Mortgage Servicing and Foreclosure Process Settlement

Report
Mortgage Servicing and Foreclosure
Process Settlement
Office of the Illinois Attorney General
December 5, 2012
Overview of Settlement
 Plaintiffs: US Department of Justice (for HUD, Treasury, and US Bankruptcy
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Trustee), Federal Trade Commission, Consumer Financial Protection Bureau
(CFPB), 49 state attorneys general and state banking regulators (all states
except Oklahoma)
Defendants: Bank of America, Citigroup, JP Morgan Chase, Ally
Financial/GMAC, Wells Fargo
Filed in U.S. District Court for District of Columbia
Entered: April 4, 2012 by Judge Collyer
Monitor Info: Joseph A. Smith, Jr., former Commissioner of Banks for North
Carolina, has been appointed as the independent settlement monitor. He will
monitor compliance with the terms of the consent judgments.
 A monitoring committee comprised of representatives of the state attorneys
general, the U.S. DOJ, and HUD will oversee and enforce the terms of the
settlement. The Illinois Attorney General’s Office is on the Monitoring
Committee.
Page 1
Overview of Settlement
 The consent judgments have four main components:
 1) Money payments/Consumer relief (no GSE loans)
 2) Injunctive provisions setting servicing standards
 3) Enforcement provisions
 4) Exceptions to Release of Liability
 The consent judgments remain in effect for 3½ years from
the date of entry.
Page 2
Big Picture Monetary Provisions
Page 3
Summary of Consumer Redress Provisions
 3 main groups of borrowers who will receive some form of
monetary relief:
 1) Borrowers who have lost their homes to foreclosure
 2) Borrowers who are still in their homes but are behind on their mortgage
payments and underwater are eligible for principal reductions on 1st or 2nd
liens.
 1st liens: Principal and interest must be reduced by 10% and the DTI must be no greater
than 31%.
 2nd liens: If principal is reduced on 1st lien and 2nd lien is owned by the servicer, then
servicer must modify the 2nd as well.
 If a participating servicer holds the 2nd lien and another participating servicer reduces the
1st lien, then the servicer holding the 2nd must reduce its 2nd lien.
 3) Borrowers who are current on their mortgage but are underwater are
eligible for a refinance.
 Borrower must have an interest rate over 5.25% , have an LTV over 100%, and the loan
must have been originated before January 1, 2009.
 Does not cover FHA or VA loans.
 Interest rate will be reduced to at least 5.25%
** Does not include Fannie Mae or Freddie Mac loans.
Page 4
How the Consumer Relief Provisions Work
 The banks will put $20 billion nationwide towards loss mitigation and refinancing
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for underwater borrowers.
They have up to 3 years to meet their obligation.
The banks receive “credit” for the following remediation efforts:
 First and second lien principal reduction
 Borrower transitional funds
 Short sales / extinguishment of 2nd liens
 Deficiency waivers
 Forbearance for unemployed homeowners
 Anti-blight provisions
The banks do not always pay $1.00 and receive $1.00 in credit. Sometimes, they pay
$1.00 and receive less than $1.00 in credit.
For example, when a bank gives a borrower a first lien principal reduction, for
every $1.00 they pay, they get $1.00 in credit.
On the other hand, when a bank forgives forbearance on an existing loan
modification, for every $1.00 the banks forgive, they receive $.40 credit.
Page 5
How the Consumer Relief Provisions Work
(continued)
 The servicers cannot use all their credits in one form of relief—
there are minimums and maximums for the various forms of
remediation.
 A minimum of 60% of their credits must be used in first and
second lien principal reductions.
 There is a cap on the following types of remediation:
 Borrower transitional funds – 5%
 Deficiency waivers – 10%
 Anti-blight provisions – 12%
* IL will receive approximately $1.2 billion in estimated benefits to
Illinois consumers directly from the servicers.
Page 6
Consumer Relief – Credit Towards Settlement
First Lien Mortgage Modification
PORTFOLIO LOANS
 i) First lien principal forgiveness mod
 ii) Forgiveness of forbearance amounts of
existing modifications
 iii) Earned Forgiveness over a period of
no greater than 3 years – provided
consistent with PRA
SERVICE FOR OTHERS
 iv) First lien principal forgiveness
modification on investor loans
(forgiveness by investor)
Credit Towards Settlement
LTV </=175%; $1.00 writedown=
$1.00 credit
 LTV > 175%; $1.00 writedown = $.50
credit (for only the portion of principal
forgiven over 175%)
 $1.00 writedown = $.40 credit
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LTV </=175%; $1.00 writedown=
$1.00 credit
 LTV > 175%; $1.00 writedown = $.50
credit (for only the portion of principal
forgiven over 175%)
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$1.00 writedown = $.40 credit
LTV </=175%; $1.00 writedown =
$.40 credit
 LTV > 175%; $1.00 writedown = $.20
credit (for only the portion of principal
forgiven over 175%)
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 v) Earned forgiveness over a period of no
greater than 3 years – provided consistent
with PRA
Page 7
Consumer Relief – Credit Towards Settlement
Second Lien Mortgage Modification
PORTFOLIO LOANS
Credit Towards Settlement
 i) Performing Second Liens
 $1.00 writedown = $.90
(0-90 days delinquent)
 ii) Seriously delinquent
credit
second liens (>90-179 days
delinquent)
 $1.00 writedown = $.50
 iii) Non-performing second
 $1.00 writedown = $.10
liens (180 or more days
delinquent)
credit
Page 8
Consumer Relief – Credit Towards Settlement
Borrower Transitional Funds
Payment
Credit Towards Settlement
 i) Servicer makes payment
 $1.00 payment = $1.00
 ii) Investor makes payment
 $1.00 payment = $.45
(non-GSE)
credit (for the amount over
$1,500
credit (for the amount over
the $1,500 average
payment established by
Fannie Mae and Freddie
Mac)
Page 9
Consumer Relief – Credit Towards Settlement
Short Sales
 i) Servicer makes payment to unrelated
2nd lien holder for release of 2nd lien
 ii) Servicer forgives deficiency and
releases lien on 1st lien Portfolio Loans
 iii) Investor forgives deficiency and
releases lien on 1st lien investor loans
 $1.00 writedown = $1.00 credit
 $1.00 writedown = $.45 credit
 $1.00 writedown = $.20 credit
 iv) Forgiveness of deficiency balance and
release of lien on Portfolio Second liens
 Performing 2nd liens (0-90 days
delinquent)
 Seriously delinquent 2nd liens (>90179 days delinquent)
 Non-performing 2nd liens (180 or
more days delinquent)
 $1.00 writedown = $.90 credit
 $1.00 writedown = $.50 credit
 $1.00 writedown = $.10
Page 10
Consumer Relief – Credit Towards Settlement
Deficiency Waivers
Deficiency Waived
Credit Towards Settlement
 i) Deficiency waived on 1st
 $1.00 writedown = $.10
and 2nd liens
credit
Page 11
Consumer Relief – Credit Towards Settlement
Forbearance for Unemployed
Forbearance
Credit Towards Settlement
 i) Servicer forgives
 $1.00 new forgiveness =
payment arrearages on
behalf of borrower
 ii) Servicer facilitates
traditional forbearance
program
$1.00 credit
 $1.00 new forbearance =
$.05 credit
Page 12
Consumer Relief – Credit Towards Settlement
Anti-Blight Provisions
Anti-Blight Provision
 i) Forgiveness of principal
associated with a property
where Servicer does not pursue
foreclosure
 ii) Cash costs paid by Servicer
for demolition of property
 iii) REO properties donated to
accepting municipalities or
non-profits or to disabled
servicemembers or relatives of
deceased servicemembers.
Credit Towards Settlement
 $1.00 property value =
$.50 credit
 $1.00 payment = $1.00
credit
 $1.00 property value =
$1.00 credit
Page 13
Payments to Borrowers Who Have Lost Their Home
In Foreclosure
$1.5 Billion Nationwide, $50,911,981.86 Illinois
 The borrower’s mortgage must have been serviced by one of the 5
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settling banks
The borrower’s home must have been sold in foreclosure between
January 1, 2008 and December 31, 2011
Borrower may be eligible for a payment of up to $2,000 per borrower
Do not have to release any private claims.
This is separate from the federal government’s OCC foreclosure
review process.
Rust Consulting is the Claims Administrator chosen by the Attorneys
General. Claim forms have already gone out.
Page 14
Summary of Illinois’ Share of Money Settlement
 Illinois will receive $106.8 million to be distributed for legal aid
services, housing counseling, and other foreclosure remediation and
prevention purposes. Attorney General Madigan has already
distributed $20 million for legal assistance for borrowers and renters.
An additional RFP for up to $3 million for foreclosure court mediation
was announced and proposals are under review.
 An additional $1.2 billion in estimated benefits primarily 1st and 2nd
lien reductions and refinancing will be distributed to Illinois
consumers directly from the servicers.
 Homeowners who have lost their homes will receive up to $2,000 for
a total of over $50 million in Illinois.
Page 15
Servicing Standards at a Glance
 I. Provisions concerning accuracy and transparency in foreclosure
and bankruptcy proceedings
 II. Enhanced loss mitigation protection for the borrower
 III. Restrictions on servicing fees
 IV. Measures to deter community blight
Page 16
I. Provisions Concerning Accuracy and Transparency
in Foreclosure and Bankruptcy Proceedings
 Prevent robosigning (i.e., signing affidavits without personal knowledge)
 Banks/servicers shall properly document their authority to file a
foreclosure action
 Pre-foreclosure referral notices shall be sent to borrowers 14 days before
a delinquent loan is referred for foreclosure which outline the basis for
the servicers’ right to foreclose, a statement outlining loss mitigation
attempts on behalf of the borrower, an account summary including the
amount necessary to reinstate, and upon request payment histories, notes,
assignments and the name of the investor
 New protections to ensure accuracy of borrowers’ account information
 Third-party provider oversight, such as law firms
Page 17
I. Provisions Concerning Accuracy and Transparency
in Foreclosure and Bankruptcy Proceedings
 Prevent robosigning:
 “Servicer shall ensure that factual assertions made in pleadings...
bankruptcy proofs of claim...declarations, affidavits, and sworn
statements filed by or on behalf of Servicer in judicial foreclosures or
bankruptcy proceedings...are accurate and complete and are
supported by competent and reliable evidence.” (I.A.1.)
 “Servicer shall ensure that affidavits, sworn statements, and
declarations are based on personal knowledge, which may be based
on the affiant’s review of Servicer’s books and records, in accordance
with the evidentiary requirements of applicable state or federal law.”
(I.A.2.)
Page 18
I. Provisions Concerning Accuracy and Transparency
in Foreclosure and Bankruptcy Proceedings
 Prevent robosigning:
 “Servicer shall ensure that affidavits, sworn statements and declarations
executed by Servicer’s affiants are based on the affiant’s review and
personal knowledge of the accuracy and completeness of the assertions
in the affidavit...set out facts that Servicer reasonably believes would
be admissible in evidence, and show that the affiant is competent to
testify on the matters stated.” (I.A.3.)
 “Affiants shall confirm that they have reviewed competent and reliable
evidence to substantiate the borrower’s default and the right to
foreclose, including the borrower’s loan status and required loan
ownership information.” (I.A.3.)
Page 19
I. Provisions Concerning Accuracy and Transparency
in Foreclosure and Bankruptcy Proceedings
 Prevent robosigning:
 “If an affiant relies on a review of business records for the basis of its
affidavit, the referenced business record shall be attached if required
by applicable state or federal law or court rule.” (I.A.3.)
 “Separate affidavits…shall be used when one affiant does not have
requisite personal knowledge of all required information.” (I.A.3.)
Page 20
I. Provisions Concerning Accuracy and Transparency
in Foreclosure and Bankruptcy Proceedings
 Prevent robosigning:
 “Servicer shall review and approve standardized forms of affidavits
…prepared by or signed by an employee or officer of Servicer, or
executed by a third party using a power of attorney on behalf of
Servicer, to ensure compliance with applicable law, rules, court
procedure, and the terms of this Agreement.” (I.A.4.)
 “Affidavits...shall accurately identify the name of the affiant, the entity
of which the affiant is an employee, and the affiant’s title.” (I.A.6.)
 Affiants must be individuals (I.A.11.), all signatures must be by hand
(except for permitted electronic filings) (I.A.11.), and signatures must
be dated (I.A.13.)
Page 21
I. Provisions Concerning Accuracy and Transparency
in Foreclosure and Bankruptcy Proceedings
 Prevent robosigning:
 “Servicer shall not rely on an affidavit of indebtedness or similar
affidavit...filed in a pending pre-judgment judicial foreclosure… which
(a) was required to be based on the affiant’s review and personal
knowledge of its accuracy but was not, (b) was not, when so required,
properly notarized, or (c) contained materially inaccurate information
in order to obtain a judgment of foreclosure…”
 “In pending cases in which such affidavits...may have been filed,
Servicer shall, at Servicer’s expense, take appropriate action, consistent
with state and federal law and court procedure, to substitute such
affidavits with new affidavits and provide appropriate written notice to
the borrower or borrower’s counsel.” (I.A.16.)
Page 22
I. Provisions Concerning Accuracy and Transparency
in Foreclosure and Bankruptcy Proceedings
 Prevent robosigning:
 “In pending post-judgment, pre-sale cases in judicial foreclosure
proceedings in which an affidavit or sworn statement was filed which
was required to be based on the affiant’s review and personal
knowledge of its accuracy but may not have been, or that may not have,
when so required, been properly notarized, and such affidavit or sworn
statement has not been re-filed, Servicer, unless prohibited by state or
local law or court rule, will provide written notice to borrower at
borrower’s address of record or borrower’s counsel prior to proceeding
with a foreclosure sale or eviction proceeding.” (I.A.17.)
Page 23
I. Provisions Concerning Accuracy and Transparency
in Foreclosure and Bankruptcy Proceedings
 Provisions concerning the right to foreclose:
 Servicer must implement processes to ensure that it or the foreclosing
entity has a “documented enforceable interest in the promissory note
and mortgage...under applicable state law, or is otherwise a proper
party to the foreclosure action.” (I.C.1.)
 Servicer must include a statement in a pleading, affidavit of
indebtedness or similar affidavit “setting forth the basis for asserting
that the foreclosing party has the right to foreclose.” (I.C.2.) This
information must be provided to the borrower in the pre-foreclosure
notice. (I.C.3.)
Page 24
I. Provisions Concerning Accuracy and Transparency
in Foreclosure and Bankruptcy Proceedings
 Provisions concerning the right to foreclose:
 Servicer must ensure good faith efforts be made to locate a note lost while
in its possession. Servicer shall adopt procedures that are designed to
ensure that Servicer would locate a note or assignment if in the possession
or control of Servicer. If Servicer prepares or causes to be prepared a lost
note or lost assignment affidavit, it shall use good faith efforts to obtain or
locate the note or assignment and shall recite in the affidavit that Servicer
has made a good faith effort in accordance with its procedures for locating
lost notes. (I.C.4.)
 Servicers must ensure that mortgage assignments executed by or on
behalf of Servicer are executed with appropriate legal authority, are
properly acknowledged, and accurately reflect the completed transaction.
(I.C.6.)
 Provisions concerning regular reviews of affidavits:
 Servicers shall conduct quarterly reviews of a statistically valid sample
of affidavits to ensure documents are accurate and in compliance.
Page 25
I. Provisions Concerning Accuracy and Transparency
in Foreclosure and Bankruptcy Proceedings
 Pre-foreclosure referral notice to borrower:
 Servicers must send a notice to borrowers no later than 14 days prior to
referral to foreclosure attorney. (I.A.18.) The notice must include:
 Facts supporting Servicer’s or holder’s right to foreclose (I.C.2,3)
 Statement outlining loss mitigation attempts made to date (IV.B.13.)
 An account summary, including total amount needed to reinstate/bring
current and date of last full payment (I.B.10.) and contact information for
the housing counseling agencies
 Informing borrowers of their right to request certain information (I.B.10):
 Payment history
 Copy of the note
 Copies of any assignments of mortgage required to demonstrate the right
to foreclose
 The name of the investor that holds the borrower’s loan
Page 26
I. Provisions Concerning Accuracy and Transparency
in Foreclosure and Bankruptcy Proceedings
 Third-party provider oversight:
 Servicer has a duty to properly oversee and manage third-party
providers including foreclosure counsel. (II.A.) This duty includes:
 Amending agreements to require compliance with terms of the
Settlement (II.A.2)
 Ensuring that foreclosure counsel have appropriate access to
information in Servicer’s books and records (II.A.4)
 Ensuring all information provided to third-party providers is accurate
and complete (II.A.5)
Continued on next slide
Page 27
I. Provisions Concerning Accuracy and Transparency
in Foreclosure and Bankruptcy Proceedings
 Third-party provider oversight (continued):
 Conduct periodic reviews of third party providers, including a
review of a sample of foreclosure documents prepared by thirdparty providers for compliance with state and federal law and terms
of the Settlement and a review of fees and costs by the third-party
provider. (II.A.6)
 Third-party providers are required to disclose to Servicer any
imposition of sanctions or professional disciplinary action taken
against them for misconduct relating to the performance of services
provided to Servicer. (II.A.6)
 Servicer must ensure that foreclosure counsel have an appropriate
Servicer contact to assist in legal proceedings and to facilitate loss
mitigation questions on behalf of the borrower. (II.B.3)
Page 28
Requirements for Accuracy and Verification of Borrowers’
Account Information
 Servicer shall maintain procedures to ensure accuracy of borrowers’
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account information.
Servicer shall promptly accept and apply all borrower payments.
Shall be posted no more than two business days after receipt.
Servicer shall apply at least 2 partial payments from the borrower if the
payment comes within $50 of the amount due (including principal,
interest, taxes and insurance), except if notice has been given that the
borrower is in default.
Servicers shall provide a monthly billing statement to the borrower that
shows:
 Total amount due
 Allocation of payments
 Unpaid principal
 Fees and charges
 Current escrow balance
 Reasons for payment charges
Page 29
Requirements for Accuracy and Verification of Borrowers’
Account Information
 Servicers must adopt enhanced billing dispute procedures and shall take
appropriate action to remediate any inaccuracies.
 Suspense Accounts
 Can post to suspense if:
 Discloses to borrower
 Credit with full payment when sufficient to cover a full payment
and
 Apply according to loan terms
 Cannot pay fees until pay interest, principal, escrow
Page 30
II. Enhanced Loss Mitigation Protection For the
Borrower
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New loss mitigation requirements
Loan modification timelines
Dual track restricted
Communication of borrower’s status
Single point of contact, including specific duties of SPOC
Communication with homeowners
Requirement to develop loan portals
Denial notice requirements
Independent evaluation of loan modification denial
Appeal process
Short sales
Transfer of servicing of loans pending for permanent loan modification
Restrictions on servicing fees
Protections for military personnel
Bankruptcy provisions
Page 31
II. Enhanced Loss Mitigation Protection For the
Borrower
 New loss mitigation requirements:
 The same uniform standards apply to all types of loans.
 Servicers shall notify borrowers of all loss mitigation options prior to
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foreclosure referral.
Upon receipt of a complete loan modification application, servicers shall
evaluate borrowers for all available loan modifications prior to foreclosure
referral.
Servicers shall facilitate and offer loan mods if mod is NPV positive rather
than initiate foreclosure
Servicers shall maintain adequate staffing (IV.H.1)
Servicers shall maintain adequate staffing and caseloads for SPOCS (IV.H.2)
Servicers shall establish minimum experience for loss mitigation staff
Servicers shall track key events electronically
The servicer shall not instruct the borrower to default in order to qualify
for loss mitigation relief (IV.H.8)
continued on next slide
Page 32
II. Enhanced Loss Mitigation Protection For the
Borrower
 Servicer cannot require a borrower to release claims and defenses as a
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condition of approval for a loan modification program or loss mitigation.
However, a servicer can require a release in connection with the
resolution of a contested claim. (IV.H.10)
Servicer cannot charge application fees for a loan modification request
and shall provide the borrower with a pre-paid overnight envelope
(IV.H.11)
Servicers shall make public all requirements for a proprietary loan
modification (IV.I.1.)
Servicer shall design sustainable proprietary loan modifications (IV.I.2)
with affordable payments.
Servicers shall track outcomes of loan modification waterfalls, and
eligibility criteria on a public website (IV.I.4)
Page 33
II. Enhanced Loss Mitigation Protection For the
Borrower
 Loan modification timelines
 Borrower sends modification application to servicer
 Servicer acknowledges receipt within 3 business days
 Servicer sends missing items letter within 5 business days
 Borrower has 30 days to send in missing items
 Servicer must make decision within 30 days of receiving completed
application
 Servicer must send denial letter within 10 days of denial
 Borrower has 30 days to appeal denial in some cases
 Servicer generally can’t proceed with sale until 15 days after appeal is
denied or 14 days after modification offered as a result of appeal
Page 34
II. Enhanced Loss Mitigation Protection For the
Borrower
 Dual track restricted (IV.B):
 If borrower submits a complete loan modification application
before120 days of delinquency, the Servicer must not refer the loan to
foreclosure until it has completed its review of the request for a
modification. (IV.B.1) The borrower has an additional 10 days if
application is substantially complete. Substantially complete means the
application must include all required documents except the hardship
letter.
 After the loan is referred to foreclosure, if the borrower submits a
complete loan modification application to the Servicer within 30 days of
the Post Referral Foreclosure Solicitation Letter going out, Servicer will not
move for foreclosure judgment or proceed with a foreclosure sale
pending review of that application. (IV.B.4)
continued on next slide
Page 35
II. Enhanced Loss Mitigation Protection For the
Borrower
 Dual track restricted (IV.B) (continued):
 From 30 days after the Post Referral Foreclosure Solicitation Letter
going out to 15 days before a foreclosure sale is scheduled, the
Servicer will postpone a foreclosure sale pending review of a
complete loan modification application. (IV.B.6 &8)
 If borrower submits a complete loan modification application within
15 days before a scheduled foreclosure sale, Servicer may review it
but nothing is postponed during the review and sale will move
forward unless Servicer completes review and offers a loan mod
before the sale. (IV.B.9)
 Servicer shall not move to judgment or sale if:
 The borrower is in compliance with the terms of a trial loan
modification, forebearance or repayment plan or
 A short sale or deed-in-lieu has been approved.
Page 36
II. Enhanced Loss Mitigation Protection For the
Borrower
 Communication with borrowers:
 Servicers shall reach out to borrowers who are delinquent and explain their
loss mitigation options (IV.D.1)
 Servicers shall cease all collection efforts while the borrower is making timely
payments under a trial loan modification or has submitted a complete
application (IV.D.4)
 Within 5 days after referral to foreclosure, servicers shall send a written
communication (Post Referral to Foreclosure Solicitation Letter) that informs
the borrower that the borrower can still pursue a loan modification and how to
do so.
 Development of loan portals:
 Servicers shall develop an online portal where borrowers can check the status
of their first lien loan modifications
 Servicers shall participate in the implementation of a nationwide portal for
housing counselors
 Servicers shall update the status of pending loan modifications at least every 10
business days.
Page 37
II. Enhanced Loss Mitigation Protection For the
Borrower
 Single Point of Contact (SPOC) (IV.C.):
 Servicer must establish an easily accessible and reliable SPOC for
each borrower so that borrower has access to a Servicer employee
to obtain information throughout the loss mitigation and foreclosure
process. (IV.C.1)
 Servicer must provide one or more direct means of communication
with the SPOC. (IV.C.2)
 The SPOC will have primary responsibility for communicating loss
mitigation options to the borrower, coordinating receipt of
borrower documents, being knowledgeable about borrower’s
situation and status in loss mitigation, and ensuring that the
borrower is considered for all possible loss mitigation options.
(IV.C.3)
Page 38
II. Enhanced Loss Mitigation Protection For the
Borrower
 Independent evaluations of first lien loan modification denials and the appeals
process
 Any denial of a loan modification shall be subject to an independent in house
evaluation by the servicer.
 The servicer shall send a written denial notice identifying the reasons for
denial and the information considered.
 If a modification is denied by an investor, servicers shall disclose in the denial
the name of the investor.
 If the denial is the result of an NPV calculation, servicers shall provide the
monthly gross income and property value used in the calculation.
 Appeals Process
 A borrower shall have 30 days to request an appeal of a loan modification
denial.
 If a loan modification was denied as the result of an NPV calculation, the
borrower can contest the property valuation and request a full appraisal by an
independent appraiser via the HAMP process.
Page 39
Servicing Standards: Short Sales
 Servicers must develop a cooperative short sale process in which the
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servicer is aware that the borrower can pursue a short sale evaluation
before the home is put on the market (IV.K.2)
The requirements for the short sale process shall be posted publicly
(IV.K.1)
Servicers shall confirm in writing within 10 business days that the servicer
has received the borrower’s request for a short sale. The confirmation
must include basic information on the short sale process. (IV.K.4)
The borrower must be informed of any missing documents within 30 days
(IV.K.5)
The servicer must tell the borrower the outcome of the request within 30
days of receiving all the required information (IV.K.6)
If the short sale request is accepted, the servicer shall at the same time
notify the borrower of any deficiency liability. If the short sale request is
denied, the servicer must provide the reasons in writing. (IV.K.7)
Page 40
Servicing Standards: Transfer of Loans Pending for
Permanent Loan Modifications
 Transfer from servicer to successor servicer or subservicer
 At the time of sale, the servicer shall inform the successor
servicer/subservicer whether a loan modification is pending (IV.M.a)
 Any contract for the transfer or sale of servicing rights shall obligate
the successor servicer to accept and continue processing pending loan
modification requests. (IV.M.b)
 Any contract shall obligate successor servicers to honor trial and
permanent modifications (IV.M.c)
 Any contract for sale or transfer shall designate borrowers as third
party beneficiaries (IV.M.d)
 Transfer from servicer to servicer
 When a servicer acquires servicing rights from another servicer, it shall
accept and continue processing loan modification requests and honor
trial and permanent modifications (IV.M.2)
Page 41
III. Restrictions on Servicing Fees
 Default fees: Reasonable, appropriate, disclosed and allowable by law





(VI.A & B.2)
Attorneys’ fees: Reasonable, assessed for work actually performed
(VI.B.3) If foreclosure terminated, attorney can only charge for services
to date.
Late fees: Cannot be charged to borrower in particular circumstances,
including while loan modification is being considered, borrower is
making timely trial payments and a short sale is being evaluated (VI.B.4)
Third-party fees: Can’t charge unnecessary or duplicative fees
(VI.C.1)
Preservation fees: Cannot be imposed while in loss mitigation or
pending loss mitigation unless reasonable basis for fee (VI.C.1.a)
Inspection fees: Cannot be imposed any more frequently than GSE
timeframes allow (VI.C.1.b)
Page 42
III. Restrictions on Servicing Fees
 BPO Valuations: Only every 12 months unless requested for a loan




modification, short sale or required as part of foreclosure (VI.C.1.c)
Price of fees charged: Reasonable market value (VI.C.2)
 Cannot assess a fee when the servicer’s affiliate performs the service unless the
fee is a genuine market rate. (VI.C.3) The market rate shall be determined by
a 3rd party via a market survey.
Referral fees: Cannot collect unearned fees or give/accept referral fees from
3rd parties (VI.C.4)
No mark-ups: Cannot impose mark-up on bank initiated 3rd party default or
foreclosure services (VI.C.5)
Force-Placed Insurance: Cannot place unless reasonable cause to believe
homeowner hasn’t paid property insurance, and only by providing disclosures and
at a commercially reasonable price (VII)
 For escrowed accounts, Servicer must continue to advance insurance payments
for homeowner’s existing policy unless the borrower or insurance company
cancels the policy (VII.A.1)
 If the borrower does not escrow, the servicer must offer to create an escrow
account and advance the payment.
Page 43
Servicing Standards: Protections for Military
Personnel
 The banks/servicers shall comply with Service Members Civil Relief Act and
similar state laws and the banks/servicers shall engage independent consultants to
review foreclosures from January 1st 2009 to December 31, 2010 for compliance
with SCRA.
 If a person has received military orders to commence active military service or
has been in the military within the last 9 months and is in default on his or her
mortgage, he or she is entitled to a specially SCRA trained SPOC. If the persons
are not in default, he or she is entitled to be routed to an employee specially
trained on the SCRA.
 Bank/Servicer must assess whether a troubled borrower is SCRA eligible not
only at the time of default as required by SCRA, but bank/servicer must go
beyond the requirements of the SCRA and assess if a borrower is SCRA eligible
in the following additional circumstances: 1.) before a loan is referred for
foreclosure, 2.) within 7 days of a foreclosure sale, and 3.) the later of promptly
after a foreclosure sale and within three days before the regularly scheduled end
of any redemption period.
continued on next slide
Page 44
Servicing Standards: Protections for Military
Personnel
 When a servicemember requests a reduction in the interest rate on debt
pursuant to the SCRA but does not provide the documentation required
by the SCRA (military orders), the servicer shall accept orders from the
commanding officer.
 Servicers shall notify borrowers who are 45-60 days delinquent that
they may be entitled to certain protections under the SCRA and to
counseling. The servicer shall include a toll-free number on the notice.
 For active duty servicemembers in combat areas, servicers shall not sell
or foreclose on their homes (unless there are investor limitations). This
is an improvement on the SCRA which provides in Section 533 that a
stay of a foreclosure or sale can only be requested if the mortgage debt
was incurred prior to military service. Now those in combat areas can
receive this protection regardless of when the debt was incurred.
continued on next slide
Page 45
Servicing Standards: Protections for Military Personnel
 Servicers shall not require a servicemember to be delinquent to qualify for a
short sale, loan modification or other loss mitigation relief if the servicemember
is suffering from financial hardship and is eligible for loss mitigation.
 Many times when a servicemember receives Permanent Change of Station
(PCS) orders they are underwater on their home so they can’t sell, it is difficult
to rent at the mortgage amount, they can’t get a modification because they are
not in default, and they can’t refinance because their old home will no longer be
their primary residence. Under this new provision, when determining whether
a servicemember is suffering a financial hardship with regard to a short sale or
deed in lieu, the bank/servicer shall take into account whether the
servicemember has been ordered to relocate to a new duty station at least 75
miles away from his/her former home. With regard to a loan modification, the
servicer shall consider as part of the hardship determination if the
servicemember must relocate.
 The Section prohibits the servicer from making an inaccurate report to credit
reporting agencies when a servicemember who has not defaulted before
relocating obtains a short sale, loan modification or other loss mitigation.
Page 46
Servicing Standards: Protections for Military
Personnel
 Consumer Redress Benefits for Service Members:
 Blight Remediation
 Servicers receive credit for donating repo properties to disabled
servicemembers or relatives of deceased service members.
 Short Sales/Portfolio Loan (HFI)
 Servicemembers that qualify for SCRA benefits will be able to avail
themselves of a special short sale program to allow them to move,
pursuant to PCS orders 50 miles away from their current home.
 Deficiency Waivers
 If an eligible servicemember qualifies for a short sale, the servicer shall
waive deficiencies less than $250,000.
Page 47
Servicing Standards: Bankruptcy
 Servicer can’t deny loss mitigation just because borrower is in bankruptcy (IV.L.1)
 Servicer must notify borrower of a payment change at least 21 days before change





is effective, otherwise waive late fees (III.B.1.e)
Servicer must extend a trial loan mod as necessary to accommodate delays in
bankruptcy approval (IV.L.2)
Servicer can’t object to confirmation of Chapter 13 plan just because borrower
has only paid trial modification payments instead of full payments (IV.L.3)
In Chapter 13, within 6 months of an expense/charge being incurred, the servicer
must: (III.B.1.a-b)
 Send to borrower/counsel/trustee an itemized list of recoverable post-petition
expenses incurred that the servicer intends to collect
 Reply to any notice that the debtor has completed payments
If servicer fails to send the 6-month notice or fails to reply to a notice that debtor
has completed payments then the charges are waived (unless they are for escrow
items) (III.B.1.c)
In Chapter 13, servicer must promptly apply payments and reconcile payments as
of date of bankruptcy dismissal (I.B.11)
Page 48
IV. Measures to Deter Community Blight
 Development and implementation of policies to participate in state and




local anti-blight programs (VIII.A.2)
Implementation of policies to ensure REO properties do not become
blighted (VIII.A.1)
In the pre-foreclosure notice, Servicer must notify borrower of borrower’s
obligation pay taxes until sale or transfer of title has occurred and request
the borrower contact Servicer if the borrower intends to abandon the
property in order to discuss alternatives to foreclosure (VIII.A.3)
When Servicer decides not to pursue foreclosure it must:
 Notify borrower of its decision not to pursue the foreclosure and
release the lien and inform the borrower of the right to occupy the
property until a sale or other title transfer; and
 Notify local authorities such as tax authorities, courts, and code
enforcement departments (VIII.A.4)
Tenants Rights: comply with laws concerning tenants rights (VIII.B.1.2)
Page 49
Release – What’s Not Released?
 Criminal claims or enforcement
 Securities and securitization claims
 Claims against MERS or MERSCORP
 Claims of county recorders
 Claims arising out of fair lending laws
 Claims of state and local governments as investors
 Tax claims including claims relating to real estate transfer taxes
 Claims of county and local governments that have separate and
independent jurisdiction than the Attorney General
 Some specific pending actions settled
 Claims and defenses asserted by private third parties, including
individual mortgage loan borrowers, in their own capacity
 Claims to clear a cloud on title
Page 50
Contact Information for Questions
 The State Executive Committee’s website:
www.nationalmortgagesettlement.com
 The Settlement Monitor’s website:
www.mortgageoversight.com
 Illinois Attorney General Office:
 Homeowner Helpline: 866-544-7151
 www.illinoisattorneygeneral.gov
Page 51
Q&A
Thank you! Please let us know if you have additional questions.
Page 52

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