Mortgage Servicing Foreclosure Process Settlement Overview of Colorado’s Programs Request for Public Comments Colorado Attorney General’s Office
Agenda • Welcome – Cris White, CHFA & Treasurer Housing Colorado • Background – Andy McCallin, Attorney General’s Office • Housing Investment Fund – Pat Coyle, Division of Housing • Supplemental Loan Modification Programs – Karen Harkin, CHFA • Housing Counseling Support – Dan McMahon, CHFA • Q&A
Settlement Summary Colorado Attorney General's Office
Colorado’s Share of Payment - $51.17 Million • $24.0 Million supplemental loan mod programs: • Collateral Support Program • Supplemental Assistance Programs to facilitate modifications • $18.196 Million for affordable housing programs • $5.625 Million for housing counseling support • $1.5 Million for Colorado Legal Services • $750,000 for Colorado Attorney General’s Office enforcement and support • $600,000 for the Colorado Foreclosure Hotline • $500,000 for marketing and outreach Colorado Attorney General's Office
Housing Investment Trust Fund April 10, 2012
The Challenge “There’s a lot to like about the ways in which the money from this national settlement will be divvied up. …. With proper administration and oversight, this money is an opportunity to make a difference. We look forward to seeing its positive effects on difficult housing problems.” Denver Post editorial March 17, 2012
Market Instability • Drop in statewide rental vacancy 9.1% to 5.6% since 2009 • Ft Collins and Greeley annual rent increases of 9% and 7% • Colorado renter median incomes declined 9% since 2007 • Since 2007, 66,000 more households formed than units built • Two families for every one affordable unit
Measure of Success Create a $13.2 million Revolving Fund for affordable rental housing. The initial measurable outcomes are expected to be: • Leverage over $150 million in funds to finance affordable housing throughout Colorado; • Create over 750 new and rehabilitated units of affordable housing; and • Create and/or sustain 1,050 jobs in Colorado.
Uses • Acquisition • Bridge Loans • New Construction • Rehabilitation
Terms • Maximum Loan Amount $2 M • Loan term <5 years • 20% of fund/loan may be converted to long term perm debt • Interest Rate:1% - 3% • Secured by Deed of Trust • LTV = 95% • DCR = 1.05 – 1.20 • Performance
Fund Administration • The Colorado State Housing Board will review the success of Housing Investment Fund annually and report to the Attorney General. • Five years from initiation of the Housing Investment Fund and the Risk Sharing Fund, the State Housing Board will review the capitalization of the Funds and recommend reallocation based on market needs in Colorado.
Investment Strategy • Select a Fund Manager to invest Fund balance to maximize return • Set a Five Year growth target for the Fund’s principal of 20%
Comments: April 23 It is critical to receive comments on the proposed Investment Fund or other proposals • Should the Housing Investment Funds be: • Invested as proposed, or • Invested as longer term debt • ULI will provide support for DOH in evaluating proposals.
Submission of Comments Format for Comments • Narrative (Case Study) • Numbers (Pro forma) • Examples of Feasibility and Infeasibility Send to firstname.lastname@example.org
Credits Available for Loan Modifications and Alternatives to Foreclosure $17.0 Billion Fund / $32.2 Billion Estimated Value $73.3 Million Estimate Value in Colorado Available to reduce loan balances to facilitate an affordable loan modification • Requires 10% payment reduction and a reduction down to 120% LTV • Requires a similar modification of the 2nd lien if the second his held by a servicers participating in the settlement • Available on portfolio loans held by participating servicers • Does not apply to Freddie Mac and Fannie Mae loans Will use these principal reductions in conjunction with other modification programs to create an affordable modification: • HAMP / 2MP • Proprietary Modifications • Servicers will combine the traditional modification programs with principal reductions to get to 31% HDTI / 55% total DTI Colorado Attorney General's Office
Refinancing Benefit Available under the Settlement $3.0 Billion Fund $46.3 Million Estimated Value in Colorado • Refinancing offered to borrowers who are current on their loans but are underwater on their loans • These borrowers have been unable to take advantage of the historically low interest rates that are currently available Colorado Attorney General's Office
When will the Supplemental Colorado Assistance Programs Come into Play? Borrower must be denied a modification under these programs before the Colorado supplemental modification assistance programs are triggered Common reasons for denial: Borrower #1: Loan owned by an investor that does not allow principal reductions (Freddie & Fannie). Borrower #2: Income is too great (DTI is lower than 31%). But the borrower still has an arrearage. Borrower #3: Income is insufficient (No amount of principal reduction will result in an affordable modification). Colorado Attorney General's Office
Colorado’s Supplemental Assistance Programs Supplemental Modification Assistance Programs will come into play to help borrowers #1 and #2 Borrower #3 generally lacks sufficient income to qualify for an affordable modification • Supplemental Programs generally available to save the home. They would not qualify for supplemental programs. • Foreclosure alternatives are available under the settlement: • Deficiency waivers • Short Sales • Enhanced Cash-for-Keys Payments Colorado Attorney General's Office
$24 Million Supplemental Loan Modification Assistance Fluid Between Programs Supplemental Mortgage Insurance/Collateral Support Program Delinquent Payment Assistance Program Modification Assistance Program Borrowers at Risk of Imminent Default Underwater, Current Borrowers No program available for borrowers who ultimately can’t afford their home based on current financial situation.
$24 million For Coloradans • Fluid pool of funds between programs to address highest demand • All programs limited to first mortgages and owner occupied principal residences • All assistance other than Collateral Support will be secured liens • Administrator for one/all programs TBD • Programs will last three years or at the conclusion of the foreclosure crisis • Unused and/or recaptured funds to return to the Housing Investment Fund
Supplemental Mortgage Insurance/Collateral Support: Underwater Current Borrowers Target Audience Benefits to Borrower & Lender Guidelines
Supplemental Mortgage Insurance/Collateral Support: Underwater Current Borrowers • Have loans not owned or serviced by the five servicers from settlement • Have loans owned or serviced by the five servicers, but denied a loan modification • Have bank portfolio loans • Largest Target Audience Target Audience
Supplemental Mortgage Insurance/Collateral Support: Underwater Current Borrowers Facilitate refinance for borrowers who are current on mortgage but underwater in value Good credit risk as borrowers have made at least 12 consecutive on time payments Borrowers receive a refinance to an affordable fixed interest rate at least 2% below their current interest rate or a refinance from an ARM to a fixed rate Benefits to Borrower
Supplemental Mortgage Insurance/Collateral Support: Underwater Current Borrowers Lender receives loan loss coverage for the lessor of actual loss or a percentage of outstanding first mortgage balance Maximum 20% coverage in first year, decreasing 5% per year for four years Property values expected to rise Stabilizes neighborhoods Benefits to Lender
Supplemental Mortgage Insurance/Collateral Support: Underwater Current Borrowers Original first mortgage balance less than $500,000 No income restrictions No LTV/CLTV; no minimum credit score unless lender has overlays Maximum 55% DTI No cash out on refinance Closing costs plus .5% administrative fee can be financed if acceptable to lender Guidelines
Supplemental Mortgage Insurance/Collateral Support: Underwater Current Borrowers • Lender performs credit underwriting • Administrator performs: • program compliance • claim processing • recapture unused funds Guidelines (con’t.)
Questions for stakeholders? • If the refinance fees and costs were capped at 3% for the lender, would this be unfair and burdensome? • If yes, what should be the limit and why? • Should there be a maximum LTV/CLTV? • If yes, what should it be?
Supplemental Mortgage Insurance/Collateral Support: Imminent Default Borrowers Imminent default: borrowers experienced a reduction in income or hardship that will prevent them from making their next mortgage payment in the month it is due No more than 60 days delinquent Same role for lender and administrator as in the Current Borrower program Target Audience
Supplemental Mortgage Insurance/Collateral Support: Imminent Default Borrowers Benefits to Borrower Benefits to Lender Guidelines
Supplemental Mortgage Insurance/Collateral Support: Imminent Default Borrowers Benefits to Borrower Provides access to modification for borrowers at risk of imminent default Lenders offer a modification with at least a 10% principal reduction or forbearance and an affordable fixed interest rate
Supplemental Mortgage Insurance/Collateral Support: Imminent Default Borrowers Lender receives loan loss coverage for the lessor of actual loss or a percentage of outstanding first mortgage balance Maximum 25% coverage in first year, decreasing 5% per year for five years Property values expected to rise Stabilizes neighborhoods Benefits to Lender
Supplemental Mortgage Insurance/Collateral Support: Imminent Default Borrowers Original first mortgage balance less than $500,000 No income restrictions No LTV/CLTV; no minimum credit score unless lender has overlays Maximum 55% DTI No cash out on refinance Closing costs plus .5% administrative fee can be financed if acceptable to lender Guidelines
Supplemental Mortgage Insurance/Collateral Support: Imminent Borrowers • Lender performs credit underwriting • Administrator performs: • program compliance • claim processing • recapture unused funds Guidelines (con’t.)
Questions for Stakeholders? • Should there be a maximum LTV/CLTV? • If yes, what should it be? • How should borrowers facing imminent default be prioritized? • Should Fannie Mae or Freddie Mac guidelines be used to determine imminent default? • Should these borrowers be required to meet with a housing counselor? • If yes, how often? • What should be the counselor compensation, if any?
Delinquent Payment Assistance Program Target Audience Guidelines
Delinquent Payment Assistance Program Limited assistance for borrowers with temporary disruption in income, unforeseen expense or hardship which caused a mortgage delinquency Situation is resolved; borrowers can afford payments, but can not cure arrearages through repayment plan Don’t need a refinance or modification to be successful homeowners; may be eligible for one in the future Target Audience
Delinquent Payment Assistance Program Original first mortgage balance less than $500,000, owner occupied, principal residence Hardship: job loss/reduction in income; divorce; death; disability; unforeseen necessary expense Hardship resolved and unlikely to reoccur Delinquency must have occurred before program starts No income restrictions Guidelines
Delinquent Payment Assistance Program No LTV/CLTV No minimum credit score but credit will be reviewed 31/55 Ratios Owner occupied; principal residence Administrator performs a comprehensive credit review and ensures program compliance $250 administrative fee charged to borrower Guidelines (con’t.)
Delinquent Payment Assistance Program Borrowers must meet with a housing counselor to determine eligibility If borrower is delinquent on taxes and/or insurance, lender must establish escrow account Guidelines (con’t.)
Delinquent Payment Assistance Program • Program funds can be used for: • Up to two months delinquent mortgage payments (PITI) • Delinquent property taxes, HOA, hazard insurance up to $3000 maximum • Any third party fees owed to the lender • Lender late fees must be waived Guidelines (con’t.)
Delinquent Payment Assistance Program Funds advanced under the program are a secured 0% interest loan Due on sale, transfer or no longer the borrower’s primary residence No specific lien position Loan can not be subordinated Borrowers can only access this program once Guidelines (con’t.)
Questions for Stakeholders? • Is $250 adequate compensation for the administrator? • Should the program be expanded to assist borrowers who are three months delinquent and/or have been denied a loan modification? • Should there be additional/different guidelines? • What, if any, should be the compensation to the housing counselor for determining eligibility?
Modification Assistance Program Target Audience Guidelines
Modification Assistance Program Provide principal reductions or funds to repay allowable fees and costs to enable borrowers to qualify for modifications with existing lender Eligible Borrowers as defined by CRS 38-38-801 who are in Foreclosure Deferment Period Target Audience
Modification Assistance Program Original first mortgage balance less than $500,000; 12 months seasoning Owner occupied, principal residence Borrowers must meet all guidelines as outlined in CRS 38-38-805 No income restrictions No minimum credit score Ratios 31/55 Guidelines
Modification Assistance Program No state or federal tax liens Must be current on real estate taxes, hazard insurance & HOA, or use funds to bring current $500 administrative fee Up to $25,000 for principal reduction, interest, third party fees, delinquent taxes, delinquent HOAs, administrative fee Secured with subordinate 0% deferred, due on sale, transfer, refinance or no longer principal residence Loan can not be subordinated Guidelines (con’t)
Delinquent Payment Assistance Program Borrowers prohibited from obtaining new secured debt against property Housing counselors make foreclosure deferment eligibility Housing counseling support required for 12 months Administrator responsible for coordination with lender, housing counselor, compliance review & decision Guidelines (con’t)
How do we get assistance to borrowers before the foreclosure sale? Borrower Population: In Deferment under Colorado’s Foreclosure Deferment Act (§ 38-38-801, CRS) Foreclosure filed – Deferment commences (90 days) • During this period of time the borrower is considered for a modification • Modification denied – Deferment period ends Foreclosure resumes – Sale could occur shortly after deferment • Sequencing of the supplemental assistance programs is a greater concern here. • Substantial interaction with servicers to cure or negotiate a modification using supplemental programs • How do we process modifications under the supplemental programs during this period of time without running into the risk of going to sale? Colorado Attorney General's Office
Identifying Borrowers Before Foreclosure who may be Eligible • Borrower #2 is generally going to get assistance before foreclosure. • Borrower #1 is going to be identified in through the Foreclosure Deferment Program • How can we identify both types of borrowers before foreclosure? • Sequence of considering the supplemental Colorado programs. • To prevent wrongful foreclosure, these programs should be considered in conjunction with all other loan modification programs? • Colorado’s supplemental programs should be a last resort after all other modification programs have been exhausted. Colorado Attorney General's Office