Wednesday, October 3, 2012


The National Mortgage Settlement Takes Effect: An Update to “Robosigning Settlements” from February 9, 2012

The National Mortgage Settlement between the Attorney Generals of 49 States and five banks and mortgage servicers (Ally/GMAC, Bank of America, Citi, JPMorgan Chase and Wells Fargo) takes full effect today.

For Borrowers that are eligible under this Settlement, it provides sweeping changes in the modification process, servicing of loans, payments to the States and possible payments to borrowers who have already lost their homes in foreclosure.

Perhaps, one of the most important changes for borrowers attempting to modify their mortgage at the same time as being in active foreclosure, the settlement agreement will greatly inhibit “dual tracking” of borrowers. “Dual Tracking” occurs when a borrower is in active foreclosure litigation at the same time as attempting to modify their loan.

Prior to today, the foreclosure litigation continued in earnest, at the same time borrowers were being evaluated for a loan modification. In the past, many borrowers submitted loan modification applications but lost their homes to foreclosure before their applications were reviewed by the lender.

Although the Directives under the Home Affordable Modification Program (HAMP), specifically states that “Foreclosure sales may not be conducted while the loan is being considered for a modification or during the trial period”, this was of no assistance to borrowers with lenders and/or servicers, that did not participate in HAMP.

As delineated in the “Servicing Standards Highlights” on the New York State Attorney General’s National Mortgage Settlement webpage, some of the key features of the Dual Track restrictions are as follows:
C. Dual track restricted
1. Pre-foreclosure referral
*            If bank/servicer receives a complete loan modification application by day 120 of delinquency, bank/servicer must review and make a determination on the application prior to referring the loan to foreclosure.
*            If bank/servicer receives a substantially complete loan modification application by day 120 of delinquency, bank/servicer must provide borrower an additional 10 days in which to complete the application.  If bank/servicer receives a complete application by the end of the 10-day extension, bank/servicer must review and make a determination on the application prior to referring the loan to foreclosure.
2. Post Foreclosure Referral
*            Once a loan has been referred to foreclosure, if the borrower submits a complete loan modification application within 30 days after the attorney letter is sent to the borrower, the bank/servicer must not move for a foreclosure judgment or seek a foreclosure sale until it has completed its review and determination of the application.  If servicer offers the borrower a loan modification, the servicer must continue to delay any action in the foreclosure proceeding until the borrower accepts or denies the offer.  If the borrower accepts the offer, the foreclosure proceeding is suspended unless the borrower fails to perform on the loan modification. The borrower may accept verbally, in writing or by making the first trial payment.
*            If borrower submits a complete loan modification at any time after 30 days following the mailing of the attorney letter but prior to 37 days before a scheduled foreclosure sale, the servicer must complete its review of the application prior to going to foreclosure sale.  If the servicer offers the borrower a loan modification, servicer must delay the sale if necessary to provide the borrower 14 days in which to accept or deny the offer, and, if the borrower accepts, must continue to delay the sale unless the borrower fails to perform on the modification.
*            If borrower submits a complete loan modification with 37 to 15 days before a scheduled foreclosure sale, the servicer shall conduct an expedited review.  If the servicer offers the borrower a loan modification, servicer must delay the sale to provide the borrower 14 days in which to accept or deny the offer, and, if the borrower accepts, must continue to delay the sale until the borrower fails to perform on the modification.

There are many more details and assistance to borrowers in this monumental Settlement. The impact the Settlement has on the struggling housing market, remains to be seen. With actual oversight of lender compliance, enforcement of the Settlement Agreement and assistance to borrowers by providing contact information about organizations to aid borrowers, through the Office of Mortgage Settlement Oversight and the National Mortgage Settlement Administrator and State Attorney General’s Offices, perhaps this is a step in the right direction. Hopefully, other lenders, that are not parties to the Settlement,will voluntarily adopt similar Servicing Rules. Such a voluntary act would certainly assist the entire Industry and create uniformity, which would positively impact the struggling housing market.

For more information please visit:
The New York State Attorney General’s Settlement info at:
The National Mortgage Settlement Administrator:
The Office of Mortgage Settlement Oversight:
https://www.mortgageoversight.com/