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MAINTAINING HOME OWNERSHIP- A SUMMARY OF LOSS MITIGATION OPTIONS

MAINTAINING HOME OWNERSHIP- A SUMMARY OF LOSS MITIGATION OPTIONS. THOMAS A. ROSIELLO, FIRST V.P. & SENIOR COUNSEL LA SALLE BANK CORPORATION and ABN AMRO MORTGAGE GROUP, INC. Repayment Plan Forbearance Plan Loan Modification Partial Claim (FHA insured loans only)

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MAINTAINING HOME OWNERSHIP- A SUMMARY OF LOSS MITIGATION OPTIONS

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  1. MAINTAINING HOME OWNERSHIP-A SUMMARY OF LOSS MITIGATION OPTIONS THOMAS A. ROSIELLO, FIRST V.P. & SENIOR COUNSEL LA SALLE BANK CORPORATION and ABN AMRO MORTGAGE GROUP, INC.

  2. Repayment Plan Forbearance Plan Loan Modification Partial Claim (FHA insured loans only) Short Sale / Assumption Agreement Deed-in-lieu of Foreclosure CURRENT LOSS MITIGATION (LOAN RESOLUTION) OPTIONS

  3. A repayment plan is an agreement that gives a borrower a specified amount of time to bring a delinquent mortgage account current by paying the normal monthly payment plus an additional amount each month to cure the delinquency. A repayment plan is considered when the delinquency resulted from a temporary hardship that has been resolved. Common Requirements: The plan must lead to full reinstatement or payoff of the loan. The borrower must complete a workout package consisting of: Borrower Financial Information Form Hardship Letter Pay stubs The borrower’s income must exceed expenses by a sufficient amount. Term of the plan is usually 6 to 12 months. The plan must be reduced to writing if plan exceeds three months. Stipulation Agreement is required if the loan has already been referred to foreclosure. REPAYMENT PLAN / SPECIAL FORBEARANCE PLAN

  4. Unique Requirements: FHLMC The delinquency must be greater than 1 month and less than, or equal to 12 months FHLMC’s prior approval when the plan requires from 12 to 18 months to complete Late charges not assessed during repayment plan FNMA Hardship must be temporary Borrower must have a 1.20 debt ratio FHA Must be more than three months but not more than 12 months delinquent Borrower must have a 1.20 debt ratio Late charges not assessed during repayment plan Property must be owner occupied

  5. A Forbearance Plan is an agreement to temporarily allow a borrower to pay less than the full amount due on their mortgage or to suspend payments entirely during the forbearance period. FHLMC Short term forbearance Agreement in writing, signed by borrower and lender Suspends payments for a period not to exceed 3 months Reduces payments for a period not to exceed 6 months At the end of forbearance plan, borrower must cure delinquency through full reinstatement or repayment plan Lender must not accrue or collect late charges during the short term forbearance period, and subsequent repayment plan Workout not required Long-term forbearance Agreement in writing, signed by borrower and lender Reduces or suspends monthly payments for a period of 4 to 12 months Intended for a borrower who is experiencing extreme circumstances (i.e. natural disaster) FORBEARANCE PLAN

  6. Long Term Forbearance (continued) Workout package includes: * Financial Borrower Information form * Letter of hardship with documentation supporting the hardship At the end of forbearance plan, borrower must cure delinquency through full reinstatement or repayment plan BPO FNMA Special Forbearance / Long Term Forbearance No more than 18 months from the date of the first reduced or suspended payment. If more than 18 months FNMA prior approval required Intended for a borrower who is experiencing extreme circumstances (i.e. borrower’s death, or family member’s death or natural disaster). Must be in writing Workout package includes: * Financial Borrower Information form * Letter of hardship with documentation supporting the hardship No late charges assessed during forbearance / repayment period

  7. Special Forbearance / Long Term Forbearance (continued) A borrower who has substantial equity in the property may list it for sale. The lender may grant special forbearance during the listing period and must base its determination on the following: * The length of the forbearance period * The value of the property * The amount of the borrower’s equity * The time that will be needed to complete the sale of the property considering current market conditions * The amount of any payments the borrower can make during the forbearance period * The effect that granting the special forbearance may have on the likelihood that a loss would be incurred if the property is not sold and foreclosure procedures have to be initiated FHA Special Forbearance 1 No more than 3 months from the date of the first reduced or suspended payment At the end of forbearance plan, borrower must cure delinquency through full reinstatement or repayment plan Agreement in writing Workout package includes: * Financial Borrower Information form * Letter of hardship with documentation supporting the hardship No late charges assessed during forbearance/repayment period.

  8. FHA (continued) Special Forbearance 2 The number of monthly delinquent payments not to exceed 12 months Must make payments for 90 days. At the end of the 90 days, borrower must submit proof that hardship is no longer an issue Borrower then enters into a workout option to cover total delinquency Significant hardship exists, however, borrower will have the means to make current payments by the end of the forbearance period. Agreement in writing Workout package includes: * Financial Borrower Information form * Letter of hardship with documentation supporting the hardship No late charges assessed during forbearance/repayment period. VA Forbearance Plan Not more than 12 months At the end of forbearance plan, borrower must cure delinquency through full reinstatement or repayment plan VA approval required if plan is extended Agreement should be in writing, but not required Workout package includes: * Financial Borrower Information form * Letter of hardship with documentation supporting the hardship No late charges assessed during forbearance/repayment period.

  9. A LoanModification is a written agreement between a servicer and a borrower that permanently changes one or more of the original terms of the Note in order to bring a defaulted loan current and/or make the payment terms more affordable to the borrower. Modification process could include such things as reducing the interest rate on a mortgage, changing the product type (i.e. from an ARM to a fixed rate) extending the term of the mortgage, and/or capitalizing the delinquent payments are considered. Common Requirements: Borrower must contribute funds, if possible, to reduce delinquency Borrower must pay a processing fee Borrower must complete a workout package consisting of: Borrower Financial form Hardship Letter Copy of pay stubs or vouchers indicating YTD earnings Copy of borrower’s signed federal income tax return, with all schedules (for self employed only) Copies of the last two months bank statements Copies of YTD and previous years P&L statement if self-employed LOAN MODIFICATION

  10. Borrower’s future monthly income must be stable Monthly expenses must be less than monthly income Mortgage must be a first lien Must have flood insurance if property located in area where it is required BPO is required if BPO indicates property requires asset preservation, further property inspection is required. Credit report is required Copy of MI, FHA or VA approval letter is required (as applicable) Copy of most recent escrow analysis is required

  11. Unique Requirements: FHLMC Prior modification not allowed Loan must be at least 12 months old Maturity date may be extended Title report requested in special circumstances Refinance program must be considered prior to approval of loan modification Must have escrow account Surplus of income over expenses must be less than about $500.00. Modification may need to be recorded FNMA Mortgage cannot be extended over 30 years Special Refinance program must be considered prior to approval of loan modification Debt ratio should be at 1.15 or slightly less Title report if the delinquency is being capitalized is over $10K FHA Modification may need to be recorded Mortgage cannot be extended over 30 years Title report Record modification

  12. Unique Requirements (continued) : VA At least 80% of the loan balance extended must amortize over the remaining term of the loan or for loan with a term of less than 30 years, the lesser of the economic life of the security or 30 years from the date of origination Title report Record modification

  13. Under a partial claim option, a lender will advance funds on behalf of a mortgagor in an amount necessary to reinstate a delinquent loan. The mortgagor, upon acceptance of the advance, will execute a promissory note and subordinate mortgage payable to HUD. No interest is charged on this subordinate loan, but HUD reserves the right to charge interest in the future. Also, no payment of principal is due until the borrower either pays off the first mortgage or no longer owns the property. After the paperwork is complete, the lender submits a partial claim to HUD for the amount of its advance. Requirements: The mortgagor has the long-term financial stability to support the mortgage debt The mortgagor does not have the ability to repay the arrearage through a special forbearance or modification The loan must be at least four payments past due and unpaid, but may not be more than 12 months past due and unpaid. The loan may not be in foreclosure at the time the partial claim note is executed. However, a mortgagee may remove a loan from foreclosure if the mortgagor’s financial situation has improved. PARTIAL CLAIM (FHA INSURED LOANS ONLY)

  14. Requirements (continued) Mortgagor must have overcome the cause of default The mortgagor must have sufficient income to resume monthly payments on a going forward basis The property is owner occupied Workout package includes: Borrower Financial Information Form Income verification Hardship letter Credit report Duplicate MIC At least a 5% surplus of income over expenses is required The amount of lender’s advance must be sufficient to fully reinstate the loan Mortgagee must record the subordinate mortgage in favor of HUD If the 1st mortgage ever goes to foreclosure after a partial claim is completed, the mortgagee must include the amount of the partial claim when calculating the amount of indebtedness.

  15. A short sale is the sale of a property for less than the total amount necessary to satisfy the mortgage obligation, and the borrowers are unable to pay the shortfall from their own funds. Common Requirements: Delinquency caused by permanent or long term circumstance Workout package includes: Borrower Financial Form Hardship Letter Copy of two most recent pay stubs indicating YTD earnings Copy of listing agreement Copy of borrower’s signed federal income tax return Copy of fully executed sales contract stating that the property is being purchased in “as is” condition Breakdown of seller’s estimated closing costs (net sheet) Estimated closing date Self employed - YTD and previous year’s profit and loss statement Most recent escrow analysis (if applicable) Interior and Exterior Appraisal (BPO) SHORT SALE (SHORT PAYOFF)

  16. Borrower required to make the maximum possible contribution in cash/and or a promissory note toward any deficiency from the sale List the property for sale to sell for fair market value within 90 days Obtain a credit report on the borrower If the borrower is the selling or listing broker, he must not receive a commission from the sale The borrower must not receive any proceeds from the sale Unique Requirements: FHLMC No specific requirement for estimated closing date MI approval letter (if applicable) Borrower cannot have entered into a program or arrangement where a third part takes title to the property and arranges a short payoff in exchange for a fee Borrower must waive reimbursement of any escrow, buy-down funds, or prepaid items and assign any insurance proceeds to us, if applicable

  17. Unique Requirements (continued) FNMA Sales Contract must contain language that states that the offer is contingent on approval of the mortgage company and/or mortgage insurer Property must be free of all other liens FNMA Guide is silent regarding borrower contribution MI approval letter (if applicable) FNMA Guide is silent regarding the days property is to be listed for sale FHA Property must be owner-occupied or acceptable reason otherwise Title Search VA Copy of signed offer to purchase No funds can be paid to Junior lienors Title Search

  18. When a mortgage is in default and it is concluded that there is no alternative for resolving the delinquency (even through a sale of the property) the lender may agree to voluntary conveyance of the property (free and clear of other liens) from the borrower in exchange for full satisfaction of the debt. Common Requirements: Consider a Deed-In-Lieu when no other relief or workout option is appropriate Borrower must have an involuntary inability to pay that is permanent or long term Workout Package includes Borrower Financial Information form Income verification Hardship letter Copy of listing agreement Title report Most recent escrow analysis Appraisal DEED-IN-LIEU

  19. CommonRequirements (continued): No other liens, title status must be clear Property listed for sale at a market value for three months or more without a reasonable sales offer Unique Requirements FHLMC Property must not have any type of structural damage or pose a risk of ownership to the investor MI approval letter (where applicable) FNMA Property must be vacant (unless the mortgage insurer or guarantor, if applicable, agreed to accept an occupied property).

  20. Unique Requirements (continued): FHA FHA may approve even if other liens exist. The lenders must determine if the mortgagor has another FHA-insured mortgage in default or if a claim for insurance benefits has been paid for another FHA-insured mortgage executed by the mortgagor. Deed must be recorded within nine months after the date of default or within 60 days after it becomes legally possible. Guidelines are silent on whether property must have been listed for sale without a reasonable offer being made. VA VA may approve even if other liens exist. Guidelines are silent on whether property must have been listed for sale without a reasonable offer being made.

  21. HOW DO WE MAKE THE MOST OUT OF THESE LOSS MITIGATION (LOAN RESOLUTION) OPTIONS? The three most effective ways of maximizing these options are: COMMUNICATION COMMUNICATION AND COMMUNICATION Make contact as early as possible after grace period expires Start a campaign of phone calls and letters explaining options when loan is one month past due Continue the campaign even after foreclosure is initiated (foreclosure attorneys may assist by including options in communications that they send to borrowers. Property inspection vendors’ hang cards and other communications to borrowers should include the phone number for the Loan Resolution group. Tone of phone calls and letters should be geared toward education of the options available in the hopes of gaining the borrower trust - We’re here to help you maintain home ownership, not take it away from you

  22. IF WE ARE SUCCESSFUL IN HELPING THE BORROWER MAINTAIN HOME OWNERSHIP the Servicer the Borrower the Investor the Mortgage Insurer even the Community EVERYBODY WINS

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