Truth in Foreclosure

Check out other Second Mortgage Modification posts

Servicers must follow the following standard modification steps to modify the second lien.

Step 1: Capitalization

Capitalize accrued interest and servicing advances (costs and expenses incurred in performing second lien servicing obligations, such as those related to preservation and protection of the security property and the enforcement of the mortgage) paid to third parties in the ordinary course of business and not retained by the servicer, if allowed by applicable state law. Accrued interest may be waived or deferred at the discretion of the servicer. The servicer should capitalize only those third party delinquency fees that are reasonable and necessary. Fees permitted by Fannie Mae and Freddie Mac for GSE mortgage loans shall be considered evidence of fees that would be reasonable for non-GSE mortgage loans. Late fees and other ancillary income fees (e.g., insufficient funds fees, over limit fees and annual fees) may not be capitalized and must be waived.

Step 2: Reduce Interest Rate

2.A: For amortizing second liens (payment of both principal and interest): Reduce the interest rate of the second lien to 1.0 percent. After five years, the interest rate on the second lien will reset at the then-current interest rate on the HAMP-modified first lien. If applicable, following the initial interest rate reset, the interest rate of the modified second lien will reset on the same terms and schedule as the interest rate of the HAMP-modified first lien.

Example: The Interest Rate Cap on the modified first lien is 6.5%. The interest rate on the modified first lien is fixed at 5.0% for the first five years and then increases by 1.0% in year six to 6.0%, and by 0.5% in year seven to 6.5%. Thereafter, the interest rate remains at 6.5% for the remaining term of the first lien. Accordingly, the interest rate of the modified second lien will be fixed at 1.0% for the first five years and then increase by 5.0% in year six to 6.0%, and by 0.5% in year seven to 6.5%.

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Second Lien Modification Program

Back in August, the Treasury Department introduced the Second Lien Modification Program (referred to as 2MP), a program designed to work in tandem with HAMP. Together, HAMP and 2MP create a comprehensive solution to help achieve greater affordability by lowering payments on both first and second mortgages loans.

Under 2MP, when your first lien is modified under HAMP and the servicer of the second lien is a 2MP participant, that servicer must offer either to modify your second lien according to a defined protocol or to accept a lump sum payment from Treasury in exchange for full extinguishment of the second lien.

The 2MP offer will be made in reliance on the financial information you give your lender in conjunction with your HAMP modification and without additional evaluation by the second lien servicer.

This article discusses implementation of 2MP for second liens not owned or guaranteed by Fannie Mae or Freddie Mac (Non-GSE Second Liens). Servicers of second liens that are owned or guaranteed by Fannie Mae or Freddie Mac should contact their servicer for more information.

Is My Loan eligible?

1. Only second liens with corresponding first liens that have been modified under HAMP are eligible for a modification or extinguishment under 2MP.
2. Second liens originated on or before January 1, 2009 are eligible for a modification or extinguishment under 2MP.
3. Only second liens with an unpaid principal balance (at initial consideration for the second lien modification) equal to or greater than $5,000 are eligible for modification incentive or cost share payments under 2MP. There are no unpaid principal balance limitations for investor incentive payments in conjunction with extinguishment of second liens under 2MP.
4. A second lien may be modified only once under 2MP.
5. A mortgage loan that is subordinate to a second lien is ineligible under 2MP. Modification or extinguishment of such a subordinate mortgage loan in place of the second lien will not satisfy the servicer’s obligation under 2MP to modify or extinguish the second lien.
6. If a second lien is modified under 2MP, it is not eligible for payment of extinguishment incentives under 2MP.
7. A home equity loan that is in first lien position is not eligible under 2MP and should be evaluated for modification under HAMP.
8. A mortgage lien that would be in second lien position but for a tax lien, a mechanic’s lien or other non-mortgage related lien that has priority is eligible under 2MP.
9. A second lien on which no interest is charged and no payments are due until the first lien is paid in full (e.g., FHA partial claim liens and/or equity appreciation loans) is not eligible under 2MP.
10. Borrowers may be accepted into the program if a fully executed 2MP modification agreement or trial period plan is in the servicer’s possession on December 31, 2012.

Coordination with Other MHA Programs

To ensure alignment of all programs within the Making Home Affordable Program, participating servicers in 2MP must re-subordinate junior liens within their servicing portfolio to facilitate the modification of a first lien under HAMP or the refinance of a mortgage loan under the Home Affordable Refinance Program.

What Next?

Come back tomorrow for our follow-up post:  The Standard Second Mortgage Modification Process

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Please see our first article on President Obama’s HFA Hardest Hit Fund.

The Obama Administration released the next steps in the recently-announced Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets (“HFA Hardest-Hit Fund”).

On February 19, 2010, President Obama announced additional funding for innovative measures to help families in the states that have been hit the hardest by the aftermath of the burst of the housing bubble. States where house prices have fallen more than 20% from their peak are eligible for this funding. Those states are Nevada, California, Florida, Arizona and Michigan. The HFA Hardest-Hit Fund will help housing finance agencies (“HFAs”) in these states further respond to the most pressing problems in their communities. HFAs have an understanding of the most urgent local challenges and an ability to address them expeditiously. For that reason, the Obama Administration has committed $1.5 billion in funding under the Emergency Economic Stabilization Act of 2008 (“EESA”) to help HFAs expand their assistance to struggling homeowners and innovate new ways to address housing challenges.                                                                                                                  picture by Alex E. Proimos

The Administration released detailed guidance for eligible HFAs to submit program proposals for funding. The HFA Hardest-Hit Fund is designed to allow the maximum possible flexibility to eligible HFAs in designing programs that are tailored to the needs of their state. Today’s guidance provides instruction to HFAs to ensure that program proposals meet basic guidelines and comply with the purposes of EESA. All programs must protect home values, preserve homeownership, promote jobs and economic growth, and provide accountability to the public.

Funding allocations were also released today based on a formula to provide relief in direct proportion to the scale of each state’s housing challenges. Funds have been allocated based on home price declines, unemployment rates, and mortgage delinquencies.

Eligible HFAs may submit program proposals to the Department of the Treasury up to the April 16th deadline, after which the review period will begin. Treasury will provide additional updates to the public as the program progresses.

What are HFAs and what do they do?

Housing Finance Agencies or HFAs are agencies or authorities created by state law that are charged with helping persons and families of low or moderate income attain affordable housing.  Combined, State HFAs typically fund about 100,000 mortgages a year.

What methodology was used to determine allocations?

The HFA Hardest-Hit Fund will be allocated based on home price declines and unemployment. For this simple formula, each state’s allocation was determined by first adding two ratios: (i) the ratio of its unemployment rate to the highest unemployment rate in any state and (ii) the ratio of its price decline to the largest price decline in any state. This sum is used to scale the number of delinquent loans in each state. HFA funds are allocated among the states based on this weighted share of delinquent borrowers.

What will the HFAs do with this funding?

This is not meant to be an exhaustive list of acceptable transactions and other innovative ideas and transaction types (including innovations related to the Making Home Affordable Program) will be evaluated on a case-by-case basis for compliance with EESA.

1. Mortgage Modifications – Programs may provide for mortgage modification of loans held by HFAs or other financial institutions or provide incentives for servicers / investors to modify loans.
2. Mortgage Modifications with Principal Forbearance – Programs may provide for paying down all or a portion of an overleveraged loan and taking back a note from the borrower for that amount in order to facilitate additional modifications.
3. Short Sales / Deeds-In-Lieu of Foreclosure – Programs may provide for assistance with short sales and deeds-in-lieu of foreclosure in order to prevent avoidable foreclosures.
4. Principal Reduction Programs for Borrowers with Severe Negative Equity – Programs may provide incentives for financial institutions to write-down a portion of unpaid principal balance for homeowners with severe negative equity.
5. Unemployment Programs – Programs may provide for assistance to unemployed borrowers to help them avoid preventable foreclosures.
6. Second Lien Reductions – Programs may provide incentives to reduce or modify second liens.

For programs designed to help individual homeowners, programs should be limited to residences with unpaid principal balances equal to or less than the current GSE conforming limit of up to $729,750 (higher limits are allowable for two to four unit dwellings). HFAs may further target low and moderate income borrowers as required by the enabling state legislation for the applicable HFA.

When will HFAs begin to utilize funding?

Proposals are due from HFAs by April 16, 2010. Treasury will then review each proposal for compliance with program objectives and EESA requirements. Treasury expects that HFAs may be in the position to begin drawing down funds within four to six weeks following submission of proposals.

For More Info

Much of this was taken from the HFA Hardest-Hit Fund FAQ.

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Have you been offered a trial plan from your lender through HAMP? Did you complete all your trial plan payments but now your lender isn’t doing what you thought they agreed to do?

What options do you have? Can you make them perform?

The answer is a big, fat MAYBE.

I got this from an ActiveRain blog post by Steve Vondran, Esq. He is a Real Estate Attorney licensed to practice law in Arizona (serving greater Phoenix) and California (Serving most areas of California). He currently practices foreclosure defense and predatory lending law. If you have more questions, please go to the article and then contact an attorney.

Disclosure: I am not a lawyer so you should seek competent legal advice if you believe any of these conditions apply to your situation. I have no business or personal connections to Mr. Vondran or his practice and am not recommending that you use his services.

You need to understand a few legal terms if you’re thinking about taking your lender to court.

1. Fraud / Negligent Misrepresentation:

The elements of fraud are: (1) misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of falsity; (3) intent to defraud, i.e., to induce reliance; (4) justifiable reliance; and (5) resulting damages. Lazar v. Superior Court, 12 Cal. 4th 631, 638, 49 Cal. Rptr. 2d 377 (1996).

The elements of negligent misrepresentation are: (1) the misrepresentation of a past or existing material fact; (2) without reasonable ground for believing it to be true; (3) with intent to induce another’s reliance on the fact misrepresented; (4) justifiable reliance on the misrepresentation; and (5) resulting damages. Id.; see also Alliance Mortgage Co. v. Rothwell, 10 Cal. 4th 1226, 1239, fn. 4, 44 Cal. Rptr. 2d 352 (1995) (negligent misrepresentation is a species of the tort of deceit and like fraud, requires a misrepresentation, justifiable reliance, and damages).

2. Fraudulent Inducement:

This is a claim which is like a hybrid claim of breach of contract and tort. The essence of the claim is that the defendant fraudulently induced a party to enter into a contract.

This cause of action generally requires knowing and intentional false statements of material fact (a material factual omission may not be sufficient but should be explored) which reasonably induce a homeowner to rely on the statements, and which false statements were relied upon to their detriment.

Where this action lies, the Courts may allow specific performance of the contract as a remedy and where fraud is clearly shown, punitive damages may be available.

3. Breach of Covenant of Good Faith and Fair Dealing

Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.” Carma Developers, Inc. v. Marathon Dev. Cal., Inc., 2 Cal.4th 342, 371, 6 Cal.Rptr.2d 467, 826 P.2d 710 (1992) (quoting Restatement (Second) of Contracts § 205). “The covenant of good faith finds particular application in situations where one party is invested with a discretionary power affecting the rights of another. Such power must be exercised in good faith. See Marsu, B.V. v. Walt Disney Co., 185 F.3d 932, C.A.9 (Cal.),1999.

The Cause of action for tortious breach of implied covenant of good faith and fair dealing exists if special relationship between parties is characterized by elements of public interest, adhesion, and fiduciary responsibility. Kittredge Sports Co. v. Superior Court, 213 Cal.App.3d 1045, 261 Cal.Rptr. 857

These are the most likely legal grounds (in my opinion) that you could file on. There are other (California specific) arguments listed in the ActiveRain article including:

1. Violation of California Civil Code Section 17200
2. Violation of California Consumer Legal remedies Act (Cal Civ. Code Section 1770 et seq.)

So What Can You Do?

If:

1. You were given a trial plan loan modification offer, agreement, or other documents, and you made payments under the trial plan as agreed
2. No material representations you made pursuant to the agreement have changed during the period of the contract, AND
3. If the lender or loan servicer refused to follow through with the trial plan, said you don’t qualify for a loan modification, or sold you house from underneath you,

You may need to see a real estate, predatory lending, and/or foreclosure attorney to review whether or not you have a valid legal case to assert for either specific performance of the contract, or potentially money damages, including potentially punitive damages.

More Info

Attorney Steve Vondran can be reached at steve@vondranlaw.com or toll free at (877) 276-5084. Information about trial plan fraud can be found at www.TrialPlanFraud.com

You can also contact your local HUD office/counselor for a referral or check out the free referral service on the National Association of Consumer Advocates web site.

You might also want to check out this article from a couple weeks ago on the Consumer Warning Network blog: Lawsuit Filed to Shake-Up Loan Modification Limbo.

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There’s been a lot of reports in the news and on foreclosure websites about the Produce the Note campaign. There’ve been a few landmark cases where homeowners have been able to get their homes awarded to them by the court (and the mortgage nullified) because their lender couldn’t produce the actual deed of trust promissory note that proved they owned the mortgage.

photo by woodleywonderworks

This is because most mortgages nowadays name Mortgage Electronic Registration Systems, Inc. (MERS) as the beneficiary of the deed of trust or promissory note rather than the lender you actually go the loan from.

The reason they list MERS rather than a lender is so the lender can sell your loan to another lender or pool it together with other loans without having to get you to sign a new deed of trust.

According to the OptionARM Lawyer Blog, there was a recent California court ruling on a case where the homeowner’s sole defense was that the lender couldn’t produce the note. Here’s a synopsis of what happened. If you’d like to read the whole article and his opinion on what it means, go here.

The court ruled that there is no requirement anyone produce the original promissory note as a pre-requisite to pursuing a private trustee sale.

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It is well-established that non-judicial foreclosures can be commenced without producing the original promissory note.

So what’s this mean for you, as a homeowner trying to stop foreclosure? Especially if you’re not in California? Here’s Steve Vondran’s (the OptionARM Lawyer) opinion:

The court cited a few other cases that resulted in the same outcome for plaintiffs asserting the “produce the note” foreclosure defense strategy (obviously in an attempt to tell future litigants in California “give up trying to verify anyone’s credentials”).

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Do not rely on “produce the note” as a silver bullet foreclosure defense that is going to stop your foreclosure with an injunction and get your house for free. If there are glaring irregularities and other legal grounds to get you into court validly, then you may want to tag on this claim and see if you can get a different outcome from a different judge. But suffice it to say as a stand-alone legal theory, there is simply not much teeth to it.

Most of the cases where you hear of some success come from Florida and Ohio and other “judicial foreclosure” states where the lender is forced to file in court to start the foreclosure process. In these cases, the issue becomes a question of “standing” and “real party in interest.” There is also the bankruptcy angle that we will be exploring in greater detail in future posts.

So what do you think? Is the “Produce the Note” campaign dead…or dying?

Have you tried it to save your home? If so, what happened?

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We all know the problems HUD and HOPE Now have had when it comes to helping homeowners save their homes.  It seems there are never enough counselors and often times they don’t know what they’re talking about if you do talk to one.

But as the President’s programs have matured, HUD and HOPE Now have also matured and brought in more help.  And now they’re getting special access directly to the same system servicers use to submit and review Homeowner Affordability Modification Program (HAMP) applications

According to DSNews.com,

HOPE NOW, an industry-created alliance of mortgage servicers, investors, counselors, and other mortgage market participants, recently announced that it has expanded the HOPE LoanPort through its housing counselor partners in 25 states and more than 100 cities.

HOPE LoanPort gives HUD-approved counselors the ability to submit completed Home Affordable Modification Program (HAMP) applications directly to a homeowner’s servicer, and the Web portal allows counselors to track the status of the application in order to provide borrowers with more timely decisions.

As part of this expansion, Home Free USA has signed 32 affiliates, and NeighborWorks America has participation

commitments from five of its affiliates. In addition, Consumer Credit Counseling Services (CCCS) of Atlanta, with 30 offices in four states in the Southeast, and CCCS of Dallas, wish 21 offices in three states in the Southwest, will also participate in helping homeowners through the HOPE LoanPort.

What’s It Mean for You?

The HOPE LoanPort program should be good for both you and your servicer.

You get someone local you can talk to that knows what’s going on and can help you understand what’s going on and make sure you’ve done everything you can do to keep your home.

Your lenders gets someone to take their most labor-intensive job off their hands…collecting and packaging all of your information for submission.  when you servicer gets your package from the LoanPort program, they’ll know everything is in it and they can start processing it right away.

So hopefully, this is good news…if you can get in touch with an informed HUD-approved counselor.

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Several new proposals have made their way to the President to help you save your home from foreclosure.  These are all proposals, but some of them will probably make it to law…only question is how long before they do.

And then how long will it take your lender to figure out how they’re going to implement them.  And will they have already foreclosed on you by then…

HAMP Stats

As of the end of January, 116,297 troubled mortgages had been permanently modified under HAMP. About 830,000 more were in the trial phase of the program.

So all together, a little less than 1 million of the 3 to 4 million homeowners that the President’s plan was meant to help have been helped.  And we’re almost a year into it.

30 Day HAMP Appeal Period

If you lender turns down your application for a HAMP mod, this proposal would give you a 30 day period to appeal the decision before they could begin foreclosure procedures to get you out of your home.

In addition, lenders would have to prove that they have made multiple attempts to contact you both by phone and written notices, and would require them to consider HAMP applications even if you have already filed for bankruptcy.

Revising Net Present Value Calculations

The administration is also considering revising HAMP’s net present value (NPV) model in order to incorporate more principal writedowns into the equation. The NPV test is applied to determine if the mortgage owner can recoup more money by restructuring the loan or by foreclosing.

Foreclosures Take 12 Months on Average

Lenders have expressed concern the proposed requirements would prolong foreclosure delays beyond the current 12 month timeline it typically takes to resolve the loans that don’t qualify for a modification.

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I’ve been asked many times what you should do if you have irregular income and you’re applying for a loan modification.  How should you report it in the forms to accurately reflect your situation.

In the end, the decision of how to handle irregular or non-standard income in a HAMP mod is up to the lender and their business rules.

However, the HAMP program did put out this guidance to give lenders somewhere to start and let them know what the intent of the HAMP is.

Lenders could:

• use the current income documentation when there is a discrepancy between tax returns and current income documentation if the borrower has changed jobs or has had a substantial pay cut;
• use the information from the tax transcript obtained via form 4506-T when differences exist between the transcript and the tax return provided by the borrower;
  
• when Schedule E is not available to document rental income because property was not previously rented, accept a current lease agreement and bank statements or cancelled rent checks; and
• when two paystubs indicate different periodic income, use year-to-date earnings to determine the average periodic income.

But What About Tips or Other Cash-based Income?

Honestly, it’s up to your lender how they want to handle income that you can’t prove through a W-2, a pay stub, or some other ‘official’ means.

As you know, this can be real trouble because it’s likely that if you’re paid much of your income in cash, you probably didn’t claim it all and your employer had no real way to track it either.  The best you could hope for is if you deposited the money into your bank account on a regular basis…you could explain that and they could see it on your statements.

But that’s probably unrealistic too…most people that get paid in cash use that cash to buy groceries or pay a bill without depositing it in the bank.

Maybe you could go back through your bills for the past year and figure out the difference between how much you paid in bills and how much income you can prove?

It’s possible (not sure how likely) that your lender could accept this as well.

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From DSNews.com

President Obama and his administration are floating an idea to prohibit lenders from foreclosing on a home unless the borrower has been considered for the government’s Home Affordable Modification Program (HAMP).

The proposal would require servicers to initiate contact with all borrowers who are 60 or more days behind on their mortgage payments and offer them access to the federal modification program.

Only after the homeowner has been screened under the HAMP guidelines and it is determined that the loan cannot be saved, could foreclosure proceedings commence. The proposal would also halt any foreclosures already in process once a borrower has been accepted into the trial phase of the program.

So What’s This Mean?

Well first of all, it’s just a proposal, so it doesn’t mean anything yet.

It’s just one of the things the President and his advisers are considering to try to address the “failed” Home Affordable Modification Program.  The proposal was reviewed by lenders during a teleconference last week.

In addition to preventing new foreclosures, the plan would also require lenders to stop foreclosure proceedings once you enter into the HAMP trial period.  They’re not currently required to do that!  Right now, the processes can run concurrently so it’s possible (although fairly unlikely) that you could have your house sold at auction while you’re in the trial period…crazy, huh?

To be “somewhat” fair, though, there are plenty of lenders that already consider you for HAMP before they begin the foreclosure process…so it won’t be a change for them.

According to Bloomberg.com,

The Treasury proposal would require all borrowers who are 60 or more days delinquent on their mortgage to be sought out for participation in HAMP. Mortgage companies would need to try to contact the borrower at least four times by phone and twice by certified mail over 30 or more days before going to foreclosure.

Would It Help or Just Delay the Inevitable?

Of course, there are many opinions on whether a foreclosure ban would actually help or not.  And there are plenty of Republicans saying this is just a publicity stunt to try to revive the failed HAMP.

There are basically two ways you can look at this from my point of view:

1. If you assume that the lenders aren’t doing anywhere near what they could be doing to try to modify mortgages, then this could help.  The proposal would make them incapable of selling the home at a foreclosure sale until it has been appropriately considered under HAMP.
2. If you think the lenders (in most cases) are evaluating cases and the reason more loans haven’t been modified is because it makes not financial sense to modify them, then this won’t help.  It will just delay the inevitable.

Now…the truth is probably in the middle somewhere.  Just like with everything else concerning foreclosure.  When you ask whether it would help you and your family or not, you wind up with a big, fat “It Depends.”

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This is from the official Making Home Affordable YouTube channel.  It’s one of their most recent videos.  What do you think?

Making Home Affordable Resources

If you’re looking for more resources and information about the Making Home Affordable programs, the best place to go is to their website…or their YouTube channel.

Mortgage Modification Evaluator
Use this tool to determine if you may be eligible for the Home Affordable Modification. Simply enter your current monthly gross income. The tool will calculate a mortgage payment guideline amount. If your current mortgage payment is above this amount and you meet the other Home Affordable Modification guidelines, then you may be eligible.

Making Home Affordable FAQs for Borrowers
List of FAQs for (1) refinancing mortgage loans through the Home Affordable Refinance Program (HARP), (2) modifying first and second mortgage loans through the Home Affordable Modification Program (HAMP) and the Second Lien Modification Program (2MP) and (3) offering other alternatives to foreclosure through the Home Affordable Foreclosure Alternatives Program (HAFA).

Is Your Mortgage a Fannie Mae or Freddie Mac Mortgage?
If your mortgage loan is owned by Fannie Mae or Freddie Mac, you may be eligible for a Home Affordable Refinance to take advantage of lower interest rates. Only loans owned or guaranteed by Fannie Mae or Freddie Mac are eligible. Your mortgage company can tell you who owns your loan, or you can contact Fannie Mae and Freddie Mac directly.

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