Trial Payment Plans for Loan Modifications and Partial Claims

On August 15, 2011, the U. S. Department of Housing and Urban Development (HUD) issued Mortgagee Letter (2011-28), entitled Trial Payment Plan for Loan Modifications and Partial Claims under Federal Housing Administration's Loss Mitigation Program.

The purpose of the trial payment plan is to confirm a borrower's readiness and ability to make regular monthly mortgage payments and avoid re-default.

This Mortgagee Letter (ML) identifies circumstances under which borrowers must successfully complete a trial payment plan, prior to the lender executing a loan modification or a partial claim action under the Federal Housing Administration's (FHA) Loss Mitigation Program.

In addition, the ML announced the time requirements for lenders to complete permanent loan modification and partial claim documents in order to receive an incentive fee.

• Additionally, the ML provides Appendix A: Reporting Requirements for Type II Special Forbearance / Trial Payment Plans.

• This ML supersedes Mortgagee Letters 2000-05 and 2002-17 with respect to guidance pertaining to trial payment plans.

• Relevant Mortgagee Letters: 2000-05, 2002-17, 2003-19, 2006-15, 2008-21, and 2009-35.

Effective: October 1, 2011

PREREQUISITES

The ML requires successful completion of a trial payment plan as a prerequisite for a lender executing a permanent standard modification and/or partial claim in the following situations:

• If a borrower has been delinquent (30 or more days) twice or more in the preceding 12 months;
• If a borrower has been delinquent for 90 days or more (three or more consecutive payments past due) in the preceding 36 months;
• If a borrower has defaulted within 90 days of a previous loss mitigation retention option (special forbearance, loan modification, and partial claim) executed in the past 12 months;
• If the financial analysis reflects a borrower has a net surplus income of less than 20 percent of total net income;
• If less than 14 months have elapsed since the origination of the loan;
• If the amount added to the loan balance in a loan modification or the amount of the partial claim exceeds 10 percent of the unpaid principal balance;
• If the borrower failed a trial payment plan for FHA's Making Home Affordable Program (FHA-HAMP); or
• If the borrower determines that a trial payment plan is necessary to demonstrate the borrower's ability to sustain the modified payment.

TRIAL PAYMENT PLAN GUIDELINES

The trial payment plan should be for a minimum period of three (3) months and the borrower should make at least three (3) full, consecutive monthly payments prior to final execution of the loan modification or the partial claim.

Reporting requirements are outlined in Appendix A of the ML.

In addition, under no circumstances may a lender include language in any loss mitigation documents which requires borrowers to waive their rights to be considered or approved for a loss mitigation option.

Loan Modifications

The rate for the trial payment plan and the permanent modified mortgage must be in compliance with Mortgagee Letter 2009-35, which defines the Market Rate to be "no more than 50 basis points greater than the most recent Freddie Mac Weekly Primary Mortgage Market Survey Rate for 30-year fixed-rate conforming mortgages (US average), rounded to the nearest one-eighth of one percent (0.125%), as of the date the permanent modification is executed. The weekly survey results are published on the Freddie Mac website. The Federal Reserve Board includes the average 30-year survey rate in the list of Selected Interest Rates that it publishes weekly in its Statistical Release H.15 (See Here).

The final payment under the permanent modification must be the same or less than the trial mortgage payment.

Accordingly, this ML amends the aforementioned Mortgagee Letter 2009-35 by requiring the permanent rate to be established when the trial payment plan is approved by the servicer.

The approval date is the date the servicer offers the trial payment plan to the borrower.
In addition, mortgages in Ginnie Mae's Mortgage Backed Securities (MBS) must meet Ginnie Mae's repurchase requirement(s), prior to executing final modification documents. See Here.

Partial Claims

For partial claims, the monthly payment during the trial period must be the same as the regularly scheduled payment.

The lender must service the mortgage during the trial period in the same manner as it would service a mortgage in forbearance.

TRIAL PAYMENT PLAN FAILURE

Foreclosure action must be suspended during trial payment plans.

In the event a trial payment plan fails, an additional 90-day extension is provided in which the mortgagee must commence or recommence foreclosure or initiate another loss mitigation option.

If the trial payment plan fails, before commencing or continuing a foreclosure, the lender must re-evaluate the borrower's eligibility for other appropriate loss mitigation actions.
A trial payment plan is considered to have failed and is deemed broken when any of the following occurs:

• The mortgagor vacates or abandons the property; or
• The mortgagor does not make the scheduled trial plan payment within 15 days of the trial payment plan due date.

AUTOMATIC EXTENSIONS

If a borrower is unable to complete a trial payment plan within the initial six-month time limit from the date of default (see 24 CFR § 203.355), the lender is allowed a 90-day extension of the foreclosure deadline provided the initiation of a loss mitigation option (including a trial payment plan) was begun prior to the expiration of the initial six month period.

Therefore, if there have been no other intervening delays (such as bankruptcy) this "automatic" extension will extend the six (6) month deadline to initiate foreclosure by 90 days.

To qualify for the automatic extension, the lender must have completed the loss mitigation evaluation required by 24 CFR § 203.605 and approved the appropriate loss mitigation action.

Documentation of this analysis must be maintained in the claim review file.

In addition, the loss mitigation initiative must be reported via the Single Family Default Monitoring System (SFDMS).

S.A.F.E. ACT - Final Rule: Minimum Standards

On June 29, 2011, the Department of Housing and Urban Development (HUD) announced publication of a Final Rule setting the minimum standards that states must meet to comply with the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE) in licensing mortgage loan originators. 

The Final Rule was published in the Federal Register on June 30, 2011 and is available in our library. (See below.)

The states and territories affected are: All 50 states, the District of Columbia, Puerto Rico, Guam, and the Virgin Islands.

The Final Rule recognizes the legislation adopted by these states and territories in support of SAFE and it seeks to provide clarification of the minimum standards against which each state's laws and regulations will be evaluated.

Effective Date: August 29, 2011

AUTHORITIES

While states are charged with enacting licensing standards that meet the requirements of SAFE, overall responsibility for interpretation, implementation, and compliance was delegated to HUD. 

However, the SAFE Act was amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), and the authorities and duties delegated to HUD, relating to SAFE, will be transferred on July 21, 2011, to the new Consumer Financial Protection Bureau (CFPB) established by the Dodd-Frank Act.

HIGHLIGHTS

The Final Rule:

Explains the criteria that will be used to determine whether a state has put in place a system for licensing and registering mortgage loan originators as required by the SAFE. The rule does so by clarifying the meaning of "engaging in the business of a loan originator," which determines whether an individual must be licensed, and the rule also provides that certain activities do not amount to engaging in the business of a loan originator. 

Further clarifies that employees of government agencies and bona fide nonprofit organizations who act as loan originators only as part of their duties do not engage in the business of a loan originator and do not require licensure by states. 

Does not define the terms of "loan originator" or "business of a mortgage loan originator" to include individuals who only engage in loan modifications or are third-party loan modification specialists.  HUD is deferring to the CFPB the issue of whether such individuals should be licensed under SAFE or should otherwise be regulated under other CFPB regulatory authority.

REGULATORY FRAMEWORK

SAFE also mandates the creation of a Nationwide Mortgage Licensing System and Registry (NMLSR). All states are asked to provide for a licensing and regulatory regime for all residential mortgage loan originators.

VISIT THE NMLS USERS FORUM

FOR UP-TO-DATE INFORMATION

To comply with SAFE, states have put in place statutory and regulatory frameworks that require originators to take initial and continuing education courses, pass a test, and undergo civil, criminal and financial background checks.

In any State that fails to have in place a licensing system that meets the minimum requirements, mortgage loan originators may be required to be licensed under a federal program.

Though minimum standards have been established and clarified, States have the right to enact additional legislation and rules, and to take actions that exceed the federal SAFE Act minimum requirements.

LIBRARY

SAFE Mortgage Licensing Act:
Minimum Licensing Standards and Oversight Responsibilities
FR 76/126 - June 30, 2011

Mortgage Performance Metrics: A Quick Look

COMMENTARY: by JONATHAN FOXX

Jonathan Foxx, former Chief Compliance Officer of two publicly traded financial institutions, is the President and Managing Director of Lenders Compliance Group, the first full-service, mortgage risk management firm in the country.

The Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS) released their 3rd quarter 2010 mortgage Mortgage Metrics Report.

Published in December 2010, the findings are compiled from data on first-lien residential mortgages serviced by national banks and federally regulated thrifts.

The report provides information on loan performance through September 30, 2010, the year's 3rd quarter.

I think the report offers a broad view of mortgage performance, because the mortgages in this portfolio comprise 64% of all mortgages outstanding in the United States, that is, 33.3 million loans totaling almost $6 trillion in principal balances.

According to the report, mortgage delinquency levels:

• Remained "elevated" and foreclosures (new, in process, and completed) increased during the 3rd quarter of 2010.

• New home retention actions (modifications, trial-period plans, and payment plans) decreased during the quarter.

• The overall credit quality of the portfolio of first-lien mortgages serviced by the largest national banks and thrifts seems to have remained "steady" during the 3rd quarter of 2010, after showing some improvement during the previous two quarters.

The full report is available in our Library.

Let's look now (see below) at five tables from the report and consider some statistical analysis.

According to this table, servicers implemented 470,321 new home retention actions during the 3rd quarter. This represents a 17% decline from the previous quarter.

• HAMP modifications decreased by 45.7% during the quarter while other modifications increased by 10.1%.

• New HAMP trial plans decreased by 33.2%, and other trial-period plans decreased 21% from the previous quarters.

The report indicates that servicers attribute this decline resulted from requirements to obtain, verify, and analyze borrower income before beginning a trial period plan and the falling number of borrowers who are eligible for existing modification programs.

The findings indicate that servicers modified 1,506,025 loans from the beginning of 2008 through the 2nd quarter of 2010.

• At the end of the 3rd quarter of 2010, 48% of these modifications remained current or were paid off.

• Another 10.2% were 30 to 59 days delinquent.

• Almost 24% of the modifications were seriously delinquent, 9.4% were in the process of foreclosure, and 4.2% had completed the foreclosure process.

• Modifications that reduced payments by 10% or more performed better than modifications that reduced payments by less than 10%.

• At the end of the third quarter, 58.9% of modifications that reduced payments by 10% or more were current and performing, compared with the 33.4% of modifications that reduced payments by less than 10%.

This table shows that more recent modifications have performed better than earlier modifications every quarter since the end of the first quarter of 2009, though the rate of improvement "appears to be moderating."

• At 6 months after modification, 20.2% of the modifications made in the 4th quarter of 2009 were seriously delinquent compared with 33.5% of the modifications made during the second quarter of 2009.

• The report states that this trend of lower delinquency rates following modification "corresponds with the increasing emphasis on repayment sustainability through reduction of the borrower's monthly payment, verified borrower income, and payment affordability relative to income."

One of the more interesting tables is this one, because it indicates that modified mortgages held in the servicers' portfolios performed better than modified mortgages serviced for others.

• The report asserts that this variance may result from differences in modification programs, servicers' additional flexibility to modify mortgage terms, and the underlying quality of loans serviced for different investors.

• Note that the modified government-guaranteed mortgages had the highest delinquency rates at 6, 9, and 12 months following modification, consistent with their higher overall delinquency rates.

This table charts modified loan performance, by change in monthly payments, a statistical array of data that we have commented on in previous compliance updates, particularly with respect to the HAMP program.

The report finds that modifications with decreased monthly payments consistently had lower re-default rates than modifications that left payments unchanged or increased payments.

• After 6 months, 14.6% of modifications implemented since the second quarter of 2009 that decreased monthly payments by 20% or more were seriously delinquent.

• In contrast, 28.1% of modifications that left payments unchanged and 42.% of modifications that increased payments were seriously delinquent.

The report asserts that while lower payments reduce monthly cash flows to investors, the payments may result in longer-term sustainability.

Visit Library for Issuance

OCC and OTS Mortgage Metrics Report -
Disclosure of National Bank and Federal Thrift Mortgage Loan Data:
Third Quarter 2010
Issued: December 2010

Singular destiny where the goal keeps shifting ...

COMMENTARY: by JONATHAN FOXX

Jonathan Foxx, former Chief Compliance Officer of two publicly traded financial institutions, is the President and Managing Director of Lenders Compliance Group, the first full-service, mortgage risk management firm in the country.

In the last few years, the US has been undergoing significant economic and political changes - some of which have their roots in many past decades. We find the momentum of these changes, now forcefully underway, to be altering many of our financial, political, and professional plans.

Change is not easy to experience. Nor is crisis, fraught with uncertainty.

The Chinese character for crisis conveys our current circumstances: a perilous situation, an incipient moment when something begins or changes, and when one should be especially wary.

Reflections

We are a unique generation of Americans, blessed with the benefits of advanced technologies, more affluent than our forebears, more aware of the world around us, able to explore our galaxy and see into the far reaches of the universe, indeed able to look deeply into the infinitesimally small, physical world within our own human being.

But no matter how much we learn about ourselves and our world, we will never open a brain and find the traces of a compassionate thought, or open a heart and find the feeling of love. Yet we do know what we think and how we feel. As both surveyors and inhabitants of our world, as its caretakers and caregivers, there are many ways and means to improve the quality of life for all living beings. Living not only for ourselves, we want to pass on a better world to the next generation. Yet it is through the application of knowledge, howsoever derived, that risks emerge and shape the future.

Goals and Destiny

In these last few days of this year, reflecting on the crises facing the mortgage industry, it is clear that change has been blunt, quick, and irreversible. Many industry members have lost their jobs and their savings and, in some instances, their companies. A plethora of new regulations, new proposed regulations, new consumer protection laws, financial reform legislation, new federal and state disclosure requirements, and new rules regarding mortgage originator compensation, seem to be promulgated without end. Some market actors have been caught up in a dragnet of disputes, such as in foreclosuregate, loan modification delays, loss mitigation failures, mortgage loan fraud, appraisal fraud, identity theft scams, strategic defaults and high mortgage default ratios. FHA, Fannie, and Freddie are barely hanging on to their missions and corporate charters, even with potential or actual "bailouts" from taxpayers. Litigation and lobbying abound!

And yet, there are those on Wall Street who believe that subprime securitization will return soon. There are those who want to delay financial reform. There are those who want to deactivate plans for a consumer financial protection agency. There are those who believe that regulators should serve the banks, rather than to assertively monitor them on behalf of taxpayers and to preserve the public trust.

We have clients that have fought valiantly to stay in business at a time when their peers have had to shut down - and, to the former's credit, they have made it through the struggle. And we have clients that proactively come to us now and seek guidance in implementing the many new regulatory compliance requirements. Because I have witnessed our clients' commitment, fortitude, and drive, I know the mortgage industry will survive and continue to foster innovative leadership.

Crossroads

In general, actors in a market have conflicting goals. The mortgage and financial markets are no exception. Conflicts are necessarily delineated between certain market participants.

At the crossroads of politics and economics, our democracy will find its way forward. But out of the differing expectations, all of us need to forge bold goals and transgenerational resolutions. And we need to identify the risks associated with our goals.

Perhaps 2011 will bring decisive options and opportunities, heretofore unrecognized, to bring closure to some of the mortgage industry's most pressing concerns.

As we meet the future, let's be mindful that we will be judged not on what we thought or felt, but on what we actually did at a time of crisis!

Singular destiny where the goal keeps shifting …

Please consider Beaudelaire's penetrating verse,
as we boldly, compassionately, and humbly
seek our own precious goals in 2011:

Singulière fortune où le but se déplace,
Et, n'étant nulle part, peut être n'importe où!
Où l'Homme, dont jamais l'espérance n'est lasse,
Pour trouver le repos court toujours comme un fou!

Singular destiny where the goal keeps shifting,
And, being nowhere, can perhaps be anywhere!
Where Man, whose hope never grows weary,
Is always seeking a short respite like a fool!

"Le Voyage" (The Voyage)
from Les Fleurs du Mal - Charles Beaudelaire. (My translation)

Best wishes from all of us to all of you -

for a safe, joyous, and fulfilling New Year!

I would welcome your comments.

Please feel free to email me at any time.

Loan Mod Scams: Landing on MARS

On November 11, 2010, the Federal Trade Commission issued its Final Rule to Protect Struggling Homeowners from Mortgage Relief Scams Rule, which outlaws advance fees and false claims, while requiring clear disclosures.

The new rule, known as the Mortgage Assistance Relief Services (MARS) Rule, published in the Federal Register on December 1, 2010, seeks to protect distressed homeowners from mortgage relief scams that have sprung up during the mortgage crisis. For instance, bogus operations falsely claim that, for a fee, they will negotiate with the consumer's mortgage lender or servicer to obtain a loan modification, a short sale, or other relief from foreclosure. Many of these operations pretend to be affiliated with the government and government housing assistance programs.

Essentially, the FTC seeks to ban providers of mortgage foreclosure rescue and loan modification services from collecting fees until homeowners have a written offer from their lender or servicer that they - the homeowners - decide is acceptable.

NOTE: the Final Rule applies only to entities within the FTC's jurisdiction under the Federal Trade Commission Act, which excludes, among others, banks, savings and loans, federal credit unions, common carriers, and entities engaged in the business of insurance.

Effective Dates

December 29, 2010: All provisions of the rule, except the ban on advance fees.
January 31, 2011: The ban on advance fees provision.

HIGHLIGHTS

Ban on Advance Fees
Under this provision, mortgage relief companies may not collect any fees until they have provided consumers with a written offer from their lender or servicer that the consumer decides is acceptable, and a written document from the lender or servicer describing the key changes to the mortgage that would result if the consumer accepts the offer. The companies also must remind consumers of their right to reject the offer without any charge.

Disclosures
The MARS Rule requires mortgage relief companies to disclose key information to consumers to protect them from being misled and to help them make better informed purchasing decisions.

In their advertising and in communications directed at individual consumers (such as telemarketing calls), these companies must disclose that:

• they are not associated with the government, and their services have not been approved by the government or the consumer's lender;
• the lender may not agree to change the consumer's loan; and
• if companies tell consumers to stop paying their mortgage, they must also tell them that they could lose their home and damage their credit rating.

Companies also must explain in their communications to consumers that:
• they can stop doing business with the company at any time;
• can accept or reject any offer the company obtains from the lender or servicer, and,
• if they reject the offer, they don't have to pay the company's fee.

The companies also must disclose the amount of the fee.

Prohibited Claims
The MARS Rule prohibits mortgage relief companies from making any false or misleading claims about their services, including claims about:

• the likelihood of consumers getting the results they seek;
• the company's affiliation with government or private entities;
• the consumer's payment and other mortgage obligations;
• the company's refund and cancellation policies;
• whether the company has performed the services it promised;
• whether the company will provide legal representation to consumers;
• the availability or cost of any alternative to for-profit mortgage assistance relief services;
• the amount of money a consumer will save by using their services; or
• the cost of the services.

Furthermore, mortgage relief companies are barred from telling consumers to stop communicating with their lenders or servicers.

Companies also must have reliable evidence to back up any claims they make about the benefits, performance, or effectiveness of the services they provide.

Attorney Exemption
Attorneys are generally exempt from the rule if they meet three conditions:

• they are engaged in the practice of law,
• they are licensed in the state where the consumer or the dwelling is located, and
• they are complying with state laws and regulations governing attorney conduct related to the rule.

To be exempt from the advance fee ban, attorneys must meet a fourth requirement - they must place any fees they collect in a client trust account and abide by state laws and regulations covering such accounts.

CONTACT US NOW!

VISIT LIBRARY FOR ISSUANCE

FTC: Mortgage Assistance Relief Services - Final Rule
Federal Register: 75/230
December 1, 2010

LENDERS COMPLIANCE GROUP is the first full-service, mortgage risk management firm in the country, specializing exclusively in mortgage compliance and offering a full suite of hands-on and automated services in residential mortgage banking.

Are Foreclosures Good For The Economy?

COMMENTARY: by JONATHAN FOXX

Jonathan Foxx, former Chief Compliance Officer of two publicly traded financial institutions, is the President and Managing Director of Lenders Compliance Group, the first full-service, mortgage risk management firm in the country.

The foreclosure crisis has taken on new dimensions with the Obama Administration's apparent view that accepting the huge wave of foreclosures may be necessary and inevitable.

But have the borrowers who face foreclosure really been given every opportunity to save their homes?

Failed government programs, overwhelmed servicers and lenders, lack of systemic alternatives, and the absence of a coherent national plan or specially empowered agencies to stabilize the pandemic of foreclosures are depriving borrowers of ways and means to recover from this crisis.

"I've proposed a new Home Owners' Loan Corporation (HOLC), to launch a national effort to help homeowners refinance their mortgages. The original HOLC, launched in 1933, bought mortgages from failed banks and modified the terms so families could make affordable payments while keeping their homes. The original HOLC returned a profit to the Treasury and saved one million homes.

We can save roughly three times that many today. We should also put in place a temporary moratorium on foreclosures and freeze rate hikes in adjustable-rate mortgages. We've got to stem the tide of failing mortgages and give the markets time to recover." Hillary Clinton - September 25, 2008

The most recent report of foreclosures from RealtyTrac provides the following schematic.

Just this past Friday, the New York Times put the Obama administration's non-response to the foreclosure crisis in bold relief:

"In the most recent mortgage mess, the Obama administration has - oddly and disturbingly - been arguing that foreclosures are, in effect, good for the economy and should proceed apace as banks get their snarled paperwork in order."

However the foreclosure debacle does play itself out - and, let's be clear, there is no truly satisfactory outcome for lenders, borrowers, or the overall economy - it is important to identify who these defaulted borrowers really are: our neighbors, our co-workers, our professional class, our close friends and family, our most educated and least educated, our peers who have been downsized out of jobs, laid off, and whose jobs have been outsourced, our small business owners and self-employed.

For the most part, the foreclosed upon properties have not been demised by deadbeats - or "losers" (Rick Santelli) - or scammers or ignoramuses who would sign anything to own a house. That canard is the main stream media narrative, and it is not true at all. Statistic after statistic support the fact that most loans were underwritten pursuant to agency and investor guidelines, along with proper borrower verification.

Yet now, those same agencies and investors seem to be changing the rules. For instance, HUD is reevaluating the approval authority granted to FHA DE-mortgagees whose defaults are considered excessive, even though those mortgagees' FHA loans were underwritten to FHA guidelines.

And, since the foreclosure tsunami hit, millions of borrowers have endeavored in vain to save their homes through loss mitigation methods and loan modifications, only to find themselves, usually without the benefit of legal counsel, navigating the blizzard of new paperwork requirements in an often futile engagement with unresponsive servicers and intransigent lenders.

In some cases, borrowers in default are taking out second mortgages in order to save their homes - with payment of the proceeds going to their lawyer if the foreclosure is dismissed and the debt is reduced.

Is the appropriate response to foreclosure in this current economic environment to blame the victim?

Government assistance programs, such as HAMP, have been failures. Our servicer and investor clients are particularly frustrated by the enormous task they face to offer alternative loan terms, respond to thousands of inquiries, implement new mortgage instruments, properly execute all legal documents, and consistently and effectively track the progress of mitigated claims.

In the quote above, Mrs. Clinton stated that "We've got to stem the tide of failing mortgages and give the markets time to recover."

Maybe we should give our neighbors and neighborhoods the time to recover as well!

So, What Do You Think?

I would welcome your comments and views.
Please feel free to email me at any time.

LENDERS COMPLIANCE GROUP is the first full-service, mortgage risk management firm in the country, specializing exclusively in mortgage compliance and offering a full suite of hands-on and automated services in residential mortgage banking.

Can't blame the homeowners!

COMMENTARY: by JONATHAN FOXX

Jonathan Foxx, former Chief Compliance Officer of two publicly traded financial institutions, is the President and Managing Director of Lenders Compliance Group, the first full-service, mortgage risk management firm in the country.

In each of the first two meltdowns, many people believe that regulators failed to enforce existing regulations - even if some of those regulations were inadequate or dysfunctional. But this third meltdown has occurred for the most fundamental of all reasons: not complying with the execution of affidavits! This is basic legal process. What good are implementing statutes already on the books, if the entities subject to those laws do not comply with them?

The culprits? Lenders, and only the lenders, and nobody but the lenders.

By now most of you know that GMAC, JPMorgan Chase, and Bank of America have put tens of thousands of foreclosure processes on hold. When news first came out about this recently, many in the industry had no idea why this happened! Yet my conversations with several industry leaders indicate, sadly, that they were disappointed but not surprised. Disappointed - because this debacle further delays financial recovery and creates even more uncertainty; and, not surprised - because banks have made this kind of mess before, placing expediency over exacting regulatory compliance, and should have known better - given their own culpability in the financial and mortgage meltdowns.

As I write, the aforementioned 3 companies have suspended foreclosures in 23 states; Fannie Mae has issued a Lender Letter (LL-2010-11) that directs all of its servicers "to immediately undertake a review of their policies and procedures relating to the execution of affidavits, verifications, and other legal documents in connection with the default process;" the OCC has ordered its regulated banks to review foreclosure processes for flaws in their document management systems; and, Old Republic National Title Insurance, certainly one of the country's largest title companies, has advised that it would not insure title to GMAC and JPMorgan Chase foreclosures (thereby imperiling clear title). Rippling through the states, some AGs are now calling for a moratorium on all foreclosures in their states.

Plaintiffs' attorneys must be positively gleeful!

And a new term has crept into the vernacular: "robo-signing." Briefly put, this is a technique - if you want to call it that! - which a lender's servicer uses to approve foreclosure cases without personally reviewing the underlying foreclosure documents or without signing affidavits pursuant to required legal procedures. A lender seeking foreclosure must file a specified affidavit in many states' courts. And, of course, such affidavits attest to various facts about the subject foreclosures, such as a description of the lender's legal standing to foreclose. The affidavit is attested to by the bank's representative, who submits the affidavit in support of motions for summary judgment in states with judicial foreclosure processes. But "robo-signing" short cuts this procedure by having the individuals executing these affidavits on behalf of the servicer "sign" the documents en masse without inspecting the attested documents, without actually having the personal knowledge of information contained in the affidavits - and without determining that the affidavits were notarized in accordance with applicable requirements!

I suppose an argument can be made that this situation will eventually straighten out and most foreclosures will be completed in the fullness of time. This is a procedural matter that will require a legal solution. Most foreclosures are not going to be reversed, once this legal mess gets disentangled, although regulatory oversight may be considerably strengthened.

At this point, it seems that lenders did not willfully evade compliance. Taking short cuts - Maybe. We'll all find out soon enough the extent of legal culpability and any willful failure to comply with the law. But perception is a critical issue - especially when we are dealing with the heart wrenching condition of foreclosure.

One has the sense that yet another avoidable situation in our industry could really have been avoided.

At a time of lowered consumer confidence in the economy in general and the mortgage industry in particular, it is incumbent on all of us - the market participants - to police ourselves better and hold ourselves to the highest standards.

Let's not allow ourselves to be 'called out' again like this!

___________________________________

So, What Do You Think?

I would welcome your comments and views.
Please feel free to email me at any time.

___________________________________

LENDERS COMPLIANCE GROUP is the first full-service, mortgage risk management firm in the country, specializing exclusively in mortgage compliance and offering a full suite of hands-on and automated services in residential mortgage banking.

HAMP: “Continues to Struggle”

Yesterday, we provided an outline of the continuing downward trend of the Home Affordable Modification Program (HAMP) program, as reported in the most recent June Report, issued on July 20, 2010.

On July 21, 2010, the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), stated in its Quarterly Report to Congress (Report), that HAMP "continues to struggle to achieve its original stated objective to help millions of homeowners avoid foreclosure 'by reducing monthly payments to sustainable levels.'"

It would be helpful to refer to our compliance update, "HAMP: Continues Downward Trend," issued on July 22, 2010, for comparative analysis.

The Report states that the number of homeowners being helped through permanent modifications "remains anemic," with fewer than 400,000 ongoing permanent modifications and HAMP has not put an "appreciable dent" in foreclosure filings. Furthermore, according to the Report and as we also indicated in yesterday's compliance update, the number of trial and permanent modifications that have been canceled substantially "exceeds the number of homeowners helped through permanent modifications."

In a telling statement of fact, the Report unequivocally finds that the Treasury "clings to its prior statements that it plans to offer trial modifications to three to four million homeowners, a measure that the SIGTARP has previously shown to be essentially meaningless," and that its refusal to provide meaningful goals is a "fundamental failure of transparency and accountability."

Finally, the SIGTARP takes the position that the "American people are essentially being asked to shoulder an additional $50 billion of national debt without being told, more than 16 months after the program's announcement, how many people Treasury hopes to actually help stay in their homes as a result of these expenditures, how many people are intended to be helped through other subprograms, and how the program is performing against those expectations and goals."

Without clearly defined standards, opines the SIGTARP, positive comments about HAMP's success are "simply not credible," and leads to a growing "public suspicion" that HAMP is an "outright failure."

It should be noted that of the anticipated $75 billion dollar cost of the Making Home Affordable (MHA) program that commenced on February 18, 2009, $50 billion will be funded through TARP. HAMP is one of the MHA programs.

If you have any questions about this matter or would like assistance with mortgage compliance, please contact Jonathan Foxx, Managing Director or call 516-442-3456 x 100.

Highlights

As of June 30, 2010, a total of 753,275 mortgages are currently being modified, either permanently or on a trial basis. Of those, 389,198 were active permanent modifications and 364,077 were active trial modifications.

SIGTARP uses statements from the June reviews provided by HUD and Treasury to explain why the number of cancellations of mortgage modifications has increased, as decisions on aged trials are being reached, such as:

• Many borrowers who received temporary modifications were not able to meet eligibility requirements such as verifying their income and successfully making trial payments.

• Borrowers had mortgage payments already less than 31% of their income or did not occupy the property as their primary residence.

Visit Library for Issuance

Office of the Special Inspector General
of the Troubled Asset Relief Program
Quarterly Report to Congress
July 21, 2010

HAMP: Continues Downward Trend

The government program established to assist homeowners in distress continues to under perform, with 91,118 trial modifications under the Home Affordable Modification Program (HAMP) being canceled in June and of those more than 70% had been in a trial period for six months or longer.

Based on the June 2010 Servicer Performance Report (Report) issued on July 20, 2010, it appears that, more often than not, most borrowers aren't surviving the trial modification stage.

Servicers also converted 51,205 trials to permanent modifications, approximately 3,481 more conversions than occurred in May. During the same period, the number of trial modifications also increased from May, growing from 30,099 to 38,728.

The recidivism rates for HAMP modifications six months after converting to a permanent modification are 5.9% of HAMP loans are 60+ days delinquent and 1.7% are 90+ days delinquent. At nine months after conversion, the rates rise to 7.7% for 60-day delinquencies and 2.4% for 90+ day delinquencies.

The velocity of the program is slowing down considerably!

On a cumulative basis, trial modifications started in September-October 2009 were 156,019, but the number of trial modifications in May-June 2010 were 15,753 - about a 90% reduction!

If you have any questions about this matter or would like assistance with mortgage compliance, please contact Jonathan Foxx, Managing Director or call 516-442-3456 x 100.

Highlights

●Number of permanent loan modifications: 346,816 to 389,198 (Increase: 42,382)
●Number of trial modifications canceled: 429,696 to 520,814 (Increase: 91,118)
●Number of "active trials": 467,672 to 364,077 (Decrease: 103,595)

These statistics clearly show that the number of failed trial modifications to date are significantly greater than the number of successful, permanent ones, while the number of trials started has dropped precipitously.

As indicated above, the velocity of the program is slowing down considerably. On a cumulative basis, trial modifications started in September-October 2009 were 156,019, but the number of trial modifications in May-June 2010 were 15,753 - about a 90% reduction!

This is the slowest month-over-month pace since the program began.

Taken together, the above two charts indicate why trials modifications are probably slowing down: servicers are now pre-qualifying borrowers and are also running out of eligible borrowers.

The median front-end DTI before modification is 44.8% (which is about where it has remained for several months); and, the back-end DTI before modification is an astronomically high 79.9% (which, in any event, has been in this high range of 77.5% to 80.2% for several months).

That back-end DTI discloses an inescapable fact: nearly 80% of the borrower's income is going to servicing debt - and nearly 63.7% of income even after loan modification - a troublesomely high back-end ratio, which indicates likely defaults in the future.

It's no wonder that many borrowers never make it out of trial modification into permanent modification. Indeed, these are "median" characteristics - so many borrowers have even higher risk profiles.

Clearly, the program is not meeting with the kind of success predicted at its inception and is gradually coming to an end.

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Making Home Affordable Program
Servicer Report - June 2010 (07/21/10)