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 08-30, “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 the Treasury has requested public comment on seven general topics regarding an insurance program for distressed assets provided under the Emergency Economic Stabilization Act of 2008.  The program is designed to restore liquidity and stability to financial markets while minimizing long term adverse consequences for taxpayers.

Treasury’s press release states in part:

Under the EESA the Secretary is charged with establishing a program that will guarantee principal of, and interest on, troubled assets originated or issued prior to March 14, 2008. The program may take any form and may vary by asset class, but it must be voluntary and self-funding. The Secretary has the authority to set premiums to reflect the credit risk characteristics of the insured assets so as to ensure that taxpayers are fully protected.

Treasury invites comment on how the program should be structured to minimize adverse selection, including how premiums should be calculated, what events should trigger insurance payout, what form that payout should take, and which institutions and assets should be eligible.  The Department also asks for public comment on technical considerations, including what legal, accounting, or regulatory issues would arise and what administrative challenges the program will create.

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

For a copy of the Federal Register notice requesting comments, please click here.

Comments are due October 28, 2008.

Tags: Bailouts, Distressed Assets, Economic Stimulus, Legislation, Mortgage Banking - General, Regulations, U.S. Treasury 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 issued Mortgagee Letter 08-25, “Converting Existing Homes to Rentals - Underwriting Guidance.”

In the Mortgagee Letter, HUD states in part:

Recently, FHA and others in the mortgage industry have observed an increasing number of homeowners who have chosen to vacate their existing principal residence and purchase a new residence.  This has been occurring as some homeowners, given the rising price of fuel, are relocating to homes nearer their employment, or are taking advantage of other home buying opportunities arising in the marketplace.

Due to FHA’s concern that some homebuyers in these transactions may attempt to provide misleading information regarding the rental income of the property being vacated to qualify for the new mortgage, FHA is instituting underwriting guidance designed to assure that the homebuyer can make payments on the full debt service of both mortgages.  Consequently, beginning with case number assignments on or after the date of this Mortgagee Letter and until further notice, the underwriting analysis may not consider any rental income from the property being vacated except under circumstances described in this Mortgagee Letter.

The Mortgagee Letter also indicates it is partially directed at “buy and bail” schemes, where a homeowner buys a new primary residence, and then allows a former primary residence to go into foreclosure.

The Mortgagee Letter provides for certain exceptions to the new temporary rules.

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

Tags: Buy and Bail Schemes, Distressed Assets, FHA Insurance, HUD & FHA, 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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The U.S. House Committee on Financial Services has released the following statement regarding the passage by the U.S. Senate Committee on Banking, Housing and Urban Affairs:

I congratulate Senator Dodd for the passage of legislation through the Banking Committee that will help stem the significant rise in foreclosures in America.  Senator Dodd deserves a great deal of praise for getting this bill through the committee by such a significant vote.  Because of his leadership on this issue, and the cooperation of Senator Shelby, it is highly likely we will be able to compromise on a significant housing package.   There are of course some differences between the two bills and we will need to work on these differences, but I look forward to continued cooperation between members of the House and the Senate to achieve a mutually agreed housing package sometime next month.

There seems to be a growing consensus that the Senate, and perhaps the Administration, may find a way to compromise on legislation soon.

Stay tuned . . .

Tags: Bailouts, Consumer Protection, Distressed Assets, Foreclosure, Legislation, Mortgage Banking - General by the Editor
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The Office of the Comptroller of the Currency said Friday it is requiring comprehensive data from nine large national banks engaged in mortgage servicing.  The OCC stated that these nine comprise the “overwhelming majority” of national banks servicing mortgage loans. 

The OCC indicated the data would supplement HOPE NOW alliance efforts, a cooperative enterprise between investors, lenders and counselors intended to help distressed homeowners.  The data request covers all mortgages, rathen than being limited to subprime. 

Comptroller John C. Dugan stated the data was being collected “to assure that we have a detailed picture of the activities of national bank servicers and the performance of loans serviced by them.”

The press release states in part:

With record numbers of foreclosures, the data is expected to give the OCC and other regulators a more complete view of the market, which will aid in the agency’s supervisory work as well as help in preventing unnecessary foreclosures.  Metrics developed from the data on subprime lending will be available to state agencies through the HOPE NOW alliance, and should provide a robust and comprehensive overview of subprime mortgage lending.

While the HOPE NOW alliance is collecting data on subprime mortgages, the OCC is seeking a broader data set that includes information on all mortgages.  The OCC is also planning to collect data on home equity loans as well, later this year.

The OCC has had an effort underway for some time now to develop data that would provide key metrics on the mortgage lending industry, and share the agency’s proposed metrics, data definitions and reporting schedules with HOPE NOW.  HOPE NOW has revised and expanded its subprime mortgage metrics to be more consistent with the enhanced metrics to be used by the OCC, and the OCC has made some revisions to its metrics and definitions so they would be compatible with the HOPE NOW data set.

As a result, national banks can satisfy the OCC reporting requirements either by sending mortgage data directly to the OCC, or the OCC will accept mortgage data prepared on behalf of national banks from the HOPE NOW alliance data aggregator.

A copy of the letter the OCC sent to these nine national banks is available here.

As previously mentioned on this site, Mortgage Law Blog has concerns regarding multiple, duplicative regulations burdening lenders and servicers.  The currently sharp spike in foreclosures exacerbates this concern today, as servicers need to focus their time and limited resources assisting homeowners rather than responding to redundant requests for information about foreclosures. 

Mortgage Law Blog is glad to see the OCC is cognizant of the burden of data production on national banks.  Other regulators will hopefully take a similar approach.  A number of states have implemented or proposed foreclosure data production laws and regulations.  

A single uniform approach would greatly serve the public interest.  The OCC has indicated it would share the information with the states.  Assuming the states are willing, this approach is imminently sensible.

Tags: Consumer Protection, Distressed Assets, Federal Bank Regulators, Foreclosure, Loan Servicing, Mortgage Banking - General, OCC, Regulations, State Regulation by the Editor
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