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Circuit Court of Cook County Mortgage Foreclosure Mediation Program

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

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Circuit Court of Cook County Mortgage Foreclosure Mediation Program

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  1. Circuit Court of Cook County Mortgage Foreclosure Mediation Program Homeowner’s Attorney Training Eric Sutton Supervising Attorney, Foreclosure Mediation Program

  2. 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

  3. 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

  4. 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

  5. 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

  6. 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

  7. 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

  8. 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

  9. 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

  10. Default Foreclosure Timeline

  11. Contested Foreclosure Timeline

  12. Contested Foreclosure Timeline

  13. Contested Foreclosure Timeline

  14. 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

  15. Retention OptionsBorrower Remains in the Property • HAMP Loan Modification • Non-HAMP Loan Modification • Forbearance • Repayment • Chapter 13 Bankruptcy • Hardest Hit Funds

  16. 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

  17. 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

  18. 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

  19. 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

  20. Three Step Process • Step 1 - Loan must be eligible • Step 2 - Borrower must be eligible • Step 3 - Borrower must qualify • Waterfall Analysis • NPV test

  21. 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

  22. 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

  23. 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

  24. 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

  25. 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

  26. 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

  27. 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%

  28. 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

  29. 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).

  30. 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

  31. 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.

  32. 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

  33. 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%

  34. 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.

  35. 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

  36. 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

  37. 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%.

  38. 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.

  39. 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

  40. 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”)

  41. 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

  42. 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

  43. 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

  44. 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.”

  45. 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

  46. 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

  47. 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)

  48. 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

  49. 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

  50. 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)

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