Circuit Court of Cook County Mortgage Foreclosure Mediation Program

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Circuit Court of Cook County Mortgage Foreclosure
Mediation Program

• Homeowner Advocate Training
• Patricia Nelson
• Director, Foreclosure Mediation and Access to
  Justice
• Ashley Griffith
• Supervising Attorney, Foreclosure Mediation

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Chicago Volunteer Legal Services CVLS

• Founded in 1964 celebrating 50 years
• Work from a small staff leverage resources with
  volunteers
• Our job is to support YOU so that you have a good
  volunteer experience and in turn our clients get
  excellent quality representation
• Since 2010, weve trained over 500 mediation
  volunteers and mediated close to 5,000 cases
• Weve reached agreements in nearly 50 of cases

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2 Possible Components to CVLS assistance for
homeowners

• Mediation
• CVLS is automatically appointed by the court, and
  we accept all cases
• No income caps
• Just for mediation no litigation
• Access to Justice
• Full legal representation for litigation
• Possible representation for failure to mediate in
  good faith sanctions claims
• Possible representation for foreclosure cases
  that do not settle in mediation

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Who can participate in the mediation program?

• No income caps
• Defendant must live in the property
• Single family home or building with 4 or less
  units
• Must have an Appearance and Answer on file
• Must have met with a HUD-approved housing
  counselor and been denied a loan modification

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When is Mediation?Sample Foreclosure Timeline
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When is Mediation?Sample Foreclosure Timeline
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What are we mediating?

• 2 categories of resolution
• Retention
• Relinquishment
• Overall goals
• Ensuring adherence to government programs
• Ensuring an end to endless submission of
  documents
• Ensuring fair treatment and no bullying

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Retention OptionsBorrower Remains in the Property

• Reinstatement
• Repayment Plan
• Forbearance Agreement
• Loan Modification
• Hamp Tier I and Tier II
• National Mortgage Settlement
• Fannie Mae, Freddie Mac, or FHA modifications
• In-house (standard) loan modification

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Retention OptionReinstatement

• Borrower pays full arrearages including missed
  payments, attorneys fees, lenders costs, taxes
  paid on their behalf
• Realistic for some borrowers who can borrow the
  money from 401(k)

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Retention OptionRepayment Plan

• Borrower pays arrearages (missed payments,
  attorneys fees, lenders costs, taxes paid on
  their behalf) over a period of time, usually 6-12
  months
• Borrower must make regular mortgage payment in
  addition to repayment amount
• Unrealistic for most borrowers

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Retention Option Forbearance Agreement

• Lender agrees to accept no (or reduced) payments
  for a specified period of time
• Unemployed borrowers or those experiencing a
  temporary, finite loss of income
• Review any Forbearance Agreement to ensure there
  is some promise or course of action for review
  for a loan modification once the forbearance is
  over

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Retention Option Loan Modifications under any
program

• There are only 3 variables in any loan that can
  be modified
• Interest rate
• Term
• Amount of Principal
• There are infinite number of ways regulators and
  investors can make it complicated
• Eligibility rules for borrowers and loans
• Restrictions on rates, amounts, terms if certain
  conditions are met.
• If you can understand HAMP, you will be able to
  apply that understanding to any of the other loan
  modification programs

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HAMP Basic Concepts

• Home Affordable Modification Program (Making Home
  Affordable - MHA)
• All servicers who received TARP money are
  required to participate in HAMP Tier 1, subject
  to investor limits.
• The goal is to modify the terms of the loan to
  make it both affordable for the borrower AND
  profitable for the investor.
• Affordable for the homeowner Waterfall Analysis
• Profitable for Investor NPV Test
• Guidance is found in the MHA Handbook
  www.makinghomeaffordable.gov.

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Applying for HAMP

• Submission of Initial Package triggers
  servicers duty to review for HAMP
• Documents need to be fairly current, or may be
  unusable (staledated) within 60 days for
  some, 30 days for others
• CVLS paralegals will already have submitted an
  application for you, regardless of the purpose
  for mediation or any previous denials. Often,
  you will need to submit additional or clarifying
  documents or an entirely new package.
• Regardless of the submission date, you will need
  to send current proof of income.

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Applying for HAMPWhat needs to be in a HAMP
application

• Request for Modification (RMA includes Dodd Frank
  certificate)
• Separate list of expenses, signed and dated
• Separate free form hardship letter, signed and
  dated by all borrowers
• 4506T tax certification form
• Proof of income
• 30 days-worth of most recent paystubs for W-2
  income
• Lease, contribution letter, proof of deposits in
  bank statements
• Profit and loss statement for self-employed
• Last 2 years tax returns that have been filed
• Last 2 months of bank statements all pages,
  even if intentionally left blank, for all
  accounts. Printouts of online activity reports
  are not accepted
• Recent utility bill- proof of occupancy
• Sometimes a servicer specific application (ask
  plaintiffs counsel)
• Most forms are available at www.hmpadmin.com
  CVLS has samples
• of others

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HAMP Loan Eligibility

• Non-GSE invested loans/Private Investors-
  servicers, not investors choose to participate
• All Fannie Mae/Freddie Mac (GSE Government
  Sponsored Enterprise) loans covered HAMP Tier 1
  is mandatory
• FHA- insured loans must be evaluated for FHA
  HAMP, which has slightly different guidelines.

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HAMP Loan Eligibility

• Loan must be
• First lien originated on or before January 1,
  2009
• Home equity loans eligible if loan is first or
  only lien on property
• Unpaid principal balance cap
• 1 unit 729,450
• 2 unit 934,200
• 3 unit 1,129,250
• 4 unit 1,403,400
• Not previously modified under HAMP

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HAMP Borrower EligibilityIncome Eligibility

• Current monthly mortgage payment including PITIA
  (principal, interest, taxes, insurance,
  association fees) must be greater than 31 of
  monthly gross income.
• Does not include private mortgage insurance
  payments (PMI).
• Servicers commonly make mistakes - they deny
  because current payment is lt31 of gross income
  by leaving out taxes, insurance and/or
  association fees.

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HAMP Borrower QualificationIncome
considerations

• Income whats included? (Sec. 5.1 MHA
  Handbook)
• Can include income for non-borrower household
  members
• Can include income for non-resident borrowers, so
  long as one borrower uses property as primary
  residence
• Rental income gets multiplied by 75
• Unemployment income is not eligible
• If self-employed, profit and loss statement
  without other documentation suffices
• Borrower DOES NOT have to disclose child support
  or alimony
• Must be able to document monthly income
• There is no income amount that bars application.
  However, a borrowers income may be too low or
  too high for a HAMP mod
• Too low and the borrower will fail for
  unaffordability
• Too high and current payment may already be at or
  under 31

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HAMP Borrower QualificationSteps of the
Waterfall Analysis

• Target payment PITIA 31 of gross monthly
  income
• Waterfall Analysis
• Capitalize arrearages
• Reduce interest rate
• Extend the term of the loan
• Principal deferment
• Possible principal forgiveness
• Servicers will only take steps necessary to get
  payment to target amount

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HAMP Borrower QualificationWaterfall Analysis
Capitalizing Arrearages

• All arrearages will be added to principal -
  Principal debt will increase
• Capitalized arrearage includes
• Past due interest
• Escrow deficiencies/advances lender will have
  paid property taxes
• Foreclosure costs and attorney fees
• Servicing fees property inspections, credit
  report fee
• CANNOT include
• Late fees unpaid fees will be waived
• Additional modification fees no charge for HAMP

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HAMP Borrower QualificationWaterfall Analysis
Interest Rate Reduction

• Reduced to as low as 2 for 5 years (to get to
  31)
• Can go lower, but incentives only paid down to 2
• Increase at 1 after 5 years to lower of
• Freddie Mac rate
• Interest rate cap in note
• Once rate increases to cap, fixed for life of loan

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HAMP Borrower QualificationWaterfall Analysis
Increase Term of Loan

• If the interest rate is reduced to 2 and payment
  still not equal to or less than 31 of gross
  income, then the next step is term extension.
  The limit is 40 years.

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HAMP Borrower QualificationWaterfall Analysis
Principal Forbearance or Forgiveness

• Principal Forbearance (Deferral)
• Forbearance of principal is essentially taking a
  portion of what is owed and not making it due and
  payable until transfer of the property or the
  maturity date of the mortgage loan
• The principal forbearance amount is treated as a
  non-interest bearing balloon payment
• The lender can forbear the greater of the
  following
• 30 of the UPB after capitalization or
• An amount that would result in a modified
  interest bearing balance that would create a loan
  to value ratio equal to 100
• Principal Forgiveness optional for servicer and
  very, very rare

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HAMP Borrower QualificationNet Present Value
(NPV) Test

• Measures the benefit to the investor of a loan
  mod, not the benefit to the servicer or the
  borrower
• Positive NPV test HAMP Tier 1 loan mod review
  continues
• Negative Tier 1 NPV test move to HAMP Tier 2
  loan mod review if the investor participates in
  Tier 2

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HAMP Borrower QualificationNet Present Value
(NPV) Test

• Actual HAMP NPV test not public
• In mediation, demand inputs limited to some
  inputs
• FDIC has comparable model online at FDIC.gov.
• www.mynpv.com
• Servicers can generate their own NPV and use
  their own numbers for required inputs
• However, more information is available at
  https//checkmynpv.com/ and a whitepaper on NPV
  at https//checkmynpv.com/sites/all/themes/npvtool
  /pdf/CheckMyNPV-WP.pdf

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HAMP Borrower QualificationReasons for Failing
NPV Test

• Foreclosure looks attractive
• High home value
• Chance of cure is high
• Mod looks risky
• Declining home prices
• High chance of re-default
• Mod doesnt generate enough income
• Borrowers income is so low that at 31, the mod
  doesnt generate enough income

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HAMP Bankruptcy

• Borrowers may not be denied a permanent HAMP
  modification on the basis of a bankruptcy
  filing.
• BUT filing BK puts an automatic stay on the
  mediation.
• Effects of Bankruptcy- A bankruptcy discharge
  through chapter 7 relieves your client of
  personal liability for the mortgage debt.
• It also qualifies as a change in circumstances
  and triggers a re-review for HAMP.

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HAMP Tier 2

• Expansion of HAMP program, effective June 1,
  2012.
• Designed to provide additional chance at
  modification for previous HAMP defaults and
  denials.
• Only participating servicers Fannie and Freddie
  do not participate.

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HAMP Tier 2 Loan Eligibility

• First lien originated on or before January 1,
  2009
• Home equity loans eligible if loan is first or
  only lien on property
• Unpaid principal balance cap same as Tier 1
• Can be a loan on a rental property

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HAMP Tier 2 Loan Eligibility

• Borrowers who were not eligible for HAMP Tier 1
  (for excessive forbearance, failed NPV test,
  etc.).
• Borrowers who did not successfully complete a
  HAMP Tier 1 trial or permanent loan modification.
• Borrowers with a monthly mortgage payment less
  than 31 of their gross monthly income.

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HAMP Tier 2 Target Payment

• Target payment is between 25 and 42
  debt-to-income ratio.
• Some servicers have expanded this DTI ratio to
  10-55.
• See http//www.makinghomeaffordable.gov/for-part
  ners/understanding-guidelines/Documents/ServicerEx
  p_DTI_11-06-13.pdf

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HAMP Tier 2 Borrower QualificationWaterfall
Analysis

• Waterfall Steps are same as Tier 1.
• Step 1 Capitalize arrearages.
• Step 2 Adjusts interest rate. Can be more than
  2.
• Step 3 Extend term of loan to 40 years.
• Step 4 Defer principal.
• Must reduce PI payment by at least 10 from
  current PI payment.

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HAMP - TPP

• Trial Period Plan
• At least 3 months trial at proposed modified
  payment
• Arrears will accrue during trial. Payments are
  held in suspense and only credited when equal to
  full monthly payment under note.
• Will be reported to credit bureaus as either in
  default or making payments under a plan
• If fails trial period only HAMP Tier 2 may be
  possible, otherwise no obligation to re-offer
• Reschedule any mediation set for during the TPP
  until after the TPP to ensure it goes permanent.
  Do not agree to cancel any further mediations.

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HAMP after the TPP

• Upon timely payment of all trial payments,
  permanent modification will be offered problem
  can be getting the permanent modification on a
  timely basis.
• Advise your client to continue making trial
  payments until permanent.
• Additional docs and/or meeting with a housing
  counselor may be needed, but uncommon
  requirements.
• Step-rate interest plan will remain at modified
  interest (as low as 2) for 5 years, then
  increase 1 point each year until caps out at
  current market rate (around 5).
• Any amount needed to fully fund escrow will be
  repaid over 60 months (escrow shortage).
• Payment amounts in the documents will not
  incorporate any PMI payments.

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HAMP Denial

• Written Notice must be sent to borrower within 10
  days of determining HAMP modification denied.
• Must state why homeowner was denied
• Must describe alternative loss mitigation options
• Must evaluate for in house options there should
  be a denial letter for each program stating the
  reason denied for that specific program

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HAMP Denial for NPV

• If denied based on NPV notice will allow
  opportunity to request certain inputs (e.g.
  income, UPB) in 30 days (sale stayed)
• Servicer must provide inputs w/in 10 days of
  request
• Must review new borrower data, recalculate if
  likely to change outcome
• If property value is challenged, must be
  recalculated using borrowers value if there is
  supporting documentation

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HAMP Guidance

• No regulations or statute
• Guidance
• MHA Handbook (found at hmpadmin.com)
• There is no private right of action to enforce
  HAMP, but failing to follow the guidance can be
  used to support sanctions, unfair business
  practices, and other consumer fraud related
  counter-claims in litigation.

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Other Loss Mitigation Programs

• National Mortgage Settlement (DOJ)
• Fannie Mae
• Freddie Mac
• Unspecified In-House (traditional) modification
  programs

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National Mortgage Settlement

• It is unclear if this is still an option the
  banks seemed to have fulfilled their duties under
  the settlement agreements.
• Big five banks entered into settlement agreements
  (agreed orders) with the state Attorneys General
  must call for eligibility
• Ally/GMAC 800-766-4622
• Bank of America / Countrywide 877-488-7814
• Citi 866-272-4749
• JPMorgan Chase 866-372-6901
• Wells Fargo 800-288-3212
• Review prior to HAMP
• Offers principal forgiveness

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Fannie Mae modifications

• Fannie Mae has four modification programs.
• 1. Fannie Mae HAMP works the same as non-GSE
  HAMP
• 2. Fannie Mae Alt Mod Borrowers who were
  eligible for a HAMP mod and initiated a HAMP
  trial plan but were not offered a HAMP permanent
  mod may be eligible
• for borrowers who failed the hardship test
• payment moves to 31 - so it will go up
• 3. Fannie Mae Standard Mod where borrower is
  not HAMP eligible, failed a HAMP TPP or defaulted
  on a permanent HAMP
• provides for a housing expense to income ratio
  that is greater than or equal to 10 and less
  than or equal to 55
• 40 years, market rate
• Guidance is at www.fanniemae.com

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Freddie Mac modifications

• Freddie Mac offers 2 different modifications
• Freddie Mac HAMP works the same as non-GSE HAMP
• Freddie Mac Standard Modification
• Recapitalization, Interest rate is reduced to
  Market rate, term extended to 40 years
• must be lower payment
• Guidance is at www.freddiemac.com/singlefamily/gu
  ide/
• www.freddiemac.com/learn/pdfs/service/std_strm_
  mod.pdf

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FHA Modifications

• FHA insured loans are reviewed in the following
  order forbearance, repayment plan, standard
  modification and then for FHA HAMP (if necessary)
• Used to be difficult to get a reasonable
  modification because FHA-HAMP was unavailable if
  loan was over 12 months in default. This rule
  was eliminated 3/15/2013
• If clients loan was denied under old guidelines,
  ask for re-review
• FHA still has the following distinctions
• will not extend maturity date beyond 30 years and
  the interest rate (even for FHA HAMP) is the
  market rate plus a risk adjustment
• Mortgagee letters available at http//www.hud.gov/
  offices/adm/hudclips/letters/mortgagee/index.cfm

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Traditional, In-House loan modifications

• Same Terms to Modify Interest, Term, Principal
• Some servicers use same HAMP Income Target 31
  of Gross but can vary
• Some servicers offer 30 years, or 40 years
• Need to evaluate net income and actual expenses
  to determine how much borrower can actually
  afford to pay
• If payment is unaffordable, look at expenses,
  will a Chapter 7 reduce expenses to make it
  affordable?
• Can your client offer a down payment on the
  arrears?
• Defer Arrearage as Balloon Payment
• Again, forgiveness is extremely rare

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CVLS Advocate Workbook

• Excel workbook with a step by step process to
  prepare your case for mediation
• Does automatic calculations for all loan mod
  programs

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Relinquishment OptionsBorrower Surrenders
Property

• Evaluate with list in CVLS Advocate Workbook
• Short Sale
• Deed in Lieu of Foreclosure
• Consent Judgment

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Consumer Financial Protection Bureau (CFPB)
Servicing Rules

• Apply to all servicers except some exempt small
  servicers.
• Went into effect January 2014.
• Servicers must evaluate application for
  completeness within 5 days and send written
  acknowledgment of receipt.
• If application is incomplete, must send notice of
  what is needed.
• Servicer can determine the deadline, must be
  reasonable and take into account the borrowers
  other document dates becoming stale.
• Comments to the rules suggest nothing less than 7
  days for additional or corrected docs is
  reasonable.
• Servicer must evaluate within 30 days of a
  complete application.
• Notice of approval or denial must be sent within
  30 days.
• 14 days to appeal, and 30 days to determine
  result of appeal.

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Issue Spottingfor all types of loan modifications

• Document issues / income verification
• Income calculations contribution, rent, child
  support
• Reasons for previous denials
• Incomplete docs
• Improper calculations
• Change in circumstances
• Divorce / title / quit claim issues
• Servicing transfers
• Failure to review for ALL programs
• Investor participation in HAMP

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Mediation session structure

• Introductions
• Confidentiality agreement ground rules
• Opening statements loan figures
• Discussion with Q A
• Caucus, if needed (meet privately with client)
• Discussion, wrap up
• Drafting of Memorandum of Agreement and/or other
  forms, if applicable
• Evaluations
• Synopsis of mediation session to CVLS support
  attorney