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 announced that federal, state and community leaders from across the country will gather in Washington for a two-day national Summit on Housing on October 7-8, 2008.  Key housing and finance staffs from state, city and county government, and representatives from the banking and housing industries, non-profit organizations, and foundations will address the country’s urgent and long-term housing issues.

The Summit will feature briefings by HUD officials and panel discussions on the Neighborhood Stabilization Program, the Housing and Economic Recovery Act of 2008, the HOPE for Homeowners program, and other foreclosure prevention and loss mitigation programs.

Goals of the Summit are:

• To present details of HUD’s current and developing policies and programs, including HUD’s new Neighborhood Stabilization Program;
• To share successful Federal, State and local policies and programs that are preventing foreclosures and reducing the effects of property abandonment and declining home values;
• To cultivate public-private partnerships; and
• To offer an open forum for discussion of best practices.

For a copy of HUD’s announcement, please click here.

Tags: Conferences & Events, Consumer Protection, Foreclosure, HUD & FHA, 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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Mortgage Law Blog reminds readers that the Mortgage Bankers Association will hold its annual Regulatory Compliance Conference September 14 - 16, 2008. 

The conference will be held at the JW Marriott in Washington, DC.

The MBA’s website describes the conference as the “the premier forum for you to attain the most comprehensive, up-to-date information on significant regulatory and compliance issues facing the mortgage banking industry at the federal and state levels.”

The conference includes “an in-depth discussion of the Housing and Economic Recovery Act of 2008, the most sweeping real estate finance and housing legislation in a generation. Attendees of this conference learn about the contents of this law, how its provisions will be implemented and what changes your business needs to make to comply with the new regulations.”

Speakers will cover a variety of topics, including:

• Home Owners Equity Protection Act/Truth in lending Act
• Real Estate Settlement Procedures Act
• Anti-predatory lending requirements
• Home Mortgage Disclosure Act/Fair lending
• Fair Credit Reporting Act/Fair and Accurate Credit Transactions Act
• Federal Housing Administration loans
• Mortgage fraud against lenders
• Servicing
• Secondary market issues

There will also be legislative and litigation updates. 

The final day will include a visit to Capitol Hill to meet with legislators.

To learn more, visit the conference website here.

Tags: Association Activities, Conferences & Events, Consumer Protection, Economic Stimulus, FACT Act, FCRA, FHA Insurance, Fair Lending, Foreclosure, Fraud, HUD & FHA, High Cost Loans, Industry Involvement, Legislation, Loan Servicing, Lobbying, Mortgage Banking - General, RESPA, Regulations, State Regulation, Unfair or Deceptive Acts 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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