Foreclosures and Modifications

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Foreclosures and Modifications

• William T. Tanner
• Patrick Ulibarri

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How did we get here? Loan Origination
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Payment Options

• Option 1
• 30 yr fixed
• 5.875 P/I
• 2,366

• Option 2
• 30 yr fixed 10yr I/O
• 6.125 I/O
• 2,041

• Option 3
• 12-MTA Option Arm
• 1 Minimum 1,286
• Index 3.58 / Margin 3.25
• 6.83 Fully Indexed/ I/O Payment 2,273
• (Neg Payment - 987)

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Index

• 3.58 Index
• 3.25 Margin
• 6.83 Fully Indexed
• Index Margin
• Treasury 3.25 rate
• LIBOR 3.25 rate
• Prime Rate Margin rate
• (Fed funds rate 3)

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Different loan programsby documentation

• Full Documentation Full Doc
• Limited Stated SIVA
• Stated Income Stated Assets SISA
• No Income No Assets NINA

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What can a borrower do?
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Questions to Borrower

• Do you wan to stay should you stay?
• Can you afford to stay? (DTI 31)
• Value of property v. encumberances-BPO
• Notice of Default or sale
• If same postponed lender does not give another
  notice
• Current or late payments

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What it used to be

• Skip a few payments (re-capitalize)
• Forbearance (increase payment to make up past due
  payments)

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What it is now

• Still forbearance missing payment
• Rate reduction / step rate
• Increasing amortization term
• Reducing the principle balance
• Real or window dressing?

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Write downs will be necessary

• Servicers should also be more aggressive about
  writing down principal amounts when necessary to
  make the loan affordable.
• Sheila Bair
• FDIC Chairman 2/26/08

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Fixing a mess

• "Our goal is to get the greatest recovery
  possible on loans in default or in danger of
  default, while helping troubled borrowers remain
  in their homes.
• Sheila Bair
• FDIC / IndyMac
• 8/20/08

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Who owns the loan?

• Probably not who you are making the payment to -
  they are the Servicing Co
• In most cases some entity on Wall Street

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HAMPHome Affordable Modification ProgramMaking
Home Affordable (MHA)

• If a servicer took TARPII funds from Treasury
  they are required to actively pursue
  modifications under the terms of HAMP/MHA in
  coordination with the investor who owned the
  loan.
• If the loans are owned by Fannie/Freddie they
  automatically eligible.
• If the homeowner does not qualify for HAMP/MHA
  the servicer must try to qualify the homeowner
  for the servicers own in-house modification
  programs.
• (FHA/VA must be first turned down for in-house
  modification before they can be considered
  eligible for HAMP/MHA)

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The Obama PlanMaking Home Affordable
Modification Plan

• Gross Wages
• 31 - 38 Housing Ratio (PITIA)
• Drop rate .125 to a floor of 2
• Extend Amortization (up to 480 mos)
• Forebear Principle to end of loan _at_ 0

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Who Qualifies

• Primary Residence
• No more than 729,750 Loan Amount
• Have a Hardship
• 1st TD PITIA More Than 31 of Gross Income
• Loan was finalized before 01/01/2009

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Who is the investor?

• 15 U.S.C. 1641(f)(2) request
• Sup. Dir. 10-02, after June 1, 2010, servicers
  must provide Fannie Mae with a list of investors
  who are not participating
• Fannie, Freddie, VA or FHA loan

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Who is the investor? (part 2)

• 1641 does not provide a timeline and no cases
  yet.
• TILA 1641 g notice to borrower if owner changes
• Fannie may then know who owns the loan
• Fannie freddie check on line FHA VA too

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Reasonable Efforts?

• Ask servicer what reasonable efforts theyve
  taken to get the investor to waive restrictions
• Reasonable efforts are required by Sup. Dir.
  09-01, p.1
• Under Sup. Dir. 10-02, effective 6/1/2010, server
  must write to investor requiring waiver at east
  once

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Inadequate Response?

• Servicers in-house escalation team
• E-mail escalations_at_hmpadmin.com
• Ask for Ken Hannold if escalations are
  satisfactory

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HAMP second lien program

• Wells, B of A, Chase and Citigroup have signed
  onto this program
• Just recently
• We dont know the specifics yet

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HAMP Second Lien Program

• Resolutions
• Dismissal of foreclosure
• NPV test not require
• Required standard modification steps or
  extinguishment

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HAMP 2nd Lien Program

• 09-05r revised directive
• Requires resubordination by second
• If first mods then second must dismiss
  foreclosure
• No NPV on second
• Standard mod steps-capitalization, Rate red (step
  increases), increase payback, forbear (if first
  forbear then second must in same amount)
• Waive late fees and other fees

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Short Sales

• What is a short sale?
• Why would someone want
• to short sale their house?
• Credit issues
• Short Sale vs. Foreclosure?

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HAFA Short Sale ProgramHome Affordable Finance
Program

• 3K relocation
• 1.5K to servicer for admin costs
• 6k (max.) to junior lienholder
• Up to 2,000 for investors who allow a total of
  up to 6,000 in short sale proceeds to be
  distributed to subordinate lien holders, on a
  one-for-three matching basis.

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Foreclosure

• Judicial
• Breach of Contract
• File lawsuit
• Wait for Trial
• Trial
• Sheriffs Sale
• Not very popular

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Foreclosure

• Non judicial
• Deed of Trust
• Record Notice of Default
• Wait Statutory Period
• Publish Notice of Sale
• Sale

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Civil Code Sec. 2923.5 (2008)

• Loans 1/03-12/31/08
• Lender must contact borrower
• Must wait 30 days to file NOD
• HO has right to meeting within 14 days and HUD
  counselling
• Statute has special methods of contact
• NOD must state lender has complied
• Also owner must maintain property

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California Civil Code 2923.6 (2008)

• Appeared to create an obligation of servicers to
  offer modification
• The terms basically mirrored the Obama plan.
• Cases on appeal-only one case where Judge found a
  right to stay foreclosure

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Income Taxes - Fed

• The Mortgage Forgiveness Debt Relief Act and Debt
  Cancellation
•  If you owe a debt to someone else and they
  cancel or forgive that debt, the canceled amount
  may be taxable.The Mortgage Debt Relief Act of
  2007 generally allows taxpayers to exclude income
  from the discharge of debt on their principal
  residence. Debt reduced through mortgage
  restructuring, as well as mortgage debt forgiven
  in connection with a foreclosure, qualifies for
  the relief.This provision applies to debt
  forgiven in calendar years 2007 through 2012. Up
  to 2 million of forgiven debt is eligible for
  this exclusion (1 million if married filing
  separately). The exclusion does not apply if the
  discharge is due to services performed for the
  lender or any other reason not directly related
  to a decline in the homes value or the
  taxpayers financial condition.

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Income Taxes - CA

• Mortgage Forgiveness Debt Relief Extended -
  Updated 04/13/10
• On April 12, 2010, SB 401, the Conformity Act of
  2010 was enacted. It allows taxpayers who had all
  or part of the loan balance on their principal
  residence forgiven by their lender to exclude the
  forgiven debt from California gross income. The
  new law applies to discharges of qualified
  principal residence indebtedness on or after
  January 1, 2009, and before January 1, 2013.

http//www.ftb.ca.gov/aboutFTB/Newsroom/Mortgage_D
ebt_Relief_Law.shtml
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William T. TannerLegal Aid Society of Orange
County714-571-5204btanner_at_legal-aid.comPatrick
UlibarriLaw Offices of Sanford
Parke714-740-8009patu_at_parkelawgroup.com
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• The following slides were intentionally provided.
  They include graphs that help show the dire
  circumstances of the current housing market.

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