
Circuit Court of Cook County Mortgage Foreclosure Mediation Program Homeowner’s Attorney Training Eric Sutton Supervising Attorney, Foreclosure Mediation Program
CVLS Contact Information Patricia Nelson, Director of Foreclosure Mediation Program 312-332-5539; pnelson@cvls.org Eric Sutton, Supervising Attorney 312-332-8239; ckim@cvls.org Allegra Fischer, Staff Attorney 312-332-1687; afischer@cvls.org Ashley Griffith, Staff Attorney 312-332-1916; agriffith@cvls.org Keri Lindsay, Staff Attorney 312-332-6434; klindsay@cvls.org Daniel Santrella, Foreclosure Mediation Administrator 312-332-7546; dsantrella@cvls.org Matthew Maliawco, Foreclosure Mediation Paralegal 312-332-7546; dsantrella@cvls.org
Chicago Volunteer Legal Services CVLS • Funded in 1964 • Over 2,900 volunteers • In 2011, CVLS provided free legal services to 18,577 low income people in the Chicago area • Work from a small staff – leverage resources with volunteers model • Our job is to support YOU so that you have a good volunteer experience and in turn our clients get excellent quality representation
2 Possible Components to CVLS assistance for homeowners • Mediation - CVLS is automatically appointed by the court, and we accept all cases - no income caps - just for mediation – no court or litigation 2. Access to Justice - Court appointed by the Chancery Division - CVLS income caps apply – we do not accept every case - Full legal representation for litigation - Possible representation for foreclosure cases that do not settle in mediation
General Program Info • Program Participants • Circuit Court of Cook County • Center for Conflict Resolution (CCR) • Chicago Legal Clinic (CLC) • Illinois Housing Development Authority (IHDA) • Funded by Cook County Board through the Chicago Bar Foundation • Began with cases filed after April 11, 2010 • Can be granted for cases filed prior but borrower won’t automatically have the information to enter the program
Who is eligible to participate in the program? • No income caps • Defendant must live in the property • Single family home or building with 4 or less units • Should have an Appearance and Answer filed • Must have met with an HUD-approved housing counselor
Court Process for Mediation • Opt in program – not automatic – tries to ensure you have engaged clients • Summons w/ Hotline Number: 877-895-2444 • HUD Counselor – provided by IHDA - Retention v Relinquishment Counseling - Assist with Modification Applications or other document submission • Volunteer Attorney – provided by CLC - Screens for basic legal issues - Assists in filing Appearance and Answer - Motion for Mediation or Access to Justice Attorney – homeowner presents motion themselves – at judge’s discretion
Court Process for Mediation:Case Managers • Case Managers assigned to each case management call. • Court officers, and will not provide legal advice. • Court refers Defendants interested in negotiating settlement to Case Manager • Case Manager oversees communications between parties • Court decides whether to refer case to mediation based in part on Case Manager report 8 8
Court Process for Mediation • Mediation Referral Order - Mediation issues are primarily pursuant to Order - Plaintiff and Client contact information - Post-Mediation status date – you are not required to attend – talk to your support attorney if you think it’s necessary • Notice of Mediation from CCR - Dates & Times of Mediations - 45 days before mediation – plaintiff to send payoff and reinstatement, and status of current loss mitigation - 10 Day Summary & Updated Financials
What are we mediating? • 2 categories of resolution • Retention • Relinquishment • Overall goals • Ensuring adherence to government programs • Ensuring an end to endless submission of documents - Ensuring fair treatment and no bullying
Retention OptionsBorrower Remains in the Property • HAMP Loan Modification • Non-HAMP Loan Modification • Forbearance • Repayment • Chapter 13 Bankruptcy • Hardest Hit Funds
What is HAMP? • Home Affordable Modification Program (Making Home Affordable - MHA) • Servicers get monetary incentives for modifications made under the plan • Participating servicers supposed to screen everybody, subject only to investor limits • Those servicers receiving ongoing TARP money must modify loans under HAMP
Where is there Guidance? • No regulations or statute • Guidance • Previously - Non-Fannie and Freddie: Supplemental Directives (SD), Model Forms & FAQs (hmpadmin.com) • Now – MHA Handbook (found at hmpadmin.com) • Supercedes SD’s and FAQ’s • Except – provisions not incorporated in handbook – SD still applies • Fannie Mae: Announcements (efanniemae.com) • Freddie Mac: Bulletins (freddiemac.com) • FHA: previously - Mortgagee letters (hud.gov/offices/adm/hudclips/letters/mortgagee/index.cfm) • Now – incorporated in MHA Handbook
Other Helpful Resources • Websites: • www.makinghomeaffordable.gov • www.financialstability.gov • Binder of MHA handbook at mediation centers • If Binder is not in the room and you need it in mediation, ask the receptionist – they are removed every night
HAMP Basic Concepts • Payments reduced to 31% of gross monthly income – by reducing the interest rate, extending the term, and possibly deferring or forgiving principal • Modification results in a positive Net Present Value (NPV) for investors • Investors and servicers get financial incentives from government • Trial modification followed by permanent modification
Three Step Process • Step 1 - Loan must be eligible • Step 2 - Borrower must be eligible • Step 3 - Borrower must qualify • Waterfall Analysis • NPV test
Step 1 – Loan Eligibility • All Fannie Mae/Freddie Mac (GSE) loans covered – HAMP is mandatory • Search engines online to see if either owns the loan • www.FannieMae.com • www.FreddieMac.com • Non-GSE loans – servicers, not investors choose to participate • List with contact information available online - http://makinghomeaffordable.gov/contact_servicer.html. • Applies to operating subsidiaries/affiliates • Servicer Participation Agreement (SPA) available online – www.financialstability.gov
Step 1 – Loan EligibilityCan Investors Forbid HAMP mods? • If investor forbids modification, servicer must request waiver • Supp. Dir. 09-01: servicers required to use “reasonable efforts” to get approval - Supp. Dir. 10-02: servicers required to provide list to Treasury of investors not participating in HAMP and to contact each in writing at least 1x to encourage participation • Push back on this issue – insist on seeing something in writing that the servicer did towards reasonable efforts • Ask for Pool ID number – it is possible to look at investor’s pooling and service agreement online – SEC website (difficult to navigate) • Possible confidentiality issues • Option to escalate – see page 36 of HAMP Manual
Step 1 – Loan EligibilityHAMP Tier 2 • Servicers have the option to sign onto the expanded HAMP guidelines • Eligibility may be determined on a case-by-case basis
Step 2 – Borrower EligibilityIncome Eligibility • Current monthly mortgage payment including PITIA (principal, interest, taxes, insurance, association fees) must be greater than 31% of monthly gross income • Servicers who deny because current payment is <31% of gross income may not have included association fees
Step 2 – Borrower EligibilityBorrower in Bankruptcy • As of June 1, 2010 – are eligible for HAMP • Borrowers in an active chapter 7 or chapter 13 bankruptcy case must be considered for HAMP if the borrower, borrower’s counsel or bankruptcy trustee submits a request to the servicer. • Borrowers may not be denied a permanent HAMP modification on the basis of a bankruptcy filing. Supp. Dir. 10-02 • BUT – filing BK puts an automatic stay on the mediation
Step 2 – Borrower EligibilityLoan Eligibility • Loan must be: • First lien originated on or before January 1, 2009 • Home equity loans eligible if loan is first or only lien on property • Unpaid principal balance cap • 1 unit: $729,450 • 2 unit: $934,200 • 3 unit: $1,129,250 • 4 unit: $1,403,400 • Not previously modified under HAMP
Step 3 – Borrower QualificationTarget Payment = 31% of Gross Income • Income – what’s included? • Can include income for non-borrower household members. • Can include income for non-resident borrowers, so long as one borrower uses property as primary residence. • Net income gets multiplied by 125% • Rental income gets multiplied by 75% • Unemployment income is not eligible • If self-employed, profit and loss statement without other documentation suffices • Borrower DOES NOT have to disclose child support or alimony • Must be able to document monthly income • There is no income amount that is barred. However, a borrower’s income may be too low or too high for a HAMP mod • Too low and the borrower will fail the NPV test • Too high and current payment may already be at or under 31%
Step 3 – Borrower QualificationWaterfall Analysis • Target payment – PITIA 31% of gross monthly income • Waterfall Analysis • Capitalize costs and arrearages (no late fees) • Reduce interest rate – as low as 2% • Amortization term extended to 40 years • Principal deferral • Alternative principal forgiveness if loan to value (LTV) is >115% • Servicers will only take steps necessary to get payment to target amount • Deferral is uncommon, although possible. Forgiveness is extremely rare
Step 3 – Borrower Qualification - HAMP Tier 2 • Basic requirements of Tier 1: origination date on or before January 1, 2009, documented hardship, one to four-unit property, unpaid principal balance limitations and not condemned. • The borrower is evaluated for HAMP Tier 1 following June 1, 2012 but fails to satisfy the eligibility requirements for a HAMP Tier 1 modification or underwriting requirements for a HAMP Tier 1 modification. • The borrower was evaluated for, but not offered, a HAMP modification prior to June 1, 2012. • The borrower had a payment default on a HAMP Tier 1 trial period plan entered into before or after June 1, 2012. • The borrower lost good standing under a HAMP Tier 1 permanent modification entered into before or after June 1, 2012 and, at the time of evaluation for HAMP Tier 2, at least 12 months have passed since the HAMP Tier 1 modification effective date or the borrower has experienced a change of circumstance. • The mortgage is secured by a rental property (described below).
Step 3 – Borrower QualificationWaterfall Analysis – Capitalizing Arrearages • Principal debt will increase • Capitalized arrearage includes: • Past due principal and interest • Escrow deficiencies/advances, though doesn’t have to be – lender will have paid taxes • Foreclosure costs • Servicing fees: property inspections, credit report fee • CANNOT include: • Late fees: unpaid fees will be waived • Additional modification fees: no charge for HAMP
Step 3 – Borrower QualificationWaterfall Analysis – Interest Rate Reduction • Reduced to as low as 2% for 5 years (to get to 31%) • Can go lower, but incentives only paid down to 2% • Increase at 1% after 5 years to lower of • Freddie Mac rate • Interest rate cap in note • Once rate increases to cap, fixed for life of loan.
Step 3 – Borrower QualificationWaterfall Analysis – Increase Term of Loan • If interest rate reduced to 2% and payment still not equal to or less than 31% of gross income, then increase term of loan to 40 years
Step 3 – Borrower QualificationWaterfall Analysis – Principal Forbearance or Reduction • Forbearance (Deferral) • Limited to 30% of unpaid principal balance or 100% LTV • Treated as non-interest bearing balloon payment • Reduction: • Required as of October 1, 2010 • Reduce principal if LTV is >115%
Step 3 – Borrower QualificationNet Present Value (NPV) Test • Measures the benefit to the investor of a loan mod • Not servicer • Not borrower • Weighs • Value of current payments • Value and probability of Foreclosure • Value of payments under a loan mod • Probability of another foreclosure after loan mod • Positive NPV test= HAMP loan mod • Negative NPV test—still possible to have a loan mod, but unlikely to qualify for HAMP.
Step 3 – Borrower QualificationNet Present Value (NPV) Test • HAMP NPV test not public • In mediation, demand inputs – limited to some inputs • If litigating, should demand entire NPV in discovery • FDIC has comparable model online at FDIC.gov. • MHA has just released NPV model 5.0, but that is also not publicly available • Servicers can generate their own NPV and use their own numbers for required inputs
Step 3 – Borrower QualificationReasons for Failing NPV Test • Current income stream on loan is high • Small likelihood of default (high FICO, low LTV, current, low DTI) • Foreclosure looks attractive • High home value • Chance of cure is high • Mod looks risky • Declining home prices • High chance of redefault • Mod doesn’t generate enough income • Borrower’s income is so low that at 31%, the mod doesn’t generate enough income
Step 3 – Borrower QualificationHAMP Tier 2 Waterfall Analysis • Step 1 – Capitalization. The servicer capitalizes accrued interest, out-of-pocket escrow advances to third parties, and any required escrow advances • Step 2 - Interest Rate Adjustment. Fixed-rate based on the weekly Freddie Mac Primary Mortgage Market Survey (PMMS) Rate for 30-year fixed rate conforming loans, rounded up to the nearest 0.125 percent plus a risk adjustment expressed in basis points. In short, possibly more than 2%.
Step 3 – Borrower QualificationHAMP Tier 2 Waterfall Analysis (Cont.) • Step 3- Term Extension. Extend to 480 months • Step 4 - Principal Forbearance. If the loan’s pre-modification mark-to-market loan to value (LTV) ratio is greater than 115 percent, NPV 5.0 calculates principal forbearance in an amount equal to the lesser of (i) an amount that would create a post-modification mark-to-market LTV ratio of 115 percent using the interest bearing principal balance or (ii) an amount equal to 30 percent of the post-modified UPB of the mortgage loan (inclusive of capitalized arrearages). Unlike HAMP Tier 1 there is no excessive forbearance limit in HAMP Tier 2.
Step 3 – Borrower QualificationAdditional Requirements • post-modification debt-to-income ratio must not be less than 25% or greater than 42% • modified monthly P&I payment must represent a reduction of at least 10 percent compared to the pre-modification monthly P&I payment in effect at the time of consideration for HAMP Tier 2 • HAMP Tier 2 post-modification P&I payment is at least 10 percent less than the monthly P&I payment that was payable under the HAMP Tier 1 trial period plan
Applying for HAMP • “Should” be done by HUD counselor, and you should receive a complete package with your case • but some clients go to HUD counselors outside of the program • Some counselors aren’t as reliable as others (some are great) • Make contact with the HUD counselor one of the FIRST things you do • Ask plaintiff’s counsel if any other docs are needed the SECOND thing you do • Submission of “Initial Package” triggers servicer’s duty to review for HAMP • Regardless of the quality of the HAMP application from the counselor, you will need to send • 30 days most recent paystubs • 2 months most recent bank statements • Documents need to be fairly current, or may be unusable (“staledated”)
Applying for HAMPWhat needs to be in a HAMP application • Request for Modification (RMA) • Separate free form hardship letter, signed and dated by all borrowers • 4506T – tax certification form • Last 2 years tax returns that have been filed • Dodd-Frank certificate • Proof of income • 30 days-worth of most recent paystubs for W-2 income • Lease, contribution letter, proof of deposits in bank statements • Profit and loss statement for self-employed (don’t need back up docs) • Separate list of expenses – signed and dated • Sometimes a servicer specific application (ask plaintiff’s counsel) • Last 2 months bank statements – all pages, even if intentionally left blank, for all accounts. Printouts of online activity reports are not accepted • Recent utility bill – for proof of occupancy • Forms are available at makinghomeaffordable.gov
Servicer Response Time • 10 business days from receipt of Initial Package to acknowledge borrower’s request in writing. • 30 calendar days from receipt to approve, deny, or request more information in writing • If denied, 10 business days from determination to notify of denial in writing. • Doesn’t happen in real life – but can point it out in mediation
Incomplete Information • If more information needed: • Servicer must send written request to borrower that identifies specific information needed • Letter must allow 30 days to provide missing documents. • If still not returned, servicer must send 2nd letter giving borrower 15 days to provide documents before denying application. • If still not provided, servicer will send Denial Notice that cites denial due to insufficient information to determine eligibility • If requested in mediation – ALL documents should flow through you directly to plaintiff’s attorney – do not accept a request to send directly to the servicer
If Approved • Trial Period Plan • At least 3 months trial at proposed modified payment • Arrears will accrue during trial. Payments are held in suspense and only credited when equal to full monthly payment under note. • Will be reported to credit bureaus as either in default or making payments under a plan • Will be converted to permanent modification upon completion of trial modification – additional docs and/or meeting with a housing counselor may be needed • If fails trial period: no further HAMP mod. “1 bite at the apple.”
If Denied • Written Notice must be sent to borrower within 10 days of determining HAMP modification denied. • Must state why homeowner was denied • Must describe alternative loss mitigation options • If due to NPV, must offer opportunity to request NPV inputs
If Denied • If denied based on NPV: notice will allow opportunity to request certain inputs (e.g. income, UPB) in 30 days (sale stayed) • Servicer must provide inputs w/in 10 days of request • Must review new borrower data, recalculate if likely to change outcome
FHA Loans • HAMP considered last modification tool for FHA loans, rather than used as first option like Fannie/Freddie/non-GSE. • Incentive payments now available for FHA-HAMP mods • Includes principal reduction payments to borrowers • Mortgagee letters available at http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/index.cfm • Mortgagee Letter 09-23 sets forth basic outline • Be aware of other modification options available for FHA mortgages • See, e.g., Mortgagee Letter 09-35 (requiring that modifications reduce the base rate to the current market rate)
Retention OptionNon HAMP, Traditional, In House Loan Modification • Same Terms to Modify: Interest, Term, Principal - Wise to use same Income Target: 31% of Gross… but can vary • Need to evaluate net income and actual expenses to determine how much borrower can actually afford to pay - Down payment: Anywhere from 20-50% of Arrearage - Defer Arrearage as Balloon Payment - Again, forgiveness is extremely rare
Retention OptionForbearance • Lender agrees to accept no (or reduced) payments for a specified period of time • Unemployed borrowers or those experiencing a temporary, finite loss of income • An option in mediation if all efforts towards loan modification fail and borrower wants to continue to try • Be sure to set time lines of what documents are required at the end of the forbearance to then be considered for a loan modification
Retention OptionRepayment Plan and Reinstatement • Repayment Plan • Borrower pays arrearages (missed payments, attorney’s fees, lender’s costs, taxes paid on their behalf) over a period of time, usually 6-12 months • Borrower must make regular mortgage payment in addition to repayment amount • Unrealistic for most borrowers - Reinstatement - borrower pays full arrearages – including missed payments, attorney’s fees, lender’s costs, taxes paid on their behalf) - realistic for some borrowers who borrow the money from 401(k)