Mortgage Law Blog, LLC

The Federal Deposit Insurance Corporation has issued guidance that the agency says provides comprehensive information to give servicers and financial institutions “all of the tools necessary to implement a systematic and streamlined approach to modifying loans.”  The guidance is said to be based on the agency’s loan modification program initiated at IndyMac Federal Bank.

The press release states in part:

The Program is designed to achieve affordable and sustainable mortgage payments for borrowers and increase the value of distressed mortgages by rehabilitating them into performing loans. Under the terms of the Program, borrowers receive a loan modification with a maximum 38% down to 31% housing-to-income ratio through the use of interest rate reduction, amortization term extension, and in some cases, principal deferment. This loan modification process improves the value of the troubled mortgages for investors while helping many borrowers experiencing financial difficulties remain in their homes.

The FDIC implemented this approach to loan modifications on August 20th after IndyMac Bank, FSB failed on July 11, 2008. As of November 20th, 2008 IndyMac has sent out more than 23,000 modification letters to eligible borrowers and has completed more than 5,300 modifications after verifying the borrowers’ income. Thousands more are in the pipeline.

Although foreclosures are costly to lenders, borrowers and communities, the number of foreclosures continues to rise while the pace of modifications remains too slow. Currently, 1.6 million total loans are over 60 days delinquent. Through the end of 2009, the FDIC estimates that there will an additional 3.8 million new loans over 60 days past due. Today’s release of the FDIC’s “Mod in a Box” guide will provide the industry with the necessary tools to facilitate streamlined and systematic loan modifications to help stem foreclosures, halt the decline in home prices and provide needed stability to the broader economy.

The guidance includes a Summary of the Loan Modification program, a substantial appendix containing various additional information, and certain related materials.

For a full copy of the press release, click here.

Tags: Bailouts, Consumer Protection, Distressed Assets, FDIC, Federal Bank Regulators, Foreclosure, Loan Servicing, Loss Mitigation, Mortgage Banking - General, Regulations by the Editor
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The Department of Housing and Urban Development has issued Mortgagee Letter 08-29, “Hope for Homeowners Origination Guidance.”

In the Mortgagee Letter, HUD states: 

The Housing and Economic Recovery Act of 2008 amends the National Housing Act to authorize a new temporary FHA mortgage insurance program called the HOPE for Homeowners (H4H) Program. Under this Program, certain borrowers facing difficulty in paying their mortgages will be eligible to refinance into affordable FHA-insured mortgages.  The H4H Program is effective for endorsements on or after October 1, 2008 through September 30, 2011.

While underwriting mortgages for the H4H Program presents unique challenges for the industry, FHA has confidence in its approved mortgagees to exercise their ingenuity in meeting these challenges, while adhering fully to this mortgagee letter, without compromising their ability to make and support sound underwriting decisions.  The information, directions, and guidance provided in this mortgagee letter reflect statutory requirements as well as the standards, policies and regulations adopted by the Board of Directors (Board) for the H4H Program.

The Mortgagee Letter then discusses the following 12 topics:

1. Eligibility of borrowers, mortgages and properties
2. Consumer protection and disclosure requirements
3. Appraisal requirements
4. Terms and interest rates
5. MIP
6. Calculating the maximum mortgage amount
7. Underwriting and qualifying borrowers
8. Documentation requirements
9. Prohibitions on subordinate financing
10. Equity and appreciation sharing
11. Extinguishment of subordinate liens
12. Monitoring and program compliance

For a copy of the full Mortgagee Letter, please click here.

Tags: Appraisals, Consumer Protection, Distressed Assets, Economic Stimulus, FHA Insurance, Foreclosure, HUD & FHA, Loan Modifications/Workouts, Loan Servicing, Loss Mitigation, Mortgage Banking - General, Regulations by the Editor
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The Department of Housing and Urban Development has issued Mortgagee Letter 08-27, Treble Damages for Failure to Engage in Loss Mitigation.

The Mortgagee Letter reminds the public that HUD on April 26, 2005 published a final rule entitled “Treble Damages for failure to Engage in Loss Mitigation.” 

The Mortgagee Letter notes:

HUD’s National Servicing Center (NSC) is available to assist mortgagees in complying with FHA servicing requirements, including loss mitigation evaluation.  The NSC offers Loss Mitigation training to lenders via scheduled classes throughout the year and participates in joint training with regional and national industry groups such as the Mortgage Bankers Association (MBA). 

The NSC provides a toll-free telephone line (1-888-297-8685) to provide assistance regarding FHA’s Servicing requirements, including HUD’s Loss Mitigation Program.  This assistance is available to mortgagors and mortgage industry professionals.  Information from HUD’s National Servicing Center (NSC) is available via the following website: http://www.hud.gov/offices/hsg/sfh/nschome.cfm.

The Mortgagee Letter also provides three key actions mortgagees must take to help avoid treble damages:  (i) ensuring that loss mitigation evaluations are completed before four full monthly installments are due and unpaid, (ii) ensuring that the appropriate actions are taken based on these evaluations, and (iii) maintaining documentation of initial and subsequent loss mitigation evaluations and actions taken. 

HUD defined a failure to engage in required loss mitigation as: 

1. A mortgagee’s failure to evaluate a loan for loss mitigation before four full monthly mortgage installments are due and unpaid to determine which, if any, loss mitigation techniques are appropriate (see 24 CFR § 203.605); and/or
2. A subsequent failure to take appropriate loss mitigation action(s).

Mortgagees must be able to provide documentation of their loss mitigation evaluations and actions.  Mortgagees will be considered to be in compliance with 24 CFR § 203.501 where plausible loss mitigation options were offered to eligible borrowers.  The Department will not consider a mortgagee to have “failed to engage in loss mitigation” where the mortgagee can demonstrate that a borrower was uncooperative or ineligible.

For a full copy of the Mortgagee Letter, please click here.

For a full copy of the 2005 Final Rule, please click here.

Tags: FHA Insurance, Foreclosure, HUD & FHA, Loan Modifications/Workouts, Loan Servicing, Loss Mitigation, Mortgage Banking - General, Regulations by the Editor
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The Department of Housing and Urban Development has issued Mortgagee Letter 08-30, “Hope for Homeowners Servicing Guidance.”

In the Mortgagee Letter, HUD states: 

The Housing and Economic Recovery Act of 2008 amends the National Housing Act to authorize a new, temporary Federal Housing Administration (FHA) mortgage insurance program called the HOPE for Homeowners Program (also referred to as the H4H Program).  Under the Program, a borrower facing difficulty paying his or her mortgage will be eligible to refinance into an affordable FHA-insured mortgage.  The H4H Program is effective for endorsements on or after October 1, 2008, through September 30, 2011.

This mortgagee letter provides HUD-approved servicing mortgagees with servicing and loss mitigation guidance on the new H4H Program.  The information, directions and guidance provided in the mortgagee letter reflect statutory requirements and the standards, policies and regulations adopted for the H4H Program by the Board of Directors of the H4H Program.

HUD then addresses the following topics:

• Background;
• Prohibition against subordinate financing;
• Refinancing;
• Capital Improvements;
• Defaults and loss mitigation;
• Impact of first payment defaults; and
• Sale and payoff.

For a full copy of the Mortgagee Letter, please click here.

Tags: Bailouts, Consumer Protection, Distressed Assets, Economic Stimulus, FHA Insurance, Foreclosure, HUD & FHA, Legislation, Loan Modifications/Workouts, Loss Mitigation, Mortgage Banking - General, Regulations by the Editor
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The Department of Housing and Urban Development has issued Mortgagee Letter 08-26, “Treble Damages for Failure to Engage in Loss Mitigation.”

In the Mortgagee Letter, HUD reminds FHA approved mortgagee that HUD has the authority to assess treble damages when a mortgagee fails to engage in required loss mitigation.  The treble damages rules stem from a final rule published April 26, 2005. 

The Mortgagee Letter states in part:

A mortgagee’s failure to evaluate a loan for loss mitigation before four full monthly mortgage installments are due and unpaid to determine which, if any, loss mitigation techniques are appropriate (see 24 CFR § 203.605); and/or

A subsequent failure to take appropriate loss mitigation action(s)[; and]

Mortgagees must be able to provide documentation of their loss mitigation evaluations and actions.  Mortgagees will be considered to be in compliance with 24 CFR § 203.501 where plausible loss mitigation options were offered to eligible borrowers.  The Department will not consider a mortgagee to have “failed to engage in loss mitigation” where the mortgagee can demonstrate that a borrower was uncooperative or ineligible.

For a full copy of Mortgagee Letter 08-26, please click here.

For a copy of HUD’s April 2005 final rule addressing the issue, please click here.

Tags: Consumer Protection, Distressed Assets, FHA Insurance, Foreclosure, HUD & FHA, Loan Modifications/Workouts, Loss Mitigation, Mortgage Banking - General, Regulations by the Editor
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The Department of Housing and Urban Development has issued a press release indicating the agency allocated approximately $4 billion under its Neighborhood Stabilization Program.

HUD intends the program to provide emergency assistance to state and local governments to acquire and redevelop foreclosed properties. 

HUD will host a summit in Washington, DC on October 7-8, 2008, and a series of regional conferences, to explain details of the program to governors, mayors and other State and local leaders.

HUD’s press release states, in part:

State and local governments can use their neighborhood stabilization grants to acquire land and property; to demolish or rehabilitate abandoned properties; and/or to offer downpayment and closing cost assistance to low- to moderate-income homebuyers (household incomes not exceed 120 percent of area median income). In addition, these grantees can create “land banks” to assemble, temporarily manage, and dispose of vacant land for the purpose of stabilizing neighborhoods and encouraging re-use or redevelopment of urban property.

HUD is providing the funding through its Community Development Block Grant under the Housing and Economic Recovery Act of 2008. 

For a full copy of the press release, including the methodology HUD used for allocation, please click here.

Tags: Bailouts, Distressed Assets, Economic Stimulus, Foreclosure, HUD & FHA, Loss Mitigation, Mortgage Banking - General, Regulations by the Editor
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The Department of Housing and Urban Development has announced suspension of its 90-day waiting period for FHA insurance in some cases.

HUD’s press release states:

In an effort to stabilize declining home values in certain neighborhoods, the Bush Administration today announced a temporary policy that will extend government-backed mortgage insurance and allow for the immediate sale of vacant foreclosed properties.

For one year, the Federal Housing Administration (FHA) will insure foreclosed properties marketed and sold by property disposition firms on behalf of lenders. The properties, which must purchased by owner-occupants, will no longer be subject to the customary 90-day waiting period.

“A glut of foreclosed and abandoned homes harms neighborhoods, frustrates homebuyers and delays a community’s recovery,” said Brian D. Montgomery, Assistant Secretary of Housing-Federal Housing Commissioner. “The action we take today will allow homebuyers to purchase these homes in much greater numbers and ease the excess supply of unsold homes in neighborhoods across the country.”

FHA’s new temporary policy will help stabilize neighborhoods experiencing high rates of foreclosure by reducing the inventory of unsold properties. Many foreclosed properties remain vacant for months, inviting vandalism and reducing values of surrounding homes. To address that sizeable inventory, lenders have hired companies that specialize in the marketing and disposition of foreclosed homes. It’s reasonable and appropriate that these firms have the ability to sell the properties to borrowers using FHA financing.

With certain exceptions, FHA currently prohibits insuring a mortgage on a home owned by the seller for less than 90 days. This prohibition is intended to prevent property “flipping,” a predatory practice that strips a home of its equity before being quickly resold at an inflated price to an unsuspecting buyer. FHA’s new policy will permit the immediate sale of foreclosed properties to legitimate borrowers wishing to use FHA-insured financing.

To read the full text of this new temporary policy, visit FHA’s website.

Mortgage Law Blog notes, however, HUD’s press release did not include a link to the new policy, and a search of HUD’s primary website at the time of writing did not reveal the information.  Nevertheless, a copy of the policy can be found here.

MLB also points out, the rule suspension is for a limited category of transactions, and only for one year.

For a full copy of the press release, click here.

Tags: Distressed Assets, Economic Stimulus, FHA Insurance, Foreclosure, Fraud, HUD & FHA, Loss Mitigation, Mortgage Banking - General, Regulations by the Editor
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Mortgage Law Blog reminds readers that the Mortgage Bankers Association’s Legal Issues and Regulatory Compliance Conference is April 28 to May 1.

The conference, held this year in Carlsbad California, is one of the premier events for lawyers in the mortgage banking industry.

The MBA describes the conference as follows:

This year has brought an unparalleled array of new legislative, regulatory and litigation developments to the mortgage industry.  MBA’s Legal Issues and Regulatory Compliance Conference 2008 at La Costa Resort and Spa in Carlsbad, Calif., will provide you with an in-depth understanding of all that is new and all that is anticipated so that you can meet the legal and regulatory challenges of today and tomorrow.

No other conference offers the mortgage industry as comprehensive a legal and regulatory program. At this conference — designed for managers, industry lawyers and compliance officers — industry experts present conference participants with the entire complement of legal and regulatory developments facing the industry, including:  

New Federal Anti-Predatory Lending Legislation 

New Home Ownership and Equity Protection Act (HOEPA) Regulations

New RESPA and TILA Reform Proposals

New State Laws

New Servicing and Loss Mitigation Standards

New Litigation Cases and Class Actions

New Secondary Market - GSE and Investor Requirements

New Initiatives to Protect Lenders Against Mortgage Fraud

New HMDA and Fair Lending Developments

New Data Security, ID Theft and Privacy Initiatives

New FCRA and FACTA Developments

New FLSA/Employment Law Cases

New Risk Mitigation Strategies

Legal Ethics

New issues in the legal, regulatory and compliance spheres

The conference is packed with excellent speakers and attendees from industry and government, including from the Department of Housing and Urban Development, state Attorneys General offices, Fannie Mae, Freddie Mac, numerous mortgage banking companies and others. 

For more information about the conference, please click here.

Mortgage Law Blog will not post during this period due to the Editor’s attendance at the conference.

Tags: Association Activities, Conferences & Events, Federal Bank Regulators, Fraud, HUD & FHA, High Cost Loans, Industry Involvement, Legislation, Litigation, Loan Modifications/Workouts, Loan Servicing, Loss Mitigation, Mortgage Banking - General, RESPA, Regulations, State Enforcement, State Regulation, Truth in Lending Act, Unfair or Deceptive Acts by the Editor
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The Conference of State Banking Supervisors issued a press release stating that industry attempts to prevent foreclosures are insufficient.

The release stems from the second report entitled “Analysis of Subprime Mortgage Servicing Performance” issued by the State Foreclosure Prevention Working Group (led by 11 states attorneys general and banking regulators, and the CSBS).  The report includes data from subprime servicers for the period from October 2007 to January 2008.  A prior report was issued February 7, 2008. 

The report acknowledged that the number of homeowners receiving loss mitigation help has increased.  But so have the number of homeowners delinquent on payments.  Private initiatives are “barely keeping pace” CSBS noted.

CSBS notes the following major findings from the report:

Seven out of ten seriously delinquent borrowers are still not on track for any loss-mitigation outcome.  The number of borrowers in loss mitigation has increased, but it has been matched by an increasing level of delinquent loans; thus, the relative percentage has remained about the same.  Given creative servicer outreach efforts and increased public awareness of the HOPE Hotline during Oct.-Jan., this large gap suggests a more systemic failure of servicer capacity to work out loans.  

Data suggests that servicers’ loss-mitigation departments are severely strained in managing the current workload.   The report noted that almost two-thirds of all loss-mitigation efforts started are not completed in the following month.  We are concerned that servicers overall are not able to manage the sheer numbers of delinquent loans.  Data suggests that the burgeoning numbers of delinquent loans that do not receive loss-mitigation attention are clogging up the system on their way to foreclosure.  We fear this will translate to increased levels of vacant foreclosed homes that will further depress property values and increase burdens on government services.

Homeowners who do receive loss-mitigation help are most likely to receive some form of loan modification.  The Group said such modifications are a solution that seems to offer better long-term prospects for successful resolution of problem loans.  Many servicers are replacing their use of repayment plans in favor of loan modifications.

To solve the perceived problems, the report suggests that industry and state officials work on:

Developing a more systematic loan work-out system to replace the intensive, individual, “hands-on” loss-mitigation approach.  Initial efforts to develop systemic approaches are far too limited to make a difference in preventable foreclosures.  Without a systematic approach, we see little likelihood that ongoing efforts will make a serious dent in the level of unnecessary foreclosures.  The Group will continue to work with servicers to promote systematic solutions to modify loans in a more streamlined and efficient manner.

Slowing down the foreclosure process to allow for more work-outs.  Targeted efforts to slow down subprime foreclosures may give homeowners and servicers more time to find solutions to avoid foreclosure.  Many states have enacted or are considering such measures, the report noted.

Mortgage Law Blog notes that “barely keeping pace” is still keeping pace.  This would seem to be an accomplishment if the numbers of delinquent borrowers continue to surge as the report suggests.  This is not to suggest that industry sit on its hands, but the industry’s side of the story continues to be lost in the maelstrom.

The Ohio AG, among others, will speak at the Mortgage Bankers’ Association’s Legal Issues and Regulatory Compliance Conference next week.  It will be interesting to hear the views presented.

For a copy of the CSBS press release, click here.

For a copy of the State Working Group’s reports, click here.

Tags: Association Activities, Conferences & Events, Consumer Protection, Foreclosure, Industry Involvement, Loan Modifications/Workouts, Loan Servicing, Lobbying, Loss Mitigation, Mortgage Banking - General, Regulations, State Enforcement, State Regulation by the Editor
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The Comptroller of the Currency, John C. Dugan, and Governor Randall S. Krozner of the Board of Governors of the Federal Reserve, among others, today testified before the House Committee on Financial Services regarding the ”Federal Housing Administration Housing Stabilization and Homeownership Retention Act of 2008.”

The bill was announced by Chairman of the House Committee on March 13. 

According to an OCC press release, the Comptroller told the Committee that the proposal “could provide another possible tool for helping banks avoid larger losses from foreclosure without raising significant safety and soundness issues.”

Boiled down, the press release noted, the voluntary proposal has three elements.  “First, if the borrower and mortgage holder agreed and the borrower met certain criteria, the mortgage holder would reduce the principal to an amount that the borrower could afford.  Second, the mortgage holder would accept a corresponding loss.  Third, the mortgage would be refinanced into a new FHA-insured mortgage product at the lower amount.”

The Comptroller noted that the voluntary nature of the program should keep safety and soundness considerations should be manageable.

Governor Krozner’s testimony provided insight to the Fed’s view on the complicated housing picture and the difficulties underlying some of the proposed solutions.  Mr. Krozner summed up by saying:

FHA modernization and GSE reform are needed to address the ongoing shortcomings of current mortgage-oriented government initiatives. In addition, the GSEs should be strongly encouraged to raise additional capital so that they can fulfill the expanded role that the Congress has recently extended to them.

Separately, the Congress should carefully evaluate whether to take additional actions to reduce the rate of preventable foreclosures. Properly designed, such steps could promote economic stability for households, neighborhoods, and the nation as a whole. Although lenders and servicers have scaled up their efforts and have adopted a wider variety of loss-mitigation techniques, more can, and should, be done.

The fact that many troubled borrowers have properties that are now worth less than the principal amounts remaining on their mortgages suggests that lenders and servicers should give greater consideration to the use of principal reductions as one of the loan modification options in their tool kit. Principal write-downs would be facilitated by providing the FHA the flexibility to insure a broad range of refinancing products for a larger number of at-risk borrowers, including products that offer borrowers an affordable, restructured mortgage if their lender voluntarily agrees to write-down the principal amount of the borrower’s mortgage. The voluntary nature of the program assures that only borrowers who the servicer or lender believes cannot successfully carry their current mortgage contract would be considered for such a program. If the Congress decides to move down this road, it should carefully consider the steps that should be taken to mitigate moral hazard, avoid adverse selection, and ensure that the financial interests of the taxpayer are adequately safeguarded.

For the House Committee’s press release summarizing the proposal, click here. 

For a copy of the discussion draft of the bill proposed by the House Committee, click here.

Click here for a copy of the OCC’s press release regarding the Comptroller’s testimony.

Click here for a copy of Governor Krozner’s prepared remarks.

Tags: Bailouts, Consumer Protection, Fannie Mae/Freddie Mac, Federal Bank Regulators, Federal Reserve, Foreclosure, HUD & FHA, Legislation, Loan Modifications/Workouts, Loan Servicing, Loss Mitigation, Mortgage Banking - General by the Editor
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