Posts Tagged modification
The Consumer Financial Protection Bureau recently laid out new rules for mortgage servicers, such as Ocwen and Nationstar. For most homeowners, it is the servicers who they actually interact with. Mortgage servicers are the ones who collect your payments, who you talk with (or, more accurately, sit on hold for) if you have an issue, and who hound you if you’re late or miss a payment. Some banks do their own servicing, with Wells Fargo being the largest. However, there are independent servicers who management mortgage payments but do not hold notes, such as Ocwen, Nationstar, Litton Loans, American Home Mortgage Servicing, Inc./AHMSI/Homeward Residential.
The actual rules are fairly lengthy and dry. But you can follow them here if you’re a rules geek like myself and find this stuff interesting. If you don’t want to wade through these changes to RESPSA (the Real Estate Settlement Practices Act) and TILA (Trust In Lending Act), here are the major changes.
1. Restrictions on dual tracking: Dual tracking is the term used when servicers move forward on a foreclosure at the same time they’re working with the borrower to avoid foreclosure. Many homeowners have painfully learned that they were foreclosed on by the same servicer they were working with to find an alternative. Under the new rules, servicers cannot begin foreclosure proceedings against you until your payments are 120 days behind.
2. Pursuing modifications and other loss mitigation: The dual tracking restrictions give homeowners some time to assess their situation and apply for a modification or other option. If homeowners apply within the 120-day window, the servicer cannot begin foreclosure until the loan modification application has been addressed. If an agreement is reached, the servicer cannot start foreclosure proceedings unless the homeowner doesn’t uphold their end of the agreement. Even if homeowners apply while facing foreclosure, the servicer cannot complete the foreclosure while the application is pending so long as it has been submitted at least 38 days before the foreclosure sale is scheduled.
3. A periodic statement for homeowners: One of the new requirements defines a periodic statement for residential mortgages. The statement comes every billing cycle and covers basics like an explanation of the amount due, payment and transaction history, account information, and contact information for the servicer. It doesn’t apply to some mortgage types (like reverse mortgages), but it does apply to most home purchases and refinancings. The servicer does not have to provide a monthly statement if homeowners have a fixed rate loan and pay with a coupon book, but the information that would be on the monthly statement needs to be available nonetheless.
4. Early outreach when a borrower falls behind: If a borrower becomes delinquent, the servicer has to make a good faith effort to reach out to them. The servicer also has to assign people to their case and make those people available by phone so the borrower has a clear and consistent point of contact.
5. Warnings before interest rate adjustments: If a homeowner took out an adjustable rate mortgage, the servicer must provide notification about the first interest rate adjustment at least seven months in advance of when the borrower owes a payment at the adjusted interest rate. The servicer has to provide an estimate of the new interest rate and payment amount, alternatives that may be available, and how to access a HUD-approved mortgage counselor. In addition, for the first interest rate adjustment, and all subsequent rate adjustments that result in a different payment amount, servicers must send an additional advance notice telling you what the new payment will be.
6. Crediting payments in a timely manner: When homeowners make a full payment, the servicer must credit it to their account as of that day. If you request a payoff statement in writing, the servicer has seven business days to issue the statement.
7. Force-placed insurance: Force-placed insurance is insurance that the servicer buys on the property when the borrower no longer has property insurance. Without insurance, whoever holds the mortgage would be at risk if the house were to be damaged or destroyed. But the borrower may actually be responsible for the costs of the force-placed insurance policy. This has led to unexpected or duplicate expenses for people who already have their own insurance policies. Under the new rules, servicers need a reasonable basis to believe borrowers lack their own insurance, and they must determine this on a case-by-case basis. The servicer also has to notify the borrower before purchasing the force-placed insurance policy and annually before renewing the policy.
These rules take effect in early 2014.
One of the biggest things that I take away from these rules changes are the mandatory loan modification provisions, and that servicers are limited in the foreclosure proceedings they can undertake if you are in the process of a loan mod. This underscores the importance of being proactive with your mortgage. Getting ahead of things can buy you additional time.
I’m encouraged that new rules have been promulgated to help homeowners get a fair shake from their servicers. It’s only a shame that it’s taken the bad acts of these servicers over the past 4-5 years to finally get to this point.
It appears that Bank of America is expanding their special brand of incompetence from lending to landlord duties. CNBC is reporting that Bank of America has launched a pilot program that will allow a limited number of borrowers who are behind on their mortgages to become renters. This “Mortgage to Lease” program is targeting owners who are facing foreclosure in an effort to help keep them in their home. The program, at this point, is by “invitation only” and is being tested in Nevada, Arizona, and New York.
The report states that homeowners would transfer title back to the back and, in return, their outstanding mortgage debt would be forgiven. Property management would be outsourced to firms specializing in that area.
My reaction? This is a bigger joke than the “$25 billion” mass settlement.
Here’s my biggest problem with this program. Say a homeowner transfers title back to Bank of America and starts renting. We’ll give BoA a huge benefit of the doubt, for now, that they can execute such a program in its initial stages. What assurances does a homeowner have that they will be able to stay in their home for an extended period of time? Maybe they sign a 1-year lease. But what is to stop BoA from kicking them out after that lease expires?
The media is preaching how the housing market is supposedly improving. If that’s the case, what confidence could a homeowner possibly have that BoA wouldn’t want to sell that house as soon as market conditions improve enough to make financial sense? Does Bank of America really expect us to believe that it’s willing to play landlord for the next 10, 20, or 30 years on a house? Or even less likely, are we really to believe that BoA is going to keep thousands and thousands of REOs on its books for decades?
To me, this looks like an effort on Bank of America’s part to get around the problems they are having foreclosing on homes. Just think about it. Under Bank of America’s Mortgage-to-Lease plan, BoA voluntarily gets title to a piece of property in exchange for, let’s say, a 1-year lease. At the end of that year, BoA simply refuses to renew the lease and–PRESTO!–they essentially get to foreclose without having to even go through the foreclosure process. In the interim, they get rent payments from a family who thinks they’ve saved their home.
If Bank of America really wanted to help homeowners keep their homes, they would get serious about the modification process and genuinely work with homeowners on manageable financial arrangements. In my experience, most homeowners working with Bank of America on modifications simply get passed around from call center to call center,while constantly being told they need to submit additional paperwork. BoA should enhance their modification program to where homeowners actually are able to work through the system.
I understand the volume of loans that BoA deals with is huge, and they have to manage it somehow. However, it takes a lot less time to spend 30 minutes on the phone with a homeowner once to get things right than to take twelve 8-minute callbacks because BoA says something wasn’t documented correctly. Modifications or loan workouts create true win-win situations: homeowners get to stay in their homes, and the bank receives monthly mortgage payments. This is the goal that needs to be achieved. In my opinion, Bank of America’s Mortgage-to-Lease program doesn’t do that–it simply gives this bank a backdoor way to foreclose.
The news lately seems to be somewhat buzzing about an uptick in the economy–that more jobs were added, that the stock market is getting back to levels that haven’t been seen since before the Great Recession, and that the housing market, and hence foreclosures, are improving. Macro economic numbers are fine, but do they really reflect the reality on Main Street? I can tell you anecdotally that as a foreclosure defense lawyer, I’m still seeing plenty of homeowners hurting.
Well, a story recently came out in the Dallas Morning News that made me even more suspicious of the talking heads’ opinions of the housing market. According to the recent study, almost 1 in 10 Texans missed a mortgage payment in the last part of 2011. That adds up to over 276,000 homeowners.
If there is a positive spin to this story, it is the fact that the number of Texas homes actually in foreclosure was 1.78 percent, compared to 4.4 percent nationally. But even that figure works out to more than 54,000 homes in foreclosure in the Lone Star State.
In my opinion, the most discouraging statistic in the story was that about 3 percent of Texas homes were 90 days late or more on their mortgage payments. When homeowners fall this far behind, it usually means that a foreclosure is not far off. Banks such as Bank of America, Wells Fargo, Chase, AHMSI, CitiMortgage, U.S. Bank, PNC, and many others simply don’t make much effort at working with homeowners at preventing foreclosure at this point. Oh, they might go through the motions of a modification application, but usually homeowners can only get a call center on the phone, and they are regularly told that they need to submit “additional paperwork for consideration.” In the meantime, a notice of foreclosure sale shows up in the mail, and homeowners are left wondering which story from the bank is the right one.
As I’ve posted on this blog many times before, the best way to avoid foreclosure and get a satisfactory result from your bank is to go on the offensive with them. Don’t wait until you get a notice of default or notice of foreclosure sale to start acting. If you’re behind, take action–even if the bank hasn’t threatened you yet. I can promise you this, you may fall through the cracks at the bank for a while, but eventually, they will notice nonpayments. And when they do, they will most likely pursue foreclosure aggressively at that point.
When clients come to me, one of the first things they usually ask is whether we’ll be able to save their home. I wish I had a crystal ball and could tell them the answer, but I don’t. But I do offer this bit of advice: If you do nothing, you’ll lose your home for sure; if you fight, you may just be able to save it.
CNBC is reporting that the response to President Obama’s recent proposal to refinance more borrowers into lower interest rate mortgages was at best underwhelming and at worst scathing. The plan would expand the government’s so-far disappointing, Home Affordable Refinance Program (HARP), which helps current but underwater borrowers with Fannie Mae and Freddie Mac loans to refinance.
“Mr. President, the housing market is the foundation of the U.S. economy. It is cracked and chipping away,” writes Florida real estate consultant Jack McCabe in an editorial in the Herald-Tribune.
“The walls are beginning to cave. Your answer, anecdotally, seems to be put a new roof on it.”
McCabe is calling for principal write-down for troubled mortgages, not refinances for borrowers who are current on their monthly payments. The argument so far against principal write-down is that it would cost banks and investors (including Fannie Mae and Freddie Mac) too much.
Unfortunately the plan, which could allow borrowers with more than 25 percent in negative equity to refinance, is being deemed too costly as well. While the Congressional Budget Office estimated it would cost investors in the original mortgages between $13 and $15 billion (while potentially saving 111,000 borrowers from defaulting), analysts at JP Morgan Chase say it would cost more:
If such a policy were successful on a large scale, it would clearly devalue higher coupons, and would threaten lower coupons with incremental gross supply. A more modest HARP overhaul, while less disruptive, still forces investors to require more conservative valuations until details emerge.
All these arguments, however, may be moot, as the overseer of Fannie Mae and Freddie Mac, the Federal Housing Finance Agency (FHFA), which would have to approve the refinance effort, is sounding wildly cautious. In a statement following the President’s speech, Director Ed DeMarco states, “If there are frictions associated with the origination of HARP loans that can be eased while still achieving the program’s intent of assisting borrowers and reducing credit risk for [Fannie Mae and Freddie Mac], we will seek to do so.”
He goes on to say, however, that there are “several challenging issues to work through,” and then he uses the word “uncertain” twice in characterizing any outcome.
While DeMarco doesn’t detail said “frictions,” they are vast and not limited to investor cost. First of all, too many borrowers probably still wouldn’t qualify if they just did away with the loan to value ratio of 125 percent. Of the 838,400 HARP refinancings done so far, only 62,432 had LTVs (loan-to-value) above 105 percent, according to Jaret Seiberg at MF Global.
“We believe lenders are reluctant to HARP a loan if they fear the borrower is so underwater that they might default anyway,” writes Seiberg.
Then there are issues of loan origination dates, put-backs on loans that default and borrower qualifications. Frictions. Beyond the friction, however, is the simple fact that a refinance program, while potentially an economic stimulus, is not a housing stimulus and shouldn’t be characterized as such. The HARP program is and always was for current borrowers and does nothing to address the millions of non-current borrowers, bank-owned foreclosed homes and falling home prices.
On Friday, the Attorney Generals for both Nevada and Arizona filed suit against Bank of America, a copy of Arizona’s complaint can be seen here, claiming the bank was slow in ramping up loss mitigation efforts and then misled homeowners with false assurances that they would not be foreclosed upon while requests for loan modifications were pending.
Bank of America’s response was nothing more than a deflection, claiming they were “disappointed” with the lawsuits as they are already in negotiations with every state Attorney General over allegations of robo-signing and general sloppiness by the Bank in handling foreclosures.
This response, of course, fails to deal with the main issue raised in the lawsuits, and that is Bank of America lied, ahem, “mislead” homeowners into the arduous process of home modification while continuing to proceed with foreclosure actions. These suits have little to do with robo-signing and much to do with deception, fraud, and general underhanded dealings by the Bank.
This is getting serious, folks, the pendulum is starting to swing and the time to act is now. Contact an attorney now who is versed in the nuances of foreclosure defense before these banks get another bail out and the federal government forecloses on your right to bring a lawsuit against those who harmed you.