Legal Analysts

Showing posts with label Mortgage Trouble. Show all posts
Showing posts with label Mortgage Trouble. Show all posts

Wednesday, January 22, 2014

Case Escalations: Power to the Homeowner

Have you applied for a loan modification and felt that your servicer did not properly review you for HAMP and other Making Home Affordable programs? Perhaps your servicer lost your documents or failed to provide you with the proper update on your file? Well, what are you waiting for? Escalate your case today and demand your servicer to be in accordance with the MHA guidelines!

Homeowners may contact the MHA Hotline at 888-995-HOPE to request assistance in the escalation of their cases. The MHA Support Center, acting as an intermediary between the homeowner and servicer, ensures that the servicer is complying with the MHA guidelines and is reviewing homeowners’ case escalations in a timely fashion. However, homeowners may also contact their servicers directly or authorize their attorneys to go through the HAMP Solution Center (HSC) to seek resolution. No matter what route is taken, it may take up to 30 or more days for an escalated case to be reviewed and resolved, so homeowners should act immediately if they believe to have been wrongly denied a MHA Program.

Case escalations give power to the homeowner and keep disorganized servicers in check. Please go here if you would like to know how to escalate your case today!

Thursday, December 12, 2013

Mortgage Changes less than a Month Away – What to expect on January 10, 2014

A whole new world of getting a mortgage is coming in the beginning of 2014. You should get familiar now!!!

To remind you, in the years before 2008, financial institutions were subject to little regulation in the United States. Many lenders did not even bother to verify income or debt before handing over adjustable-rate mortgages (ARMs) to consumers who could not afford them. High risk lending was the norm and mortgage fraud was rampant. These practices caused the subprime mortgage crisis and the worst recession that the country has experienced since the 1930s. Thousands of homes were foreclosed on and over one hundred mortgage lenders went bankrupt as more and more people could no longer afford their monthly mortgage payments.

As a result, The Consumer Financial Protection Bureau is issuing a final rule that prohibits high risk lending and implements the Truth in Lending Act and sections 1411, 1412, and 1414 of the Dodd-Frank Act. This rule will take effect on January 10, 2014, and will require mortgage lenders to verify consumers’ income and debt. Prepayment penalties that punish borrowers if they sell or refinance their home within a certain time frame are now generally prohibited. Qualified mortgages, which are less likely to end up in default, are defined in great detail and cannot have terms longer than 30 years or fees exceeding 3% of the total loan amount.  Lender are also encouraged to refinance adjustable-rate mortgages (ARMs) and must maintain documentation of compliance for three years after the loan is given to the consumer.

To remain in the real estate game, you must understand these rules and what a qualified mortgage is as that will drive the industry. Please read the rule for yourself!

Will We See an Extension of the Mortgage Forgiveness Debt Relief Act through 2014?

The Mortgage Forgiveness Debt Relief Act of 2007 has provided relief to thousands of borrowers who have completed short sales or obtained loan modifications with mortgage principal reductions. Before this law was enacted, any forgiven mortgage debt was taxable by the government. For example, if a lender reduced a borrower’s principal balance by $100,000.00, then the borrower would have to report that forgiven debt as ordinary income and pay taxes on it.  This was, of course, impractical and unreasonable for borrowers who were already experiencing financial hardship and were relying on modifications or short sales to save them from foreclosure. Most borrowers could not afford their tax bills and were stuck in the same situation as they were in before they had requested help from their lenders.

Under The Mortgage Forgiveness Debt Relief Act of 2007, borrowers do not have to pay taxes on cancelled mortgage debt as a result of a modification or foreclosure of their primary residence. This act was originally supposed to end at the end of 2012, but it was granted an extension through 2013 on the third day of the new year.

An extension may be granted through 2014, but it is unlikely. Both H.R. 2788 and H.R. 2994 are bills that will extend The Mortgage Forgiveness Debt Relief Act for at least another year, but they were each referred to committee over the summer and have received no attention since. There are 44 cosponsors for H.R. 2994, but it is already now the middle of December and time is running out. In order for this bill to be enacted, it still needs to pass the House and Senate and it must get signed by the President before December 31, 2013. It is improbable that an extension will be granted, but not impossible; especially with the economy rebounding and many forgetting the plight of those left behind. It’s important to not forget these individuals that still need relief and who have often spent years trying to get a modification or a short sale approved only to now be taxed when they finally get the relief that they have hoped for.

So for them, please tell your local representative how important it is that these Bills are passed and The Mortgage Forgiveness Debt Relief Act of 2007 is extended for another year.

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

Thursday, October 24, 2013

Supplemental Directive 13-09 to the Making Homes Affordable Handbook will speed up the loss mitigation process

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 18th, 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. 

Wednesday, October 16, 2013

Cracking Down on Strategic Defaulters

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. 

Tuesday, October 08, 2013

Making Home Affordable Program: Supplemental Directive 13-08

Are you currently applying for a HAMP loan modification? Then good news! If you are granted a HAMP trial period or permanent loan modification on or after March 1, 2014, you may have access to free financial counseling from your servicer!

Currently, Section 6.7 of Chapter II of the MHA Handbook, only borrowers with a total debt-to-income ratio of 55 percent are required to obtain HUD-approved financial counseling when they are approved for a Home Affordable Modification Program (HAMP) modification. These borrowers are at high risk of defaulting because they use over half of income just to satisfy their debts and have little income left over every month. It makes sense that these high-risk borrowers are required to speak with a counselor, but under this Section of the MHA Handbook, they are the only ones required to receive such counseling.
Now, under the Supplemental Directive 13-08, servicers must offer financial counseling to borrowers who have been granted a HAMP trial period plan or permanent modification regardless of the total debt-to-income ratio. More borrowers than ever before will now have access to free financial counseling from their servicers, provided that their servicers participate in HAMP, and either have enough money for HAMP ($75 million or more) or voluntarily choose to follow Supplemental Directive 13-08. This Supplemental Directive is effective March 1, 2014 and does not apply to loans that are owned, insured, or guaranteed by Fannie Mae, Freddie Mac, Veterans Administration, the Department of Agriculture’s Rural Housing Service (RHS), or the Federal Housing Administration (FHA). Even so, this Supplemental Directive will apply to many mortgage loans and affect millions of people who have been approved of a HAMP trial period or HAMP permanent modification.

The purpose of the financial counseling is to ensure that the borrowers are able to successfully complete their trial period plans and afford their permanent modified payments. Even borrowers who have already received a HAMP permanent modification before March 1, 2014 can receive financial counseling if they are at a high risk of default or believe they will be at risk in the future. It is an exciting opportunity for borrowers to receive free financial counseling from their servicers and for servicers to receive consistent monthly payments from every borrower who has received a HAMP modification.

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

Friday, August 23, 2013

Short Sales & Deeds in Lieu added to Hope LoanPort

In offering their organized and systematic portal from modifications to Deeds in Lieu and Short Sales hopefully homeowners will realize increased success.

Today, our firm received this email:

Hello Hope LoanPort Partners,
We have responded to request from portal users by adding a robust processing platform for liquidation workouts, intended to match our existing functionality for retention workouts.  Such a liquidation portal requires significant development to not only allow for short sales and deeds in lieu as workout types, but also include system availability for liquidation-specific documents, statuses, and data fields.

We released a pilot program of the liquidation case type back in the spring.  We are now proceeding with a release of the Liquidation functionality for all registered housing counselors and authorized third-party representatives.  Effective with our upcoming system release on August 30, all counselors registered with the portal will have access to submit Liquidation cases.  This functionality will be limited to those select servicers who will be accepting these cases.

Participating Servicers: Select Portfolio Services; Nationstar; M&T Bank; Caliber; LoanCare; RCS; HSBC; Ocwen; Resurgent; Bayview

When processing a Liquidations case, users will need to be familiar with the enhancements to HLP, such as:

New Case Type: Liquidation
New Case Statuses: Property Listed, Offer Tendered, Short Sale Approved, Short Sale Denied, Offer Rejected, etc. (See PDF for full list*)
New Document Types: Listing Agreement, Appraisal, BPO, etc. (See PDF for full list*)
New Data Fields: Seller Realtor Name, List Price, Closing Date, Title Company, etc. (See PDF for full list*)
*A PDF overview of all items and can be viewed from this link.

We will be issuing system Release Notes in advance of the anticipated go-live date of August 30.

If you would like to request additional training on the liquidation case type, please contact Nora Conklin, Hope LoanPort Project Coordinator, at
Samantha Sue Friedman - Director of Product Development & Delivery

Thursday, August 01, 2013

Attempting to modify 2nd mortgage? Read Supplemental Directive 13-05

2nd Mortgage Modifications - Supplemental Directive 13-05

Treasury just issued Supplemental Directive 13-05, which addresses the scenario of "when a borrower’s first lien is modified under HAMP and the servicer of the corresponding second lien is a 2MP participant, the 2MP servicer must offer to modify or extinguish the borrower’s second lien according to a defined protocol".

Specifically, this Directive addresses the following topics:
  • Matching Second Liens to First Lien GSE Standard Modifications
  • Dodd-Frank Certification Requirement for 2MP
  • Incorporating HFA Payments into the NPV Result for HAMP Tier 2
  • Handbook Mapping Clean-Up
So, if you or your client is attempting to modify a second mortgage, read this directive as its the roadmap to success.

Monday, June 17, 2013

Making Home Affordable Program extended to 12/31/2015

Pursuant to Supplemental Directive 13-04 of this month, the Making Home Affordable Program, including HAFA (short sales) and HAMP (mortgage mods), is extended through the end of 2015.

Additionally, Supplemental Directive 13-04 simplifies the income documentation requirements under HAMP, by modifications to the rules concerning Form 4506-T; Benefit Income; Verification of Monthly Gross Expenses; Wage or Salary Income; Self Employment Income; Rental Income; and Alimony, Separation Maintenance and Child Support.

To illustrate, now the requirement that a servicer must verify monthly gross expenses is removed and a servicer may just rely on a borrowers stated expenses. With respect to the other categories, the Supplemental Directive enables the servicer to "verify such income in accordance with the [...] documentation the servicer relies on when modifying loans held in its own portfolio..."

The extension is certainly welcomed as the foreclosure crisis is far from over. Also, these new rules are smart as they simplify an unnecessarily complex process, which has resulted in both lenders and borrowers being frozen in time when seeking to follow the rules. Instead, its expected that more decisions will be made whether to modify a loan based upon these changes.

Wednesday, May 01, 2013

Mortgage Foreclosure Alert: New Making Home Affordable Program Handbook Released - Version 4.2

To access the new Handbook for MHA, inclusive of HAMP and HAFA, click here. While reviewing the Handbook you should be aware of the case of Flagstar Bank v. Walker wherein the Court held that the statutory good faith standard for a CPLR 3408 Foreclosure Settlement Conference is compliance with the Handbook. To review the case, click here.

This Handbook is the rules for banks / servicers to modify mortgages, so pay careful attention to detail and make sure that they comply.

Friday, April 19, 2013

The Check's in the Mail: Settlements for Wrongful Foreclosures

Some information on foreclosure defendants receiving money in the mail, which is being shared by an Assistant Case Manager at Lieb at Law, P.C., Laura Palermo:     

Recently a few clients received a check from their current or former mortgage lender. Perplexed by this, my clients were a bit hesitant to run down to the bank to cash it. They asked “what is this for?” and “are there terms attached to this check I should know about?”

I directed them to a deal struckback in January of this year between Fannie Mae and the ten major banks to settle allegations that the banks had wrongfully foreclosed on thousands of homeowners between 2009 and 2010. The result of the deal was an $8.5 billion settlement which was to be allocated among the homeowners (or now former homeowners) who were wrongfully or prematurely foreclosed on or denied a loan modification resulting in foreclosure. The foreclosures which are considered as wrongful include those which were “robo-signed” or automatically entered into foreclosure proceedings without proper review for work out options such as modification, deed-in-lieu, or short sale.

The settlement amounts range anywhere from $100 to $125,000 per qualifying person. The settlement is thought to be disbursed among hundreds of thousands of people. There is no way in which to apply to be a part of the payout, the recipients of the settlement are to be determined by the banks. The settlement has been criticized by many for being too soft on the banks as it releases them from their responsibility for these foreclosures for a relatively low price.

The first wave of checks were mailed out this week, so if you fit the description of a person who was wrongfully foreclosed on or attempted to be foreclosed on between 2009 and 2010, and you find yourself with a check in hand from your former or current mortgage lender, go ahead and cash it, there are no special terms attached to it, it is simply your pay out from a billion dollar settlement you probably didn’t know you were a part of.

I’ll leave you off with some advice from my Grandma: “Don’t spend it all in one place!”

Wednesday, April 10, 2013

Ability-to-Repay and Qualified Mortgage Guide Issued by CFPB

Today, the Consumer Financial Protection Bureau (CFPB) issued a Small Entity Compliance Guide to the new Ability-to-Repay regulations, which are scheduled to commence effectiveness on January 10, 2014.

To remind our readers, the Ability-to-Repay regulations require loan originators to "make a reasonable, good-faith determination before or when [they] consummate a mortgage loan that the consumer has a reasonable ability to repay the loan, considering such factors as the consumer’s income or assets and employment status (if relied on) against:

  • The mortgage loan payment
  • Ongoing expenses related to the mortgage loan or the property that secures it, such as property taxes and insurance you require the consumer to buy
  • Payments on simultaneous loans that are secured by the same property
  • Other debt obligations, alimony, and child-support payments"

As stated within the Guide: "The purpose of this guide is to provide an easy-to-use summary of the ATR/QM rule."

Remember, ATR stands for Ability-to-Repay and QM stands for Qualified Mortgages.

So, real estate professionals, you should know that lenders will have to independently verify a borrower's Ability-to-Repay starting in January of next year and you should start now to become familiar with these new rules to effectively represent your clients. This Guide is a great starting place.

Monday, April 08, 2013

Freddie Mac Streamlined Modification

Some information on Freddie Mac's Streamlined Modification program by an Assistant Case Manager at Lieb at Law, P.C., Laura Palermo:     

           As of July 1, 2013 Freddie Mac is going to temporarily offer a new type of mortgage modification called a Streamlined Modification. The Streamlined Modification differs from the Standard Modification by way of the application process. Traditionally a delinquent mortgage holder (a.k.a. “borrower”) would have to endure a drawn-out review process which requires the borrower to submit a Borrower Response Packet which includes financial documentation and proof that they are/were experiencing a hardship. During this process the lender may request any and all documents which they feel is necessary for proof that the borrower encountered a hardship and now is able to afford a loan modification should one be granted. The modification application process can be daunting depending on the lender and the elements of the borrower’s situation.

            The Streamlined Modification does NOT require the borrower to submit a Borrower Response Packet; meaning that the lender no longer has to verify the borrower’s income or hardship.  Similar to the Standard Modification, if the borrower is eligible, the borrower will be required to successfully complete a trial period of at least three months prior to being offered a permanent modification, which will be subject to the same terms as defined for the Standard Modification.

            The eligibility requirements for the Streamlined Modification are as follows:

1.      Mortgage must be a first-lien which is owned, securitized, or guaranteed by Freddie Mac.
2.      The pre-modified mark-to-market loan-to-value (MTMLTV) ratio (gross unpaid principal balance of the current loan, including any principal forbearance as a result of a prior modification, divided by the property value) must be greater than or equal to 80 percent.
3.      Mortgage must be obtained at least 12 months prior to modification.
4.      Borrower must occupy the property as their primary residence
5.      Borrower must be at least 90, but not more than 720 days delinquent on their mortgage payment.

While this does sound like a great alternative to the Standard Modification it can be a risky move on Freddie Mac’s part. For example, the Streamlined Modification review guidelines (i.e. no verification of income necessary) are very similar to a previously common practice by lenders and servicers called a “blind modification”. The blind modifications granted borrowers with a refinance or modification without ever reviewing their finances. For some borrowers it worked wonderfully, while for others they could still not afford their payments and then would find themselves again in default with no further options for modification.

Despite the potential risk, I have high hopes for the Streamlined Modification program as it will present many delinquent borrowers with the opportunity to bring their mortgage current and out of delinquency without having to incur as many fees. Also, this may present many borrowers who are ineligible for Standard Modification due to their inability to prove hardship or verify their income to keep their homes.  For further information on the new program check out Freddie Mac’s news brief, click here

Saturday, April 06, 2013

Mortgage Modifications - Supplemental Directive 13-02

On Friday, 4/5/13, Treasury issued new directives to the mortgage modification process.

To read the Supplemental Directive, click here.

Of note in this directive was a change in the categories for denial that give rise to a servicer's (lender's) inability to conduct a foreclosure sale following a denial. To clarify, a servicer cannot conduct a sale within 30 calendar days of a Non-Approval Notice to theoretically give the borrower an opportunity to correct their submission. The traditional five categories for Non-approval were:
(1) ineligible mortgage, (2) ineligible property, (3) offer not accepted by borrower/request withdrawn, (4) previously modified under HAMP Tier 2, and (5) borrower not a natural person.

However, what does ineligible mortgage or ineligible property really mean?

To clarify this confusion this directive deletes these categories and replaces them with the following clear reasons for denial of a modification:
(1) loan originated after January 1, 2009, not a first lien, or unpaid principal balance above program

limit, (2) loan paid off, or charged off and borrower released from liability for repayment, (3)
property condemned or more than four dwelling units, (4) loan subject to involuntary transfer to
a non-participant,

This change is another step in improving the Making Homes Affordable Program. By providing clearer understandings to borrowers and lenders for the framework to achieve a mortgage workout, the parties can intelligently negotiate a resolution.

Tuesday, April 02, 2013

Mortgage Modifications: Introducing The Hope Loan Port

Some information on a great new system for mortgage modifications which is being shared by an Assistant Case Manager at Lieb at Law, P.C., Laura Palermo:            

            Applying for a loan modification can be a very frustrating and trying process. For some people it can take years for their application to be properly reviewed and decided on. That’s why I was delighted to hear about the new platform in use by many of the big Lenders, the Hope Loan Port. I learned about the new system while trying to submit a loan modification application to Bank of America on behalf of one of my clients. I was informed by the lender that they are no longer accepting third party submissions via fax and instead, the new preferred method is the Hope Loan Port.

            Upon visiting the Hope Loan Port website ( ) I learned that the website has been created as a “neutral, national, non-profit, e-commerce platform” as a way to provide more transparency and productivity to the process of foreclosure alternative review (i.e. loan modification, short sale, or deed in lieu).

            In order to access and use the Port you must first register as a Counseling Agency.  There are two types of counseling agencies that can register for this platform, the government sponsored not-for-profit agencies which are affiliates of the National Foreclosure Mitigation Counseling Program, and there are for profit counseling agencies, such as law firms. The registration requires you provide your company information and designate one person from your company to be the contact person. The contact person is in charge of managing and maintaining user profiles and the account. After submitting the company and contact information you must agree to the terms and conditions of the site, and then wait for verification.

            About 24 hours after submitting the information we received an e-mail stating that our company was verified by the Port along with our login information minus our password which was supposed to arrive in a subsequent e-mail. We waited for two days and still did not receive our password. I contacted the website by using their “Contact Us” tab and submitting an e-mail requesting the password information be re-sent. Finally, a few hours later I received the password and was able to log in to the actual portal.

            In order to submit a case you must first input information about the Borrowers, the first step requires you to disclose the loan information including the loan number, borrower names, and property address. The second step requires you to disclose financial information including gross and net income, rent, unemployment, monthly expenses etc. From there, you enter the information found on the Request for Mortgage Assistance (RMA) including if borrower would like to sell or keep the property, if the property is listed for sale, if the property is owner occupied, reason for hardship etc. After completing this information you must then upload the supporting documents including the signed and dated RMA, bank statements, pay stubs, profit and loss statement, 4506-T, rental income information, and any other supporting documents based on the Borrower’s situation. Upon submission the Lender gains access and then can review the file and inform you via the portal of information or documents still needed. The Counselor is able to view the pending status and communicate with Lender throughout the review process.
            The website is not entirely user-friendly but they do offer and encourage training webinars.  It still has its glitches to work out as well but overall I feel this is a step in the right direction for the modification application process. Many Borrowers and counselors who have applied for a modification can tell you that it is by no means an easy process. Much of the time spent on the modification application is wrapped up in the submission and re-submission of documents and following up with the Lender to ensure receipt and review of those documents. It is my hope that the Hope Loan Port will eliminate a lot of this back and forth and will also de-mystify the process by creating and maintaining more transparency during the application review.  

            I am interested to see how they will further adapt the website to be more user/Borrower friendly. At this point in time only Counseling Agencies and the Mortgage Lenders or Insurers may access and use the portal. I am curious to see if eventually they will develop an access point for Borrowers so they may submit their modification application online on their own. 

Laura Palermo will keep us in the loop as this program gets perfected, but in the interim, this is an exciting new program that will hopefully help to organize the chaos now existing in the loan modification process. Go check it out!

Monday, March 28, 2011

Federal MARS Rule on Loan Modification and Short Sale Providers

The MARS Rule
This year, the FTC enacted a new rule called MARS (Mortgage Assistance Relief Services) that puts several obligations on anyone negotiating on behalf of a homeowner for a loan modification or short sale. Several disclosures are required about the services and fees.
MARS is defined as a “service, plan, or program offered or provided to the consumer in exchange for consideration, that provides services in relation to a consumer’s mortgage, including negotiating a possible loan modification.”
Most notably, the MARS rule will ban advance fees. Now, fees will be unavailable for MARS providers that negotiated a loan modification or short sale until the mortgage lender or servicers has provided written documentation describing the key changes to the mortgage, which the consumer accepts. The consumer also has the right to reject this offer without any charges, and must be reminded of this.
Loan modification companies or other MARS providers must make certain disclosures about the agreement between them and the homeowner, such as the fact that they can stop doing business at any time, that they can reject offers the lender or servicer makes, and that they need not pay a fee if they reject the offer. A fee is only payable once the homeowner accepts an offer they deem to be acceptable, and the fee amount must be disclosed from the beginning. MARS also bars these companies from encouraging or preventing homeowners from communicating with their lenders and/or servicers on their own. Providers often suggest to consumers that they should stop paying their mortgage. If they do so, they must also disclose that because of that, they could lose their home and damage their credit scores in the process. They also must disclose that lenders may not agree to modify the loans at all. The following should be provided as a memo to the homeowner, that is conspicuously a disclosure statement, with language similar to the following:
IMPORTANT NOTICE (in two point-type larger than the font size of the disclosure): You may stop doing business with us at any time. You may accept or reject the offer of mortgage assistance we obtain from your lender [or servicer’. If you reject the offer, you do not have to pay us. If you accept the offer, you will have to pay us (insert amount or method for calculating amount) for our services. (NAME OF COMPANY) is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit rating.
Additionally, the rule requires certain disclosures from these providers, such as disclosures about their services in any communications to potential customers. For example, they must disclose that they are not in fact associated with the government. They must also disclose: the consumer’s payment and mortgage obligations; the company’s refund/cancellation policies’ whether the company has performed the services it promised; whether the company will provide legal representation; the availability or cost of any alternative to for-profit mortgage assistance relief services; the amount of money a consumer will save by using their services; or the cost of the services. If they are going to make claims regarding benefits, performance, or effectiveness of services, they must have reliable evidence to back up these claims.
The following is an example of the disclosure that must be made by the agent who promises to perform negotiation, counseling, or other services regarding Short Sales:
IMPORTANT NOTICE (in two point-type larger than the font size of the disclosure): (NAME OF COMPANY) is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit rating.
Who is subject to MARS Rules?
Most obvious is that loan modification companies are subject to MARS regulations. Along with that can be real estate brokers and professionals, and sometimes attorneys as well.
Attorneys are exempt from the MARS statute as long as they are engaged in the practice of law, are admitted in the state of the property; and they are complying with the state’s rules on attorney conduct and regulations. They must also place any collected fees in an IOLA account, and follow regulations related to such, if they are to collect a fee without the applicable fee ban. However, this does not apply to circumstances where fees are collected in connection with preparing or filing documents in bankruptcy, court, or administrative proceedings.
Real Estate Professional who represent buyers or sellers in Short Sales are also subject to the new rules. They made need to make certain disclosures up front, and their fees are affected as well. Once they become aware that the transaction may be a Short Sale, they must comply with the disclosure requirements.
When is a real estate professional subject to MARS?
There are several situations that real estate professionals may find themselves in which may lead to Short Sale Listings, and therefore fall under the purview of MARS as a provider.
First, and most obvious, is where the real estate professional negotiates a short sale with a lender on behalf of a homeowner client. Exact compliance with the statute depends on the broker’s business.
A disclosure is required when providing an offer for mortgage relief, at the time that the homeowner is presented with the lender’s short sale approval letter. This disclosure must be provided on a separate page as follows:
IMPORTANT NOTICE: Before buying this service, consider the following information (in two point-type larger than the fnot size of the disclosure): This is an offer of mortgage assistance we obtained from your lender [or servicer]. You may accept or reject the offer. If you reject the offer, you do not have to pay us. If you accept the offer, you will have to pay us [same amount as disclosed previously] for our services. If you stop paying your mortgage, you could lose your home and damage your credit rating.
Along with this must be a notice providing for the material differences between the seller’s current loan and the lender’s proposed modifications to the loan, if the short sale offer is accepted (which may lead to a deficiency against the seller). This information will likely be included in the lender’s short sale approval letter to the homeowner as well.
MARS in Adveritising
If a real estate professional advertises as a MARS provider, full compliance is necessary. If a particular entity specifically markets MARS services to homeowner, then they need to make full disclosure in any advertisements, which includes telephone solicitations.
In a situation where a broker only does limited transactions involving short sales, and it is not the primary purpose of their business, then the MARS rules must be complied with for these transactions, and the necessity for these disclosures occurs once the real estate professional realizes it may become a short sale transaction situation. If a real estate broker that does not exclusively do MARS transactions advertises for themselves and includes in this advertisement the ability to do MARS transactions, then the FTC reviews these advertisements on a case by case basis, taking into account whether the ad gives a certain impression to a “reasonable consumer”.
Buyer’s representatives also may become a MARS provider if they negotiate the terms of a short sale on behalf of the seller with the lender. They would then need to make disclosures to sellers where they negotiate short sales on behalf of the seller while trying to acquire a purchase for the client, the buyer. Where there is no specific arrangement with the Seller, the real estate professional may not charge a separate fee to the seller. If he does make such an arrangement, it must be done in compliance with MARS.
Referrals made to a MARS provider in exchange for a fee will be subject to MARS requirements if it could be viewed as “arranging mortgage relief services” so one must be careful in that situation. This is a factual determination made on a case by case basis. To avoid MARS regulation, it must be clear that the client is not required to use the MARS providers offered by the real estate professional. Fee arrangements must be disclosed upfront.
Things to keep in mind regarding fees
If a broker customarily takes fees upfront, then they need to be cognizant of potential short sale situations because they would be in violation if they took a fee upfront and it turned out to be a MARS transaction.


As an aside, the FTC is placing a stay on enforcing the MARS rules against a licensed real estate agent who is working on a short sale. To read the FTC's press release, click here. Nonetheless, NY real estate agents should be mindful of the Real Property Laws Distressed Property Consultant provisions and the impact this plays on their direct negotiation of a debt with a lender and how this may also constitute the unauthorized practice of law. Its therefore recommended that real estate agents abstain from direct negotiations on a release of the deficiency judgment, the lien and the notice of pendency incident to a short sale transaction. 

Wednesday, February 16, 2011

Legal Aid to provide FREE representation in foreclosures

For the 3rd time this past week the real estate world has been hit with a whopping change for the better. To learn more about the announcement made during Chief Judge Lippman's State of the Judiciary 2011, you can either read a New York Times article by clicking here or the text of the speech by clicking here.

Coupled with the other changes, this change signals that we are in a homeowner / mortgagor / borrower friendly world where the government is going to influence lenders to agree to mortgage workouts.

In the speech, the Chief Judge took time to call out robosigners and the affect at curtailing robosigners that the new attorney affirmation requirement has had, topics that I will be discussing at a CLE sponsored by First American Title Insurance Company of New York on March 30, 2011. To be invited to this free seminar, please contact First American at 516-832-3263.

The striking part of the speech was when the Chief Judge said that "63% of homeowners appearing for mandatory court settlement conferences are unrepresented". The Chief Judge than promulgated a new program providing homeowners who cannot afford a lawyer with legal assistance at the foreclosure settlement conference stage of a foreclosure. Yet, the program's great ambitions were limited when the Chief Judge said "these legal services attorneys will provide legal assistance or representation to unrepresented homeowners at the initial conference in as many cases as possible. Thereafter, the attorney will either keep the case and continue with representation or refer the homeowner to a network of legal services, pro bono or law school clinic counsel who will be standing by to provide additional legal assistance in support of this project."

Of note, the project will be piloted in Queens and Orange Counties and is expected to be expanded thereafter.

My take is that this is an excellent move by the Judiciary. Nonetheless, this program has issues that must be addressed in order for it to be succesful including the following:
  1. There is no constitutional right to representation here as there is in the criminal arena and therefore when this program fails homeowners cannot cite the lack of representation to keep their homes while they (lay individuals) will interpret this program as establishing a fundamental right. Therefore, the legislature must follow with creating a right to give this program real teeth or clearly articulate in public service announcements how it does not.
  2. Introducing homeowners to attorneys at the conference stage means that the homeowners likely already defaulted in the matter because the time to Answer the Summons and Complaint will have expired by this stage. Therefore, the homeowner is left to negotiate a workout while the tides are against them and will also have difficulty defending the action on the merits.
  3. Private attorneys with large hourly fees and budgets have a hard time making it financially viable to perform a forensic analysis of all of the mortgage documents to red flag violations of statute and case law in order to change the bargaining positions of the parties in negotiating a workout (modification, short sale, or deed in lieu), I cannot fathom how the State can afford to provide what theoretically is included in proper legal services, particularly in the face of the major budget cuts being made every day by the Governor.
I am very interested to learn of other peoples thoughts on this topic, so please share either on this blog or offline.

Monday, February 14, 2011

50% of foreclosed homeowners can defend

In a great decision for defaulting borrowers, In re Ferrel L. Agard, which can be found by clicking here, the United States Bankruptcy Court for the Eastern District of New York claims to be setting precedent whereby Mortgage Electronic Registration System (MERS) lacks the authority to assign or foreclose a mortgage.

Prior decisions seemed to state that where MERS was granted the appropriate authority it could assign or foreclose a mortgage. This decision seems to intentionally and expressly state otherwise.

Citing the Court: "MERS and its partners made the decision to create and operate under a business model that was designed in large part to avoid the requirements of the traditional mortgage recording process. This Court does not accept the argument that because MERS may be involved with 50% of all residential mortgages in the country, that is reason enough for this Court to turn a blind eye to the fact that this process does not comply with the law".

For those who are unaware of MERS and its role in our mortgage system, Judge Grossman's point is that MERS was designed to provide a database which allowed its member banks to electronically self-report transfers of the Note in an effort to circumvent governmental real estate recording systems and therefore should not be afforded anything, but a strict interpretation of its authority. You mess with the government and the government will win.

For the lawyers who read this blog, the key words used by the Court are as follows: "MERS admits that the very foundation of its business model as described herein requires that the Note and Mortgage travel on divergent paths. Because the note and mortgage did not travel together, Movant must prove not only that it is acting on behalf of a valid assignee of the Note, but also that it is acting on behalf of the valid assignment of the Mortgage."

WOW!!! - I'm betting this goes to the Supreme Court.

Of note, the Court in this case ruled in the lender's favor on a different argument, but made this decision nonetheless for the stated purpose of defining MERS' authority.

Saturday, February 12, 2011

Winding down Fannie Mae and Freddie Mac

On February 11, 2011, the Obama Administration (through the Department of the Treasury and the Department of Housing and Urban Development) delivered a report to Congress that provides a path forward for reforming America’s housing finance market - LOANS WILL NEVER BE THE SAME.

To read the report, click here.

Key in the report is the need for:
  1. More rental options through lending to the multifamily market
  2. Increased coordination between governmental finance options
  3. Increased availability of low income housing
  4. Consumer protection
  5. Lowering the maximum LV Ratios
    1. Minimum of 10% down payment for governmentally backed loans
    2. Lower conforming loan limit (highest loan amount for governmentally backed loans)
    3. Decreased maximum loan size that can qualify for FHA insurance (goal - lowering market share of FHA from 30% to 15%)
  6. Transparancy for investors through disclosure of information on the credit, geographic, and demographic characteristics of the underlying loans that are packaged into securities
  7. Higher capital retention by lenders (originators retaining 5% of loan risk in securitization)
  8. More conservative underwriting standards
  9. Regulation of mortgage originator and servicer standards
  10. Private guarantees of mortgages and public guarntees with increased cost to reflect risk
Interestingly, this is a small government report coming from a democratic administration. Yet, remember this is just the administration's views and will require legislation from the Congress before its enacted. In fact, it only offers 3 options into the future, not a clear direction. Nonetheless, real estate professionals should start hedging their strategies based upon this report as those who leverage change in market principles will get ahead financially.

My takeaway is to concentrate on the rental markets because the administration's plan is ultimately to eliminate a homeownership option for speculators - individuals without the means to afford a mortgage without appreciating home values. Therefore, many potential homeowners will be pushed out of the market to purchase and placed into the rental market.

Of note, the report makes frequent mention of the The Dodd-Frank Act as the first steps towards the administration's goals. Therefore, a careful review is required by real estate professionals.

Lastly, the report discusses loan steering and a new requirement that loan originators will have to perform due diligence of borrowers' claimed finances to determine a borrower's ability to repay a loan. These are many of the topics that are being heavily litigated in the foreclosure world today and I believe that this report will strengthen the position of homeowner who seek a modification in foreclosure. If nothing else, the report requires national standards for loan servicing, which is the entity charged with negotiating a mortgage workout with a borrower - this will HELP!

Short sale professionals; the report also addresses working with second liens in mortgage workouts, this is a must read.

Friday, January 21, 2011

Don't take the kitchen sink after foreclosure

If you are being foreclosed upon and are angry as hell, you should nonetheless think twice before destroying the house to get your revenge. The reason is that destroying the house may prevent you from avoiding the deficiency judgment, in its entirety, in a subsequent bankruptcy. This is talking about the amount of money your house is upside down that you may otherwise owe for 20 years because the sale of your house at a foreclosure auction fell short of the number.

The reason is that Bankruptcy Code section 523(a)(6) states as follows:
A discharge under section 727, 1141, 1228 (a), 1228 (b), or 1328 (b) of this title does not discharge an individual debtor from any debt—for willful and malicious injury by the debtor to another entity or to the property of another entity;

To read a great article on the topic, I refer you to a great local bankruptcy practitioner's blog by clicking here