgagees shall not proceed with the foreclosure sale until the mortgagor has been evaluated for the program and, if eligible, an offer to participate in the FHA-HAMP has been made. In the event that the mortgagor does not participate in FHA-HAMP, the Mortgagee must consider the priority order, outlined in “Requirements to Use FHA-HAMP” section of this Mortgagee Letter, prior to proceeding to foreclosure.

90 days Past Due Ninety day past due mortgages must have been considered for all loss mitigation programs prior to being referred to foreclosure.

Escrows Mortgagees are required to escrow for mortgagors’ real estate taxes and mortgage-related insurance payments.

97

Attachment – Guidelines for the FHA-Home Affordable Modification Program

These guidelines supplement requirements outlined in Mortgagee Letter 2009-23

Unpaid Late Fees Waived

The Mortgagee will waive all late fees.

Credit Report The Mortgagee will cover the cost of the credit report.

Mortgagee Incentives

Under FHA-HAMP, the Mortgagee may receive an incentive fee of up to $1,250. This total includes $500 for the partial claim and $750 for the loan modification. To receive the incentive payments, the Partial Claim and Loan Modification must meet the requirements of Mortgagee Letters 2008-21, 2003-19, 2002-17, 2000-05, and comply with instructions and requirements in this Mortgagee Letter and Attachment. Mortgagees may also claim up to $250 for reimbursement of title search and/or recording fees.

Mortgagor Cash Contribution

The Mortgagee may not require the mortgagor to contribute cash.

Disclosure When promoting or describing FHA mortgage options Mortgagees should provide mortgagors with information designed to help them understand the mortgage terms that are being offered. Mortgagees also must provide mortgagors with clear and understandable written information about the terms, costs, and risks of the mortgage in a timely manner to enable mortgagors to make informed decisions. FHA requires Mortgagees to comply with any disclosure or notice requirements applicable under FHA regulations and state or federal law.

Fair Lending Mortgagees under this program must comply with the Equal Credit Opportunity Act and the Fair Housing Act, which prohibit discrimination on a prohibited basis in connection with mortgage transactions. FHA mortgage programs are subject to the fair lending laws, and Mortgagees should ensure that they do not treat a mortgagor less favorably than other mortgagors on grounds such as race, religion, national origin, sex, marital or familial status (i.e., families with children under age 18 and pregnant women), age, disability, or receipt of public assistance income in connection with any loan modification. These laws also prohibit redlining.

Consumer Inquiries and Complaints

Mortgagees should have procedures and systems in place to be able to respond to inquiries and complaints relating to loan modifications. Mortgagees should ensure that such inquiries and complaints are provided fair consideration, and timely and appropriate responses and resolution.

Case/Mortgage Documentation

Mortgagees will be required to maintain records of key data points for verification/compliance reviews, in accordance with Handbook 4000.2 Rev-3, Paragraph 5-8and Handbook 4155.2, Paragraph 8.B.7.c. Servicing files must be retained for a minimum of the life of the mortgage plus three years, per Handbook 4330.1 Rev-5, paragraph 1-3 E. These documents may include, but are not limited to, mortgagor eligibility, Hardship Affidavit, and qualification and underwriting. Mortgagors will be required to provide declarations under penalty of perjury attesting to the truth of the information that they have provided to the Mortgagee to allow the Mortgagee to

98

Attachment – Guidelines for the FHA-Home Affordable Modification Program

These guidelines supplement requirements outlined in Mortgagee Letter 2009-23

determine the mortgagor’s eligibility for entry into the FHA–HAMP program.

Anti-Fraud Measures

Measures to prevent and detect fraud, such as documentation and audit requirements are described in Handbook 4060.1, Rev-2. Participating Mortgagees and Mortgagees/investors are not required to modify the mortgage if there is reasonable evidence indicating the mortgagor submitted false or misleading information or otherwise engaged in fraud in connection with the modification. Mortgagees should employ reasonable policies and/or procedures to identify fraud in the modification process.

Data Collection Mortgagees will continue to be required to collect and transmit mortgagor and property data in order to ensure compliance with the program as well as to measure its effectiveness. Data elements may include data needed to perform underwriting analysis and mortgage terms, and loan level data in order to establish loans for processing during the trial period, to record modification details, and monthly loan activity reports.

99

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

WASHINGTON, DC 20410-8000

ASSISTANT SECRETARY FOR HOUSING- FEDERAL HOUSING COMMISSIONER

http://www.hud.gov/offices/hsg/sfh/nsc/ml0923qa.pdf Page 1 of 18 as of January 28, 2010 (rev 4)

Questions and Answers: ML 09-23 / FHA-Home Affordable Modification Program,

and subsequent guidance The following questions were received via hsg-lossmit@hud.gov and will be updated periodically.

A. Basic Program Guidelines

1) FHA-HAMP does not solve for homeowners who are current on their mortgage, but claim imminent default, correct? FHA-HAMP requires that a homeowner be past due at least 1 installment, due to a valid reason for default (and not intentional default).

No. Mortgagee Letter 10-04, dated 01/22/2010, states in part, “…In order for an FHA-insured loan that is at risk of imminent default to qualify for modification under FHA-HAMP, the borrower must first successfully participate in a four-month trial modification period….”

2) Can you advise the effective date, and where to find online training?

Per ML 2009-23, it is August 15, 2009. Please register and take online training at https://eclass.hud-nsctraining.com .

3) GNMA recently updated their buy-out procedures, but is still only allowing buy-out at the 91st day of delinquency. If a homeowner is not 91 days delinquent or greater after the trial period, how can we complete the modification/partial claim piece if the loan is in a GNMA pool?

GNMA All Participants Memo 09-14 states in part , “…Issuers will be permitted to repurchase FHA loans from Ginnie Mae pools if a borrower has been approved to participate in FHA’s trial modification program and the loan has been in a state of continuous default for more than 90 days, as of the date of repurchase.” If the mortgage is in default, and three trial modification payments - which are less than the full unmodified mortgage payment - are made successfully, then the mortgage will have been in a state of continuous default for more than 90 days. If the mortgage is not delinquent, the trial period must be 4 months, as stated in ML 10-04. Therefore, any loan approved to participate in the HAMP program where any portion of any single payment is delinquent for 90 days meets the Ginnie Mae requirement and can be repurchased on the 91 day to execute the modification.

4) In general, when an issue is not addressed, can we follow HMP rules?

100

Questions and Answers: ML 09-23 / FHA-Home Affordable Modification Program, and subsequent guidance

The following questions were received via hsg-lossmit@hud.gov and will be posted as submitted.

http://www.hud.gov/offices/hsg/sfh/nsc/ml0923qa.pdf Page 2 of 18 as of January 28, 2010 (rev 4)

No. FHA-HAMP applies only to FHA insured mortgages. Consequently, when an issue is not specifically addressed, ML 09-23 refers servicers to other mortgagee letters for FHA modification and FHA Partial Claim guidance.

5) Are servicers required to specifically reference the FHA-HAMP in the FHA homeownership counseling letter or can the letter just reference modifications generally as being an alternative to foreclosure?

FHA-HAMP does not make changes to the Housing Counseling Notification requirement as set out in Mortgagee Letter 02-12. The lender may choose to send out additional solicitations to the borrowers advising them of FHA-HAMP.

B. Debt to Income Ratios

No questions at this time. Refer to sections Z and AA

C. Calculation of Maximum Partial Claim Amount Under FHA-HAMP

1) From what I'm reading it looks like we are just combining the Partial Claim and Loan Modification options in order to do a Principal Balance reduction. When we are preparing the figures for the customer are we basically doing loan modification figures to calculate the total due (including interest, overdrawn escrow, escrow replenishment and attorney fees) and then do we just do a Partial Claim for the total debt + principal balance forbearance in order to reduce the amount owed on the first lien by the customer?

See the example in the ML 09-23 on page 2. The borrower is limited to 12 months PITI for delinquent payments. If a buy down is needed to meet the 31% front end DTI ratio requirement, the amount up to 30% of the outstanding principal balance as of the date of default is deferred using a Partial Claim (inclusive of delinquent payments and legal costs), then a loan modification of the remaining principal balance amortized over 30 years and an interest rate reduction, as applicable, is executed.

D. Requirements to Use FHA-HAMP

1) What if the homeowner fails the trial payment, but does not complete the modification/PC piece of FHA-HAMP - can they be re-evaluated at a later date?

If the borrower fails the trial modification, they should be considered for standard loss mitigation options, excluding FHA-HAMP.

101

Questions and Answers: ML 09-23 / FHA-Home Affordable Modification Program, and subsequent guidance

The following questions were received via hsg-lossmit@hud.gov and will be posted as submitted.

http://www.hud.gov/offices/hsg/sfh/nsc/ml0923qa.pdf Page 3 of 18 as of January 28, 2010 (rev 4)

2) What if the homeowner fails to send documents back, and never enters the trial period - can they be re-evaluated for FHA-HAMP at a later date?

Yes.

3) Do we have to have to launch a separate HAMP Spoliation Campaign As of right now we solicit all borrowers for LM Assistance at the 50, 95, 105, 125 date of delinquency. Our collections department tries to call the customer up until the date of foreclosure sale.

No, FHA is not prescribing each lender’s HAMP solicitation campaign.

4) If a customer has ignored all LM Spoliations and Collection Attempts does this imply that the customer is not interested in LM Assistance and we can start Foreclosure? If a customer has applied for LM Assistance we should not be starting foreclosure until we have reviewed the financial package in order to determine if the customer would qualify for assistance, correct?

Loss Mitigation is based on the borrower cooperating and providing the requested information. If a lender is in the Loss Mitigation review process they should be aware of the first legal deadline (FLD).If the lender needs additional time to complete the review, they should submit an extension of time request through EVARS (FHA’s online extensions and variances submission system) prior to the FLD. Under ML 2000-05, General Program Requirements, Section L, if the lender approves a borrower for a loss mitigation option, documents it in their servicing notes and reports it to Single Family Default Monitoring System (SFDMS) but is unable to compete it prior to the expiration of the FLD date, the lender is entitled to a 90 day extension of the FLD. Enter the expiration date of this automatic extension to Form HUD-27011, Part A, block 19, when filing a disposition claim (e.g., conveyance, preforeclosure, etc.).

5) Based on the questions asked in #4, should the same logic be applied to customers who are currently facing a Foreclosure Sale?

It depends on whether or not the borrower has provided information to the lender to review for Loss Mitigation. Lenders are required to review for Loss Mitigation through the whole default cycle including foreclosure. Likewise, they must take into consideration FLD and request an extension - if needed -- through EVARS, especially in start/stop states.

6) Should we foreclose on a borrower who has not responded to LM Solicitations and avoided collection attempts?

102

Questions and Answers: ML 09-23 / FHA-Home Affordable Modification Program, and subsequent guidance

The following questions were received via hsg-lossmit@hud.gov and will be posted as submitted.

http://www.hud.gov/offices/hsg/sfh/nsc/ml0923qa.pdf Page 4 of 18 as of January 28, 2010 (rev 4)

The borrower must cooperate and provide the requested financial information needed to perform a review for Loss Mitigation.

7) Do we need to mail a separate HAMP Solicitation to the customers facing a foreclosure sale?

The lender must determine if the borrower is eligible for a FHA HAMP prior to foreclosure. It is up to the lender to determine how it best meets this requirement.

8) Will HUD allow private investors (such as FNMA RMIC, Truman Capital, CalHFA, etc) to "trump" HUD rules and avoid participation in FHA-HAMP? Currently, some investors prohibit term extensions (required by FHA-HAMP), or wish to provide approval prior to loss mitigation execution. Others, such as CalHFA do not allow modifications on their FHA loan types.

No. Lenders must follow FHA loss mitigation guidelines. FHA will monitor program participants and take administrative actions for non-compliance when required.

9) Will HUD utilize any standard documentation for the modification/partial claim portion of FHA-HAMP? I saw that HUD requires the use of the standard Reason for Default affidavit, but was not sure whether any standardized loss mitigation docs were to be utilized.

No, HUD does not require standard documentation for modifications and Partial Claims. Lenders should continue to use the documents they use now for modifications and Partial Claims.

10) Can you validate the ‘waterfall’ review under FHA-HAMP? This would be utilized only after the homeowner was deemed not to qualify for the HUD standard loss mitigation waterfall of SFB > Modification > Partial Claim.

Yes, that is correct. ML 09-23 defines the priority order for loss mitigation home retention options under Requirements to Use FHA-HAMP.

11) Do we need to review all loans in our pre-sale inventory that have already been declined for a workout (Referred but the property has not yet been taken to sale). Or is HUD going to establish a cutoff period to determine what, if any loans, will need to be reviewed for FHA-HAMP and what will that cutoff period be?

The ML goes into effect 8/15/09 and requires lenders to review everything for the FHA-HAMP prior to foreclosure sale. Lenders can submit an

103

Questions and Answers: ML 09-23 / FHA-Home Affordable Modification Program, and subsequent guidance

The following questions were received via hsg-lossmit@hud.gov and will be posted as submitted.

http://www.hud.gov/offices/hsg/sfh/nsc/ml0923qa.pdf Page 5 of 18 as of January 28, 2010 (rev 4)

extension of time request to FHA through EVARS and request additional time to review for FHA-HAMP.

12) Does the FHA-HAMP list delinquency requirements? I saw that loans with delinquency of 91 days or greater must be run through the standard HUD waterfall (SFB, Mod, PC). Does this mean that if we can complete one of those options, we cannot review for FHA-HAMP?

Yes, the borrower has to be one full payment past due and placed in a 3- month trial plan, or if current, placed in a 4-month trial modification for the modified mortgage payment.

Borrowers who do not qualify for standard loss mitigation options must be reviewed for FHA-HAMP.

13) What if we can solve for the delinquency using one of the "standard" options, but this does not solve for 31% payment-to-income ratio? Do we proceed with FHA-HAMP review, or solve using a "standard" HUD option?

Lenders are required to use standard loss mitigation first.

14) Are the borrowers eligible for the HAMP program at day 31? Traditional modifications are at 61 days and partial claims are at 91 days for eligibility, which makes me think that anything less than 60 days delinquent would either be looked at for a Special Forbearance or the HAMP program. Is that correct?

Yes, the borrower has to be one full payment past due or placed in a trial modification for the modified mortgage payment.

15) Is this program mandatory? Are we required to solicit borrowers who may qualify?

Yes. The evaluation of FHA borrowers for loss mitigation is mandatory. The loss mitigation priority order, as defined on page 3 of the attachment to ML 09-23 states that FHA-HAMP can be utilized only if the mortgagor(s) does not qualify for current home retention options.

E. Mortgagee Incentives

1) From my understanding the customer will have to sign a loan modification

agreement and a Partial Claim Subordinate Note and Mortgage?

Yes.

104

Questions and Answers: ML 09-23 / FHA-Home Affordable Modification Program, and subsequent guidance

The following questions were received via hsg-lossmit@hud.gov and will be posted as submitted.

http://www.hud.gov/offices/hsg/sfh/nsc/ml0923qa.pdf Page 6 of 18 as of January 28, 2010 (rev 4)

2) Do we use the traditional documents or are there new specific documents that HUD would require?

Lender would continue to use the same documents as they are currently using.

3) If we are to use the traditional documents do the same rules apply for the Partial Claim and Loan Mod, from the way I am reading the guidelines it says we are to follow the current mortgagee letters, but I just wanted to clarify?

Yes, that is correct.

F. Partial Claim Filing and Document Delivery

1) Confirm that the Partial Claim amount would be set up as a 0% 2nd lien that

would be assigned to FHA. Investor/Chase would be paid claim amount at time of mod. Also confirm that the loans so modified can be re-delivered.

Yes, the subordinate lien is non-interest bearing and there is no lien priority. Mortgagees will file insurance benefits for this Partial Claim in the same manner as a traditional partial claim; See GNMA APM 09-14 (referenced above) for more information about re-pooling.

2) Are there any special claims instructions?

In addition to the requirement that the Partial Claim be filed and paid prior to the filing of the loan modification claim (see Page 3, Mortgagee Incentives), Mortgagee Letter 09-39 includes claims instructions.

3) Regarding the repayment of the Partial Claim - what is the responsibility of the

Servicer to FHA when a payoff is requested on the first lien? Is the Servicer responsible for notifying the Held Assets Servicing Contractor?

The requirements of ML 03-19, section K, are not changed by ML 09-23.

4) Is the Servicer responsible for maintaining the amount of the non interest bearing

partial claim and including it with any payoff statements?

No, see ML 2003-19

G. Monitoring No questions at this time.

H. Remittance

105

Questions and Answers: ML 09-23 / FHA-Home Affordable Modification Program, and subsequent guidance

The following questions were received via hsg-lossmit@hud.gov and will be posted as submitted.

http://www.hud.gov/offices/hsg/sfh/nsc/ml0923qa.pdf Page 7 of 18 as of January 28, 2010 (rev 4)

No questions at this time.

I. SFDMS Reporting

1) Will HUD have special coding (for month-end delinquency reporting) for FHA-HAMP? If not, should we use the existing codes for partial payments, modifications, partial claims, etc?

Additional codes were announced October 9, 2009 via Mortgagee Letter 09-39.

J. Eligibility – Mortgagors

1) Under FHA - HAMP is the homeowner is disqualified if they have moved out of the residence and are leasing it out because they can’t sell it?

If the property is non- owner occupied, it is not eligible. If the owner moves back into the property and provides documentation it is now their primary residence, the borrower would be eligible provided they met all other requirements.

2) Can an FHA-HAMP be offered to a borrower in active bankruptcy? A borrower

previously discharged?

Yes, lender would need to check with their legal counsel and may also need to obtain Bankruptcy Court approval.

K. Eligibility – Existing Mortgage

No questions at this time.

L. Eligibility – Maximum Mortgage Amounts

No questions at this time.

M. Eligibility –Modified Mortgage

1) The existing FHA-insured mortgage must be re-amortized to a 30-year fixed rate mortgage, and must be modified in compliance with all FHA Mortgage Modification requirements, except those specifically modified under the FHA-HAMP program.

a. We appreciate this tool but wish that a 40 year fixed rate mortgage could be

106

Questions and Answers: ML 09-23 / FHA-Home Affordable Modification Program, and subsequent guidance

The following questions were received via hsg-lossmit@hud.gov and will be posted as submitted.

http://www.hud.gov/offices/hsg/sfh/nsc/ml0923qa.pdf Page 8 of 18 as of January 28, 2010 (rev 4)

made available to provide more relief for our at-risk borrowers. The program was designed to align with GNMA pooling requirements. Consequently, at this time, only 30 year terms are allowed.

b. As a state housing finance agency using mortgage revenue bond financing, we can't change the term of our loans to extend beyond the term originally stated in the bond offering.

If state bond requirements prohibit re-amortization to 30 years, lender needs to document their servicing file with the reason borrower was not approved for FHA-HAMP.

c. If re-amortizing the loan to 30 years extends the new maturity date by more than 10 years, can the loan still be modified under the FHA-HAMP? Yes, ML 09-23 requires all loans be re-amortized to 30 years.

2) A servicer must comply with all FHA Mortgage Modification requirements – previous and new requirements for the FHA-HAMP. In previous requirements the borrower needed to be seriously delinquent before certain treatments could be provided. For example, a borrower must be 120 days delinquent or > before a Partial Claim can be used. Also – incentives are not paid to the servicer if the borrower is not at least 90 days delinquent at the time of modification. Given the current housing market and economic environment, we believe these two requirements should be removed and allow servicers to be incented to work with borrowers earlier in the delinquency and provide relief sooner. Our analysis would prove the earlier the intervention the more often a solution can be found and the more successful the customer is at maintaining the new payment.

Yes, the borrower has to be one full payment past due and placed in a 3 month trial plan, or current and placed in a 4-month trial modification for the modified mortgage payment. The purpose of the evaluation for other loss mitigation options is that a lender may determine that a borrower has a temporary disruption of income, which may be overcome by standard loss mitigation retention tools. In those situations, the lender may choose to utilize a formal forbearance or repayment plan until the borrower is eligible for formal loss mitigation tools.

N. Property Eligibility

1) The FHA-insured property must be the mortgagor’s primary residence. This is fully understandable – but the statement goes on to say that it must be their ONLY residence. Are we to interpret the borrower cannot own a second home to qualify?

107

Questions and Answers: ML 09-23 / FHA-Home Affordable Modification Program, and subsequent guidance

The following questions were received via hsg-lossmit@hud.gov and will be posted as submitted.

http://www.hud.gov/offices/hsg/sfh/nsc/ml0923qa.pdf Page 9 of 18 as of January 28, 2010 (rev 4)

No. The purpose of that statement was that the borrower is eligible for loss mitigation assistance on only one owner-occupied house subject to FHA insurance.

O. Interest Rate – Modified New Mortgage

1) To determine the rate do we just use the GNMA Coupon rate for the month the Trial Period is approved and then once they complete the trial we just finalize the loan mod?

HUD does not set interest rates; the same rules apply the FHA-HAMP modifications as on standard Loan Modifications (see ML 08-21 and 09-35).

P. Current Loan to Value Requirements Mortgage

No questions at this time.

Q. Loan Purpose

1) If a customer has had a previous Partial Claim and have used the 12 month PITI allowance are they ineligible for an HAMP or is this amount just capitalized in with a loan mod and would have to be paid back during the life if the first lien modified mortgage?

A lifetime of 12 months PITI is the maximum allowance. If they have already used it then they would not be eligible for the FHA-HAMP.

2) Clarify whether there is a minimum requirement for lowering of monthly payment.

HUD has not set a minimum reduction; however, the new mortgage payment must be reduced to be as close as possible to 31% of the gross monthly income.

3) Guidelines state that all existing subordinate financing must be subordinated again to maintain the first lien priority of the HAMP mortgage. We would suggest that a new subordination agreement would not be needed if the capitalization/partial claim is < $15,000.

First-lien status must be maintained. See Mortgagee Letter 2000-05, Page 22, Section G. Lien Status – these requirements have not changed.

R. Credit History

108

Questions and Answers: ML 09-23 / FHA-Home Affordable Modification Program, and subsequent guidance

The following questions were received via hsg-lossmit@hud.gov and will be posted as submitted.

http://www.hud.gov/offices/hsg/sfh/nsc/ml0923qa.pdf Page 10 of 18 as of January 28, 2010 (rev 4)

No questions at this time.

S. Seasoning Requirements on the Existing Mortgage

1) If the mortgage under review for FHA-HAMP is an FHA Streamline refinance, does

the 12 month age and 4 payment requirement apply?

No, however, HUD’s automated claim processing system (A43C) will suspend the claim in order to determine the age of the prior FHA mortgage. We strongly recommend that the prior FHA case number be entered into the Comments section of the claim.

2) Does seasoning include the trial period?

No

T. Property Valuation

No questions at this time.

U. Trial Modification

1) During the Trial Period when we are collecting the estimated mortgage payment, does the due date have to move three times on the mortgage or do the funds just have to post to suspense? If this is allowed does this rule apply to the traditional Loan Modification requests where the customer is being required to demonstrate the ability to make the new estimated payment.

Since the trial modification payments are to be in the amount of the modified mortgage payment (see attachment page 2), the lender would post them to a suspense account tied to the borrower and track that 3 payments (or 4 payments for current loans) were made. This does not constitute a change to a Type II SFB that is referred to in the last part of the question.

2) During the Trial Period do we following the Forbearance Default Guidelines that were described in ML 02-17: the customer has missed two installments and has not made contact with us, the home was abandoned, and the borrower informs us they are not going to fulfill the terms of the plan.

Yes, this would constitute option failure as described in ML 02-17.

3) To clarify, no matter what circumstances that occurred, if a borrower breaks the Trial Plan Arrangements they are not eligible for another HAMP?

109

Questions and Answers: ML 09-23 / FHA-Home Affordable Modification Program, and subsequent guidance

The following questions were received via hsg-lossmit@hud.gov and will be posted as submitted.

http://www.hud.gov/offices/hsg/sfh/nsc/ml0923qa.pdf Page 11 of 18 as of January 28, 2010 (rev 4)

Correct.

4) Does the trial payment plan end at the time of the first untimely payment? Is there a grace period for these payments?

The trial modification payments must be made within 15 days of the installment due date.

5) Clarify how to determine that the trial mod payments have been made on time.”

Each of the three (or 4, if applicable) trial modification payments must be made within 15 days of the installment due date.

V. Documentation Requirements

1) When collecting the Home Affordable Affidavit can we send this document with the Trial Plan Forbearance or do we have to send this in a separate LM Solicitation?

The borrower must complete and return this document with the financial information since it explains the reason for the hardship. The lender would not be able to approve a borrower without this document. Trial modification is then sent out after approval.

2) Will HUD require that we validate the homeowner's proof of income prior to sending FHA-HAMP documents to the homeowner? This pertains to the issue that we solved recently, where HUD does not recognize a "pre-qualified" modification, and we changed our process to ensure that the homeowner is financially approved prior to sending documents.

Yes, although the lender can take information verbally as most do now, they still have the requirement to verify the information before FHA-HAMP or any loss mitigation option can be approved, and before sending the FHA-HAMP documents to the homeowner.

W. Underwriting Requirements – General

1) What is the GSA exclusion list and HUD’s LDP - where are they published?

The GSA exclusion list provides information on parties that are excluded from receiving Federal contracts, certain subcontracts, and certain Federal financial and nonfinancial assistance and benefits – see https://www.epls.gov/ ,HUD’s Limited Denial of Participation (LDP) is an action taken by HUD which excludes a party from further participation in a HUD program - see http://www.hud.gov/offices/enforce/ecldp.cfm

110

Questions and Answers: ML 09-23 / FHA-Home Affordable Modification Program, and subsequent guidance

The following questions were received via hsg-lossmit@hud.gov and will be posted as submitted.

http://www.hud.gov/offices/hsg/sfh/nsc/ml0923qa.pdf Page 12 of 18 as of January 28, 2010 (rev 4)

X. Loss Mitigation – Priority Order

No questions at this time.

Y. Underwriting – Monthly Gross Income

1) Are customers who unemployed but are collecting unemployment benefits and meet the other requirements for the HMP Eligible for this workout? If so is there a time restriction to the time when this workout is approved to the day when the benefits would run out? For example, the customer is unemployed but will receive unemployment benefits for the next 12 months and can provide proof of this? If this is allowed are we allowed to approve traditional loan modifications and partial claims using the same logic?

See ML 09-23’s Attachment for income guidelines and ML 2000-05 for the financial analysis guidelines.

2) Does PITI include HOA fees as in HMP program? Yes.

3) How long must unemployment benefits last to be considered income? Unemployment income must be documented with reasonable assurance of its continuance for at least 12 months.

4) What is acceptable documentation to support alimony, child support or unemployment income?

If the borrower elects to use alimony or child support income to qualify, acceptable documentation includes photocopies of the divorce decree, separation agreement or other type of legal written agreement or court decree that provides for the payment of alimony or child support and states the amount of the award and the period of time over which it will be received. Servicers must determine that the income will continue for at least 12 months. The borrower must present proof of full, regular and timely payment, such as deposit slips, bank statements or signed federal income tax returns. If the borrower has other income such as unemployment, acceptable documentation includes letters, exhibits, or benefits statement from the provider that states the amount, frequency and duration of the benefit. The servicer must obtain copies of signed federal income tax returns, IRS W-2

111

Questions and Answers: ML 09-23 / FHA-Home Affordable Modification Program, and subsequent guidance

The following questions were received via hsg-lossmit@hud.gov and will be posted as submitted.

http://www.hud.gov/offices/hsg/sfh/nsc/ml0923qa.pdf Page 13 of 18 as of January 28, 2010 (rev 4)

forms, or copies of the two most recent bank statements.

Z. Underwriting – Front End Debt to Income Ratio

1) Does the target 31% DTI pertain to the payment calculation at the time of the qualification for the trial plan OR the final calculation of the HAMP plan following the accrual of additional past due amounts?

The lender should try to get as close to the 31% DTI as possible at both the trial modification period and the final HAMP, understanding that there will be some variance due to rounding and since the trial payment is an estimate.

AA. Underwriting - Back End Debt to Income Ratio

1) When calculating the back end ratio, what does HUD consider incremental monthly obligations? Does this mean all monthly obligations including Food and Housing Costs?

No, food housing, and utilities are excluded. Obligations to be included in the ratio are the credit report trade line items, and other items as stated on page 3 of the attachment to the HAMP ML.

2) For debt-to-income requirements, does FHA-HAMP require that we utilize only what is on the credit report to calculate the homeowner's back-end ratio? Or will HUD require that we use the standard financial calculation and review all homeowner monthly expenses? The FNMA/FHLMC MHA program utilizes only the debts that are listed on the credit report.

Trade lines on the credit report can be used for verification, however, the servicer must also consider information obtained from the mortgagor orally or in writing concerning incremental monthly obligations (see the attachment to ML 09-23). Per HUD Handbook 4155.1, Paragraph 2-12, The borrower's liabilities include all installment loans, revolving charge accounts, real estate loans, alimony, child support, and all other continuing obligations. In computing the debt-to-income ratios, the lender must include the monthly housing expense and all other additional recurring charges extending ten months or more, including payments on installment accounts, child support or separate maintenance payments, revolving accounts and alimony, etc. Debts lasting less than ten months must be counted if the amount of the debt affects the borrower's ability to make the mortgage payment during the months immediately after loan closing; this is especially true if the borrower will have limited or no cash assets after loan closing.

112

Questions and Answers: ML 09-23 / FHA-Home Affordable Modification Program, and subsequent guidance

The following questions were received via hsg-lossmit@hud.gov and will be posted as submitted.

http://www.hud.gov/offices/hsg/sfh/nsc/ml0923qa.pdf Page 14 of 18 as of January 28, 2010 (rev 4)

The following additional information deals with revolving accounts and alimony payments:

Revolving Accounts. If the account shown on the credit report has an

outstanding balance, monthly payments for qualifying purposes must be calculated at the greater of 5 percent of the balance or $10 (unless the account shows a specific minimum monthly payment).

Alimony. Because of the tax consequences of alimony payments, the lender may choose to treat the monthly alimony obligation as a reduction from the borrower's gross income in calculating qualifying ratios, rather than as a monthly obligation.

3) The backend ratio cannot exceed 55%. Our interpretation is the FHA-HAMP will not be given if this condition exists. We would agree a backend ratio of 55% or greater does add risk to the sustainability of the modification but would also suggest we work with the borrower to get support in restructuring all of their debt through a HUD-approved counselor. The borrower could be given the opportunity to complete their trial modification payments while seeking counseling and restructuring of their other debt. This allows the borrower time and supplemental cash assistance during the three months.

As specified in ML 09-23, the Back End Ratio must not exceed 55%. If the Back End Ratio exceeds 55%, the FHA-HAMP cannot be offered to the mortgagor. The Department encourages mortgagees to work with borrowers to seek counseling to get support in restructuring their entire debt. However, when the mortgagee evaluates the borrower’s eligibility for the FHA-HAMP, the Back End Ratio must not exceed 55%.

4) If a borrower eliminates debt in Chapter 7 to meet the 55 ratio requirement, would they be eligible for servicing (post discharge) alternatives including HAMP whether or not they reaffirmed the mortgage?

Yes, please refer to Mortgagee Letter 08-32 and consult with your legal counsel.

BB. Underwriting – Subordinate Financing No questions at this time.

CC. Underwriting – Upfront Mortgage Insurance Premium

1) Does the first mortgage principal reduction provided the borrower under HAMP trigger the 78% threshold under which MIP could be terminated?

113

Questions and Answers: ML 09-23 / FHA-Home Affordable Modification Program, and subsequent guidance

The following questions were received via hsg-lossmit@hud.gov and will be posted as submitted.

http://www.hud.gov/offices/hsg/sfh/nsc/ml0923qa.pdf Page 15 of 18 as of January 28, 2010 (rev 4)

No, because the borrower has simply bifurcated their total mortgage debt into two instruments. See also Section J of ML 2000-05, which states in part that monthly MIP payments must be calculated on the original insurance amount.

DD. Underwriting – Annual Premium

No questions at this time.

EE. Underwriting - Calculation of Maximum Partial Claim Amount

1) Are we allowed to include all escrow shortages and amounts to fund escrow in the HAMP?

Yes.

2) If so, should we run an updated escrow analysis prior to preparing the final modifications?

Yes.

3) If we do this, what happens if the customer does not meet the required ratios to complete the loan modification. (This would occur in a case where the customer had Forced Placed Taxes or Insurance during the trial period)

The borrower has to meet the 31/55 ratios. If not, , the borrower would have to be evaluated for standard loss mitigation options.

4) We fully understand the Partial Claim may not exceed the equivalent of 12 months PITI and allowable foreclosure costs, but need further clarification if we would be allowed to capitalize any remaining arrearage if this limit was hit and the borrower needed to capitalize the remaining to become current.

The FHA-HAMP Partial Claim is the sum of three amounts, not to exceed 30% of the outstanding principal balance.

1. Arrearages not to exceed 12 months PITI; this includes existing partial claims

a. A partial claim(including under FHA-HAMP) would be limited to 4 months PITI today if a previous partial claim had already been granted for 8 months PITI.

2. Allowable Legal Fees and Foreclosure Costs related to the cancelled, incomplete foreclosure action.

3. Remaining Amounts to Principal Reduction (up to an amount

114

Questions and Answers: ML 09-23 / FHA-Home Affordable Modification Program, and subsequent guidance

The following questions were received via hsg-lossmit@hud.gov and will be posted as submitted.

http://www.hud.gov/offices/hsg/sfh/nsc/ml0923qa.pdf Page 16 of 18 as of January 28, 2010 (rev 4)

necessary to achieve the 31% front-end debt to income ratio), Just as for the regular partial claim, no additional arrearage exceeding the maximum of 12 months PITI can be included in that portion of the FHA-HAMP Partial Claim total.

FF. Partial Claim Guidelines

No questions at this time.

GG. 90 days Past Due or In Foreclosure

1) For loans in the foreclosure process - PRIOR to first legal being filed - will there be an automatic 90-day extension to review these loans for FHA-HAMP? Does this include loans in the foreclosure process prior to 8/15/09?

Lenders would be granted an automatic 90 day extension under 24 CFR 203.355 for owner occupied properties to review for HAMP. As appropriate, enter the expiration date of this automatic extension to Form HUD-27011, Part A, block 19, when filing a disposition claim (e.g., conveyance, preforeclosure, etc.).

2) For loans currently in our foreclosure process - AFTER the first legal has been filed

- will HUD give servicers an extension for reasonable diligence to postpone sales and review files again for FHA-HAMP?

Yes, when lenders exceed the reasonable diligence time frames they are required to document their servicing files and explain on their claim the reason for exceeding time frames.

3) Can the loan be in foreclosure at the time of the loss mitigation review or does

Foreclosure have to be put on hold? It is the same process as standard loss mitigation- complete the loss mitigation review and, if approved, cancel the foreclosure.

4) If the loan is put on hold for review and ultimately foreclosure resumes, what

percentage of the original foreclosure fees and costs are claimable? It is the standard percentage of up to 75% of foreclosure costs.

HH. Escrows

No questions at this time.

115

Questions and Answers: ML 09-23 / FHA-Home Affordable Modification Program, and subsequent guidance

The following questions were received via hsg-lossmit@hud.gov and will be posted as submitted.

http://www.hud.gov/offices/hsg/sfh/nsc/ml0923qa.pdf Page 17 of 18 as of January 28, 2010 (rev 4)

II. Unpaid Late Fees Waived

No questions at this time.

JJ. Credit Report

1) For current borrowers who have eminent default, are we suppose to block credit and report them current during the trial plan?

No, report them as usual.

2) When the homeowner enters the 3 month Trial period should credit reporting be blocked?

No, report them based on compliance with the contractual due date.

KK. Mortgagee Incentives No questions at this time.

LL. Mortgagor Cash Contribution

1) The mortgage is 14 months delinquent. Could we capitalize the extra 2 months into the modification so that we comply with the 12 month PITI delinquency cap?

No, the extra 2 months delinquency can neither be capitalized into the modification, nor can it be a different component in the Partial Claim mortgage. The borrower would need to pay down the delinquency on the first mortgage to be within the 12 month cap –a mortgage payment is not a cash contribution.

2) If the borrower does not contribute for costs associated with the Loan Modification, are we allowed to include those in the Partial Claim?

Per ML 08-21, HUD allows for certain costs such as attorney fees and costs to be included in a PC, late charges are not allowed.

MM. Disclosure

No questions at this time.

NN. Fair Lending No questions at this time.

116

Questions and Answers: ML 09-23 / FHA-Home Affordable Modification Program, and subsequent guidance

The following questions were received via hsg-lossmit@hud.gov and will be posted as submitted.

http://www.hud.gov/offices/hsg/sfh/nsc/ml0923qa.pdf Page 18 of 18 as of January 28, 2010 (rev 4)

OO. Consumer Inquiries and Complaints

No questions at this time.

PP. Case/Mortgage Documentation No questions at this time.

QQ. Anti-Fraud Measures No questions at this time.

RR. Data Collection No questions at this time.

Revision History 08/12/2009 Initial Publication 08/14/2009 New sections J and K added, all subsequent sections re-lettered.

New questions/answers: F2, J1, S1, S2, Y4, Z1, CC1, JJ2, LL1, Revisions to answers: AA1 and AA2

10/28/2009 New questions/answers: A5, F3, F4, J2, J3, W1, LL2 Modified questions/answers: A2, D15, EE4(1)(a) Revisions to answers: A1, F2, I1, O1, V2 Reorganization: Z1 moved to AA4, M1 became M1a, b &c

01/22/2010 Revision to answer: A1 01/28/2010 Revision to answers: A3, D12, M2, U1, U5

Modified question/answer: U5

117

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

WASHINGTON, DC 20410-8000

ASSISTANT SECRETARY FOR HOUSING- FEDERAL HOUSING COMMISSIONER

July 30, 2009 MORTGAGEE LETTER 2009-23

TO: ALL APPROVED MORTGAGEES SUBJECT: Making Home Affordable Program:

FHA’s Home Affordable Modification Loss Mitigation Option

On May 20, 2009, the President signed the “Helping Families Save Their Homes Act of 2009.” This new law provides the Federal Housing Administration (FHA) with additional loss mitigation authority to assist FHA mortgagors under the Making Home Affordable Program (MHA). The MHA Program is designed to help homeowners retain their homes and to prevent the destructive impact of foreclosures on families and communities.

One key component of MHA provides homeowners the opportunity to reduce their

mortgage payments by the use of a loan modification through the Home Affordable Modification Program. When initially introduced to the public, MHA excluded FHA insured mortgages, stating that FHA would develop its own standalone program. This Mortgagee Letter announces a new FHA Loss Mitigation option, the FHA-Home Affordable Modification Program (FHA-HAMP). FHA-HAMP will provide homeowners in default a greater opportunity to reduce their mortgage payments to a sustainable level. This Mortgagee Letter is effective August 15, 2009. Basic Program Guidelines

The new FHA-HAMP authority will allow the use of a partial claim up to 30 percent of the unpaid principal balance as of the date of default combined with a loan modification. The objective of FHA-HAMP is to assist FHA mortgagors who are in default to modify their mortgage to an affordable payment. According to Mortgagee Letter 2000-05 and subsequent guidance, disposition options (pre-foreclosure sales and deeds-in lieu of foreclosure) are available immediately upon default, if the cause of the default is incurable, i.e. the borrower has no realistic opportunity to replace the lost income or reduce expenses sufficiently to meet the mortgage obligation.

To confirm if the mortgagor is capable of making the new FHA-HAMP payment, the

mortgagor must successfully complete a trial payment plan. The trial payment plan shall be for a three month period and the mortgagor must make each scheduled payment on time. The mortgagor’s monthly payment required during the trial payment plan must be the amount of the future modified mortgage payment. The Mortgagee must service the mortgage during the trial period in the same manner as it would service a mortgage in forbearance. If the mortgagor does not successfully complete the trial payment plan by making the three payments on time, the mortgagor is no longer eligible for FHA-HAMP. Prior to proceeding to foreclosure, the Mortgagee must re-examine and re-evaluate the borrower’s financial condition and confirm that none of FHA’s other Loss Mitigation options could assist the mortgagor.

The attachment to this Mortgage Letter supplements program guidelines for FHA-HAMP,

118

2

including a requirement that the servicer obtain an executed Hardship Affidavit (available at https://www.hmpadmin.com/portal/docs/hamp_borrower/hamphardshipaffidavit.pdf) from every mortgagor and co-mortgagor seeking an FHA-HAMP. FHA-HAMP is a permanent addition to HUD’s Loss Mitigation Program as of the date of this Mortgagee Letter. Debt to Income Ratios

To be eligible under FHA-HAMP, the front end debt to income ratio must be as close as possible, but not less than, 31 percent. This ratio is defined as the total monthly mortgage payment (PITI) for the modified mortgage divided by the mortgagor’s gross monthly income (the “Front End Ratio”). The back end debt to income ratio must not exceed 55 percent and is defined as the total monthly mortgage payment plus all recurring monthly debt divided by the mortgagor’s gross monthly income (the “Back End Ratio”). Please refer to the sections in the Attachment regarding Underwriting – Front End and Back End Debt to Income Ratios. Calculation of Maximum Partial Claim Amount under FHA-HAMP

The maximum partial claim amount under FHA-HAMP consists of the sum of (i) arrearages, (ii) legal fees and foreclosure costs related to a canceled foreclosure action and (iii) principal reduction. Arrearages that may be included in the partial claim shall not exceed 12 months of PITI. The maximum partial claim amount under FHA-HAMP is 30 percent of the outstanding principal balance as of the date of default. The principal deferment on the modified mortgage is determined by multiplying the outstanding principal balance by 30 percent and then reducing that amount by arrearages advanced to cure the default for up to 12 months PITI, and any foreclosure costs incurred to that point subject to the requirements provided in Mortgagee Letter 2008-21. The principal deferment amount for a specific case shall be limited to such an amount that will bring the mortgagor(s) total monthly mortgage payment to 31 percent of gross monthly income.

Example

Mortgagor had a reduction of income and is delinquent 3 full mortgage payments. The unpaid principal balance on the mortgage on the date of default is $150,000 and the monthly payment is $1,220 (consisting of P&I of $920 and escrows, including MIP, of $300). The financial analysis reveals that the mortgagor’s gross monthly income is $3,500 and the total monthly other recurring debt payments are $800. In order to fulfill the 31% Front End Ratio requirement, the mortgagor(s) total monthly mortgage payment would have to be reduced to $1,085 ($3,500 x 31%). Therefore, P&I would have to be reduced to $785 ($1,085 total monthly mortgage payment less $300 escrow and MIP). Assuming that the loan modification will have an interest rate of 6% and a P&I of $785, the new mortgage amount would have to be $130,931, resulting in a principal reduction of $19,069 ($150,000 unpaid principal balance less $130,931). In this example, the mortgagor’s Back End ratio is 53.9% ($1,885/$3,500), which satisfies the 55% Back End Ratio limitation. In this example, the maximum principal deferment is $41,340 (30% of $150,000, less the $3,660 delinquency, or $45,000 - $3,660). However, based on their gross income, mortgagor is eligible only for a principal deferment of $19,069 plus $3,660 arrearages (which would include any foreclosure costs incurred to that point, in accord with Mortgagee Letter 2008-21) for the total Partial Claim of $22,729.

119

3

Requirements to Use FHA-HAMP

FHA-HAMP can be utilized only if the mortgagor(s) does not qualify for current loss mitigation home retention options (priority order FHA Special Forbearance, Loan Modification and Partial Claim) under existing guidelines (ML 2008-21, 2003-19, 2002-17, 2000-05). To qualify for the FHA-HAMP program, Mortgagees must evaluate the defaulted mortgage for loss mitigation actions using the aforementioned priority order. According to Mortgagee Letter 2000-05 and subsequent guidance, disposition options (pre-foreclosure sales and deeds-in lieu of foreclosure) are available immediately upon default, if the cause of the default is incurable, i.e. the borrower has no realistic opportunity to replace the lost income or reduce expenses sufficiently to meet the mortgage obligation.

If the mortgagor does not successfully execute the loan modification, the mortgagor is no longer eligible for FHA-HAMP. In such cases, per 24 CFR 203.355, the Mortgagee must re-evaluate the mortgagor’s eligibility for the other appropriate loss mitigation actions prior to commencing or continuing a foreclosure. Mortgagee Incentives

Mortgagees that utilize FHA-HAMP are eligible to receive incentive payments. Mortgagees utilizing this initiative will be allowed to first file for a partial claim (to bring the loan current and defer principal where appropriate), followed by a loan modification claim (claim type 32). Under FHA-HAMP, the Mortgagee may receive an incentive fee of up to $1,250. This total includes $500 for the partial claim and $750 for the loan modification. Mortgagees may also claim up to $250 for reimbursement for a title search and/or recording fees.

Partial Claim Filing and Document Delivery

Mortgagees must file a claim for insurance benefits for the partial claim within the 60-day timeframe stated in ML 2003-19 to receive incentive fees for the FHA-HAMP loss mitigation action. Any previous outstanding partial claim(s) must be subordinated and the mortgage company must provide HUD’s Secretary-Held servicing contractor (see ‘Remittance’ below) with a subordination agreement to request subordination.

Monitoring

FHA will monitor Mortgagees for compliance with the terms of this Mortgagee Letter and will take administrative actions, including sanctions and penalties, against all parties for non-compliance. Remittance Please note that all provisions described in the aforementioned existing guidelines, such as Repayment Terms, Option Failure and Disclosures apply also, except as specifically changed under FHA-HAMP.

120

4

Mortgagees must forward all required documentation, including subordination requests, and advise all parties to send any payments for the Partial Claims to HUD’s Secretary-Held Assets Servicing Contractor which is currently located at:

C&L Service Corp. / Morris-Griffin Corp. 2488 East 81st Street, Suite 700 Tulsa, Oklahoma 74137

Toll Free Phone: (866) 377-8667 Toll Free Fax: (866) 249-0626 Local: (918) 551-5300 Local Fax: (918) 551-5399

Current information about the Secretary-Held Assets Servicing Contractor is located at: http://www.hud.gov/offices/hsg/sfh/nsc/fmaddr.cfm Information Collection Requirement

The information collection requirements contained in this document have been approved by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) and assigned OMB control numbers 2502-0060, 2502-0523, 2502-0429, and 1505-0216. In accordance with the Paperwork Reduction Act, HUD may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection displays a currently valid OMB Control Number. Any questions regarding this Mortgagee Letter may be directed to HUD’s National Servicing Center (NSC) at 888-297-8685 or hsg-lossmit@hud.gov. Persons with hearing or speech impairments may reach this number via TDD/TTY by calling 1-877-TDD-2HUD (1-877-833-2483). Sincerely, David H. Stevens

Assistant Secretary for Housing – Federal Housing Commissioner Attachment – Guidelines for FHA-HAMP

121

You are here: Home › Resources › For Counselors › Counselor Escalation Process

On This PageStep 1: Escalate the Case to Senior Management at the Servicer Shop

Step 2: Contact the Appropriate Escalation Team

Counselor Escalation ProcessIf you believe a servicer is incorrectly interpreting HAMP guidelines, take the following steps:

Step 1: Escalate the Case to Senior Management at the Servicer Shop

First, work through your normal contacts and channels with the servicer. If that does not resolve the issue, elevate your concern to a senior manager within the servicer's organization.

Here are examples of cases that represent valid reasons for escalation:

Servicer refuses to stop a scheduled foreclosure sale on a borrower's house while the borrower is being evaluated for HAMP.

•

Servicer charges up-front fees for the modification.•

Servicer instructs the borrower to miss a payment.•

Servicer claims that they are waiting for information or guidance from Treasury (i.e. Treasury is causing the delay).

•

Servicer advises the borrower to intentionally misrepresent their personal or financial information.

•

Servicer says they are not participating in HAMP, but the loan's investor is a GSE.•

Servicer says borrower doesn't qualify, but counselor has reason to believe that the borrower is eligible.

•

Step 2: Contact the Appropriate Escalation Team

If escalating to senior management does not resolve the issue, escalate the issue using the following contact table:

INVESTORSDETERMINE IF LOAN

IS GSE-OWNEDCONTACT INFORMATION

Fannie Mae Loanswww.FannieMae.com/ LoanLookup

Phone: 1-800-7FANNIE resource_center@fanniemae.com

Freddie Mac Loanswww.FreddieMac.com/ MyMortgage

Phone: 1-800-FREDDIE borrower_outreach@freddiemac.com

Non-GSE Loans -

HAMP Solution Center Phone: 1-866-939-4469 Fax: 1-240-699-3883 escalations@hmpadmin.com

ABOUT REGISTRATION PROGRAMS NEWS RESOURCES CONTACT US

Page 1 of 2Home Affordable Modification Program

2/26/2010https://www.hmpadmin.com/portal/resources/escalation.html122

About Registration ProgramsHAMPHAFA2MP

NewsPress ReleasesAnnouncements

Resources For Counselors Borrower Outreach Learning Center

Home   FinancialStability.gov  Privacy Policy

To view or print the PDF content on this page, download the free Adobe® Reader®

Gather the necessary case information and borrower consent. If you are seeking assistance for a specific borrower, you will be required to provide the escalation team with a written authorization from the borrower authorizing the escalation team and the servicer to share the borrower's personal financial information with you. The written borrower authorization must be received by the escalation team before status information can be shared with you. Additional instructions are available as needed from the escalation team.

The inquiry information that a counselor will need to supply for a status includes the following:

Homeowner's Name•

Property Address•

Servicer Name•

Servicer Loan Number•

Foreclosure Date (if applicable)•

Counselor Name & Organization•

Counselor Email•

Counselor Phone•

Counselor Relationship to Homeowner•

An escalation specialist will work with the servicer regarding the case and seek to provide you with an initial status within four business days of receipt of the requested inquiry information and borrower authorization. If the servicer is unwilling to comply with program guidance or the escalation team identifies systemic non-compliance, the escalation team may report the servicer to the Making Home Affordable Compliance team.

Page 2 of 2Home Affordable Modification Program

2/26/2010https://www.hmpadmin.com/portal/resources/escalation.html123

HAMP Support Center Inquiry Information 

Homeowner’s Name:   Property Address:   City:   State:   Zip/Postal Code:   Servicer Name:   Servicer Loan Number:   Foreclosure Sale Date (if applicable): 

 

Your Name & Organization:   Are you charging a fee for your services?  How much? 

 

What is your relationship to the Homeowner? 

 

Contact Email:   Contact Phone:   Nature of Inquiry & Attempts Already Made to Reach a Resolution with Servicer 

 

 

Attach to this form the borrower’s authorization for, authorizing you to act on the borrower’s behalf.    If the loan is backed by Fannie Mae, you can attach the information to an email and send it to resource_center@fanniemae.com.  Their phone number is 1‐800‐7FANNIE. Use www.FannieMae.com/LoanLookup to find out if it is Fannie Mae owned.  If the loan is backed by Freddie Mac, you can attach the information to an email and send it to borrower_outreach@freddiemac.com.  Their phone number is 1‐800‐ FREDDIE. Use www.FreddieMac.com/MyMortgage to find out if it is Freddie Mac owned.  If the loan is not owned by either Fannie Mae or Freddie Mac, all documentation can be sent to escalations@hmpadmin.com as an attachment, or by fax to 1‐240‐699‐3883.  Please be aware that these requests cannot be sent from a public ISP (ie: AOL, Yahoo. Gmail), they must be sent from your organization’s email.  Their phone number is Phone: 1‐866‐939‐4469.  

124

CLO

SIN

G T

HE

DE

AL

Closing the Deal... Obtaining a Settlement Agreement

These materials are made possible by a grant through the NYS Subprime Foreclosure Prevention Services program, developed to help New York homeowners facing default or foreclosure by providing counseling and legal services. The program is administered by the NYS Division of Housing and Community Renewal/Housing Trust Fund Corporation. Information on the program can be found at www.nysdhcr.gov.

Copyright © 2008 Empire Justice Center www.empirejustice.org

 

 

119 Washington Ave. Albany, NY 12210 Phone 518.462.6831 Fax 518.462.6687

www.empirejustice.org

 

Workout Plans and Settlement Agreements: Considerations and Concerns

I. Introduction

Workout plans in residential lending cases - including repayment plans, forbearance agreements, loan modifications and other resolutions such as payoffs, short sales and deeds in lieu of foreclosure - vary greatly, depending on the lender, owner and/or mortgage loan servicer. Workouts can come in the form of a document directly sent from the mortgage servicer to the homeowner, or through a more formal settlement agreement resolving litigation. No one law regulates the form or substance of workouts and settlement agreements.

As with any form contract, standard workouts sent may contain a variety of problematic provisions and waivers. This document sets forth standards and considerations for provisions applicable to all workouts and settlement agreements.

Workouts and settlement agreements must be structured with the following two questions in mind: Does the agreement clearly tell the homeowner all material terms? If this loan is transferred to a different mortgage loan servicer that does not adhere to the terms of the agreement, does the agreement clearly instruct the new servicer regarding the status and terms of the loan as of the date of the agreement? You will help homeowners by preventing confusion and ensuring better compliance from all parties if you consider the following when advising a homeowner to enter into a workout or when crafting a settlement agreement.

II. Clarity is Essential: Get everything in writing and make sure the homeowner understands the details.

A. All Workouts and Agreements

All components of the workout or agreement need to be in writing. A critical component of crafting a workout or agreement is making sure that the borrower is told

125

  

and understands the details. No detail should be omitted and every element of the settlement should be reduced to clear and accurate statements.

While the relevant details vary depending on the sort of agreement, all borrowers, regardless of what the agreement will ultimately be, should understand:

1. Total amount due and owing on the principal balance as of the date of the agreement and what fees or costs are included;

2. Total amount that borrower needs to pay to reinstate the loan; 3. Necessary timelines for making payments; 4. Payment information – to whom, where and how payments should be made; 5. Whether the workout or agreement is in addition to and amending certain

provisions of the existing mortgage and note, or whether the agreement replaces the mortgage and/or note;

6. Enforcement provision if either party fails to live up to their part of the bargain (discussed in Section III below);

7. Potential tax consequences; 8. Credit repairing information.

B. Information for Specific Types of Workouts and Agreements

Detailed below is the necessary information that should be set forth in writing and the homeowner should understand, according to the type of agreement negotiated.

1. Repayment Agreements/Forbearance Agreements a. Total amount due and owing on the principal balance as of the date of

the agreement b. Total amount to be paid off through the repayment agreement

c. Breakdown with detailed descriptions of all payments, interest, fees,

costs and other charges to be paid off through the agreement d. Terms of the repayment agreement, including:

• amount of each additional monthly payment • date the first payment is due, and day each payment is due

thereafter • number of months additional payments will be due • amount of last payment due and date due, if amount is different

than monthly amount paid throughout agreement • statement of how payments will be applied

e. Address to which payments must be sent f. Statement of current monthly mortgage amount, including a

breakdown of the principal and interest payment, and the escrow payment if there is one

g. Restatement from the Note of the interest rate and terms of rate

changes during the repayment or forbearance period, if an adjustable rate mortgage

126

  

h. Statement that fees, costs and other charges that may have been owed by the borrower prior to the settlement but that are not included in the Settlement Agreement will be deemed to be waived by the lender/servicer

i. FORBEARANCE AGREEMENTS ONLY: the terms of the forbearance

including the amount that must be repaid at the end of the forbearance agreement

2. Loan Modifications

a. Total amount due and owing on the principal balance as of the date of the agreement, along with a statement that the balance includes all fees, costs and other charges incurred to date.

Sample language:

PARA W. LENDER agrees that the current unpaid principal balance is $100,000. The unpaid principal balance, plus interest pursuant to the note, represents the total amount due and owing on the account; there are no outstanding fees, costs, advances, or any other sums due on BORROWER’s account as of the date of the Agreement. In addition, no fees, costs, advances or other sums will be attributed to this account in connection with the dispute or this agreement.

b. There should not be any outstanding fees. However, if there

potentially are outstanding fees (such as for invoices not yet received by the lender/servicer from third parties for outstanding attorneys fees, inspections or other costs), there should be a statement that there may be additional fees and the amount should be capped at a nominal amount.

c. Interest rate terms, including statement of whether it is fixed or adjustable and if adjustable, an explanation of future rate changes

d. Term remaining on the loan (it should be clear if the loan modification is starting a new 30 year term, for example, or if the principal balance is being amortized over the remaining years in the current loan term)

e. Amount of balloon payment, if there is one, and date due

f. If there is a trial period for the loan modification, the terms of the trial period including the number of months and payments expected to be paid during the trial period

g. Tax consequences (discussed below in Section VII)

3. Payoffs, Short Sale Agreements, and Deeds in Lieu of Foreclosure a. Statement of total amount due to satisfy all obligations as of the date

of the agreement b. FOR SHORT SALES: If lender agrees to accept less than the total

amount of the loan and mortgage amount that is due and owing (including all additional fees, costs and other charges that may have

127

  

been incurred), known as a “short sale,” there must be a statement that the lender agrees to accept the amount offered in full satisfaction of the total amount due and owing under the note and mortgage and that there will be no remaining deficiency on the loan or mortgage.

c. FOR DEED IN LIEU: Statement that the lender agrees to accept the deed in lieu of foreclosure in full satisfaction of the total amount due and owing under the note and mortgage and that there will be no remaining deficiency due by the borrower on the loan or mortgage.

c. Tax consequences (discussed below in section VII)

III. Include Enforcement Provisions

It is not unheard of that settlement agreements fail to be properly adhered to by lenders and servicers. Too often, fees that were included in the agreement continue to appear on a mortgagor’s statement or payment history. Problems also arise if the loan is sold and a new servicer takes over; the new servicer may not receive a copy of the agreement and the loan may inadvertently and inappropriately revert back to the pre-agreement terms and status.

Because of this, settlement agreements should include language regarding reasonable steps the borrower should take if the lender or servicer fails to adhere to the terms of the agreement and remedies. These provisions should include the name, address and telephone number of who the borrower should contact if they believe the lender/servicer is failing to adhere to the terms of the agreement or if they are experiencing problems.

Sample language:

PARA X. If BORROWER believes that LENDER has not complied with any terms of this Agreement, BORROWER will notify LENDER of any alleged violation within a reasonable time period of the discovery of the alleged violation, not to exceed six (6) months. LENDER will respond to the allegations and, if necessary, rectify any violation within ten (10) business days of receiving notification by BORROWER. Notification of an alleged violation of this Agreement will be effectuated by BORROWER, or their counsel, by contacting LENDER’s Chief Compliance Officer or General Counsel in writing at ADDRESS. If LENDER dissolves or eliminates the positions of Chief Compliance Officer and General counsel, notice shall be directed to the President’s Office. If no longer serviced by LENDER, shall be to the same offices of the new servicer at that time or to the owner of the note, corporate legal department or similar office if a different owner. PARA Y. LENDER agrees that if any violation of the terms of this Agreement is not rectified within ten (10) business days of the date LENDER is notified by BORROWER, LENDER will incur an automatic penalty, payable to BORROWER. The penalty shall be $50.00 per day, including non-business days such as weekends and holidays, and shall accrue daily from the expiration of the ten (10) business day period LENDER was notified by BORROWER regarding the violation and until the date the violation is corrected and LENDER has notified BORROWER in writing and with verification that the violation has been corrected. This penalty shall be automatic and shall be paid by LENDER to BORROWER without any need on the part of BORROWER to bring an enforcement action. The penalty is in addition to and in no way affects the rights of BORROWER to pursue a compliance action if necessary, pursuant to PARA Z. The penalty will accrue each week until the violation is cured by LENDER. If LENDER’s Chief Compliance Officer disagrees that the alleged violation of the Agreement occurred and provides written evidence thereof within the ten (10) day period, no penalty shall be due.

128

  

PARA Z. If any action is brought to enforce this Agreement, or is brought in connection with any dispute arising out of this Agreement or the claims which are the subject of this Agreement, the prevailing Party or Parties shall be entitled to recover damages, reasonable and actually incurred fees and costs incurred in such action which they may prove are the direct and proximate result of any breach hereof in addition to any other relief which that Party or Parties may be entitled to by law.

IV. No Confidentiality Clauses

All confidentiality clauses should be rejected. It is nearly impossible to mandate a borrower to keep the terms of an agreement confidential, especially if they need to seek assistance in the future with either enforcement of the agreement of if they fall into default on the loan again. Confidentiality clauses may give rise to tax consequences, as well.

If the lender insists on a confidentiality clause, it should be strictly limited such as restricting the borrower from talking to the press, but the clause should not restrict the borrower from discussing the terms of the agreement with other parties.

V. Release of claims

It is standard language for workouts (including even repayment and forbearance agreements) and settlement agreements to require the borrower to release all claims and defenses that may exist regarding the loan origination and events up to the date of the workout or agreement. Requesting the borrower to release past or existing (though not future) claims may be appropriate though these statements should be scrutinized to make sure the waiver of rights is commensurate with the relief the borrower is receiving. Limit the release if necessary.

It is very important that the borrower understands what they are agreeing to release. The borrower may want to seek legal advice before doing so to fully understand the nature of the release.

VI. No Arbitration or Limiting clauses

Agreements should not contain arbitration clauses or other clauses that waive the Borrower’s rights that are otherwise provided in law to raise claims, objections or defenses for actions on the part of the owner, servicer or subsequent owner or servicer of the loans especially for actions that may arise after the date of the agreement. For example, it would be inappropriate for a lender to require a borrower to waive their right to bring an action for future compliance of the agreement, or for violations by the lender or servicer that may occur after the date of the agreement in any court of law or through any forum that would otherwise be available to the homeowner.

VII. Income Tax Consequences

If a portion of the debt is forgiven by the lender (such as in the case of a “short sale” or in a loan modification if the principal balance is reduced), there may be potential tax consequences for the borrower. The workout or agreement, or a separate letter from the lender should set forth whether the lender intends to file a Federal 1099-C tax reporting form (issued for discharged debt). The borrower needs to be fully aware that there may be potential tax consequences for forgiven debt.

129

  

Other aspects of an agreement may be taxable income, as well, including additional cash received, attorneys’ fees (considered to be the property of the borrower even if paid directly to their lawyer), and capital gains. The last thing you want is for a client to be surprised at tax time!

Settlement agreements can be structured to try to minimize a client’s tax liability especially if the resolution is settling disputed legal claims. It is best to start discussions regarding potential tax consequences early on in the settlement negotiations. Borrowers may have to be referred to tax law specialists. Lawyers should consider including the borrower’s expense for consulting with a tax expert as part of the settlement agreement.

VIII. Credit Report Corrections

A final consideration to be addressed with the lender is how the lender will report the new status of the loan to the credit reporting agencies. (There are three main credit reporting agencies the lender should contact: Equifax, Experian and TransUnion). Tradelines on credit reports can be deleted as should happen if a foreclosure is settled. The lender also can be compelled to report all payments that are made pursuant to the agreement, such as in the case of a repayment plan or forbearance agreement. Put in writing that the lender will do what is necessary to repair the borrower’s credit report and mandate that verification be provided.

Prepared by: Kirsten Keefe Senior Staff Attorney Empire Justice Center kkeefe@empirejustice.org

December 2008

130