Monday, June 21, 2010

Truth in Lending Act (TILA) and Helping Families Save Their Homes Act of 2009

TILA is a federal statute that is often ignored in a residential loan modification, but its of particular importance and should be studied at length by any person facing foreclosure. While there are many ways to utilize TILA with respect to predatory lending, which can resolve many foreclosure problems, today we are going to discuss its importance in terms of the Helping Families Save Their Homes Act of 2009. This Act amended TILA and enables servicers to make modifications of homeowner's mortgage terms without facing liability from investors if the modification maximizes the investor's value under a qualified loss mitigation plan (AKA The TILA Safe Harbor). Importantly, HAMP (primary mortgage federal modification program), 2MP (second mortgage federal modification program) and HAFA (federal short sale and deed in lieu program) have all been designated as qualified loss mitigation plans by Treasury.

To illustrate the importance of the aforesaid facts, I will share my experience this past Thursday at a Foreclosure Settlement Conference in Ronkonkoma, NY. I walked in and a discussion was had about the investor not participating in HAMP and opposing counsel said no modification was available. The Referee disagreed and said that by accepting federal monies, the servicer must participate. Opposing counsel disagreed and I perked up to support the Referee who had taken my side. I said "Not only should you offer a modification if its in your investor's best interest, but you cannot be liable to your investor if they are not happy with your decision, basically its your choice, so don't blame it on the investor". Now opposing counsel took issue with me, but the Referee wanted more, she cut him off and asked the source of my knowledge and I disclosed that I lecture on this topic to both attorneys at CLEs and to real estate agents at CEs. The Referee was intrigued and said that she was always looking for lectures on these topics as the rules keep changing and the lectures for Referees/Judges aren't often available. I responded that I was glad to learn of her interest and I wish that I knew last month because she would have been my guest at the lecture. Than the Referee asked why I hadn't invited her to the CLEs and I responded that they were in Nassau County, but that we would be having more CLEs in September in Suffolk County. The next thing I knew, the Referee's staff was handing me her card and asking for her to be invited to future classes. I than turned to my right and saw opposing counsel dumbfounded and white, he seemed confused on how our conference had turned into the Referee inviting herself to my class. I guess she agreed that TILA and Helping Families Save Their Homes Act of 2009 are immensely important to forcing a lender (servicer) to give a modification. At the end of the conference the Referee and I both said to opposing counsel that we expect a modification and we are satisfied if they don't want to call it HAMP, but its terms better be substantially similar to a Home Affordable Modification Program (HAMP) result.

To study Treasury’s position regarding the applicability of the servicer safe harbor set forth in Section 129A of the Truth In Lending Act, 15 U.S.C. 1639a (TILA), to residential loan modifications under HAMP and 2MP, the reader is directed to review Supplemental Directive 10-05, which can be found by clicking here.