Are you sick of the unnecessarily long HAMP application process? Do you have countless loss mitigation initial packages sitting on your desk at home? Well, good news! Supplemental Directive 13-09 to the Making Homes Affordable Handbook, issued on October 18^th, 2013, makes the loss mitigation process more efficient.

Under Section 2.2.2 of Chapter II of the Making Homes Affordable Handbook, “Right Party Contact” is established when the Lender successfully communicates with the borrower regarding loss mitigation options. After these options are discussed and the borrower decides to apply for the Home Affordable Modification Program (HAMP), the servicer must submit to the borrower an initial loss mitigation package that would allow the borrower to apply for HAMP. This package, at a minimum, must include the Request for Mortgage Assistance form, which asks the borrower to outline his income, expenses, assets, real estate, and reason for delinquency.  The package, however, can also include documents such as 4506-T, which grants the servicer access to the borrower’s tax returns, and the Dodd-Frank Certification form, which requires that a person is ineligible for any MHA program if that person has been convicted of felony, larceny, theft, fraud, forgery, money laundering, or tax evasion in the last ten years.

Before Supplemental Directive 13-09 was issued, if the borrower did not at least complete and submit the Request for Mortgage Assistance, the servicer had to re-submit the entire initial package to the borrower.

However, under Supplemental Directive 13-09, if the borrower submits any documents of an initial package, such as the 4506-T, RMA, or Dodd-Frank Certification, the servicer must now confirm receipt of the documents and submit an “Incomplete Information Notice.” No longer does the servicer need to re-submit the entire initial package if the borrower only completes a 4506-T.  An Incomplete Information Notice is sufficient. The only time the servicer must re-submit the initial package is when the borrower does not submit any documents whatsoever.

In Section 4.5 of Chapter II of the MHA Handbook, before Supplemental Directive 13-09 was issued, servicers confirmed receipt of initial package within 10 business days and had to make a decision regarding the borrower’s request for HAMP within 30 days. The servicer was not required to respond immediately to requests and this was one of the biggest problems when applying for HAMP or other loss mitigation options. The process dragged on and the borrower sometimes had to wait an entire month before hearing from his or her servicer regarding the loan modification application.

However, under Supplemental Directive 13-09, the servicers must now confirm receipt of the initial package within 5, not 10, business days and must also inform the borrowers at this time whether or not additional documents are needed to complete the loan modification application. This amendment to the MHA Handbook will speed up with loan modification application process. Servicers must confirm receipt of documents and inform of additional document requests within 5 business days.

Also, under the Supplemental Directive 13-09, if the application remains incomplete for a long period of time and the servicer has diligently attempted to obtain the requested documents from the borrowers, then the borrower can be deemed as ineligible for HAMP. If this happens, the servicer must submit to the borrower a “Non-Approval Notice” that informs the borrower why he or she is ineligible for HAMP at this time. This does not mean, however, that the borrower will be forever ineligible for HAMP. If there is a change in circumstances, for example, a new application for HAMP may be submitted to the servicer.

Once a complete loan modification application is submitted to the servicer, the review process begins and takes up to thirty (30) days.

Thank you to Lieb at Law's Assistant Case Manager, Jessica Vogele, for sharing this valuable information. 

Do you know someone who purposely defaulted on his mortgage even though he had the ability to pay it? Perhaps this person did not want to waste his hard-earned income on mortgage payments but instead saved up for a cruise to the Bahamas. Or maybe this person owed more than he originally paid for the home and did not want to continue paying it any longer. Whatever the reason, this person is not alone. There are thousands of these “strategic defaulters” in the United States, many of whom get away with not paying deficiencies because Fannie Mae and Freddie Mac have been lax in pursuing them.

Fannie Mae and Freddie Mac are supposed to evaluate every defaulter’s ability to repay the past due amount on their mortgages. Even after foreclosure, these two government-sponsored enterprises and many other lenders can still go after borrowers with deficiency judgments.

However, according to the recent report from the Office of the Inspector General at the Federal Housing Finance Agency (FHFA), Freddie Mac did not evaluate nearly 58,000 foreclosures for deficiency collectability. That is $4.6 billion that went unchecked and could have at least partially been recovered by Freddie Mac. Thousands of strategic defaulters were set free of the past due amounts that they owed on their mortgages.

The Office of the Inspector General is rightfully horrified by these numbers and is fiercely recommending the FHFA to oversee Freddie Mac’s deficiency recovery strategies to ensure that these strategies become efficient and effective in the near future. The fact that so many have gotten away with this practice in the past few years only encourages more to do so.

No longer should strategic defaulters get away with robbery.

In a separate recent report, the Office of the Inspector General recommends the FHFA to closely oversee Fannie Mae’s deficiency recovery strategies as well. From January 2010 to June 2012, Fannie Mae did not pursue deficiencies in 29,692 foreclosures because the states’ statutes of limitation for pursuing these deficiencies had expired or were about to expire. Fannie Mae is in a better position than Freddie Mac in terms of collecting on deficient judgments, but it can still drastically improve its methods so that it can obtain deficiencies even in states with short deadlines for filing claims.

If you have a loan insured by Fannie Mae or Freddie Mac and you strategically defaulted on your mortgage, watch out. The two enterprises will not be lax any longer.

Thank you to Lieb at Law's Assistant Case Manager, Jessica Vogele, for sharing this valuable information.