Articles Posted in Modifications

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Are you looking to buy a house now?  Waiting could cost you as inflationary pressures will likely cause your dollar to decline.  Moreover, interest rates will begin to rise in 2022 – 2023 as the Fed begins to normalize the interest rate.  If you have student loan debt that has prevented you in the past from buying a home, keep reading…

In light of this, mortgages and refinances are a very popular topic now — especially among those with student loan debt.  One big hang up was just resolved.  Previously, a mortgage lender had to use 1% of the outstanding loan balance, even when a borrower was in IDR and the monthly payment reported on the Borrower’s credit report was zero.

We would suggest a temporary fix:  the borrower would exit IDR for a month or two where the payment may have been zero, make a fixed standard or extended payment, apply for the mortgage and after approval, get back into the IDR.  This wasn’t the best fix; however, as it unnecessarily caused a student loan borrower to have the loan capitalize the unpaid interest.  But it did let someone buy a house who otherwise could not.

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The CFPB stated today “[w]e are at really an unusual point in history.  I don’t think anybody has ever before seen this many mortgages in forbearance at one time that are expected to exit forbearance all at one time.”

No kidding.  This may be the calm before the storm type of thing if mortgage servicers don’t get it right when all these forbearances end.

Living in Florida sometimes it seems like the pandemic is firmly in our rearview. While we are still working from home, it’s mostly because we want to be part of the solution, and can get our work done with our cloud server.  But people are out and about pretty regularly now.

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ABIToday the American Bar Institute (ABI) Consumer Bankruptcy Committee presented an excellent webinar about the new bankruptcy bill pending in the House.  Basically, the House would eliminate the existing Chapter 7 and 13, and replace them with a new Chapter 10 under the Consumer Bankruptcy Reform Act of 2020.

While this is a major overhaul and expectations are low that it would pass as is, there is a good possibility that many of the points within may be included in various stimulus bills and are important to note for the future.  I am not expressing an opinion for or against any of these items.  I’ve included a short summary below:

The first goal was to streamline the process and make it cheaper:

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Hurricane Irma has caused an interruption in income for many people in Florida and elsewhere.  This information may be helpful for those who cannot make their mortgage or student loan payment when due:

For those in a rehab agreement on federal student loans to avoid wage garnishment:

Payments to Rehabilitate Defaulted Loans (§674.39).  During the time a borrower is affected by a disaster, an institution should not treat any scheduled payment the borrower fails to make as a missed payment in the stream of nine on-time, consecutive, monthly payments required for the borrower to rehabilitate the defaulted loan.  When the borrower is no longer affected by the disaster, the required sequence of qualifying payments may resume at the point at which it was discontinued.

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ch-13-bkWith the property market continuing to improve in Florida, we are seeing more lenders delay and place obstacles in front of borrowers trying to modify their home mortgage in an effort to keep their homes.  There are certain court rules and CFPB rules regarding modification that an attorney may be able to help ensure that the lender properly reviews a loan mod package.  When that fails, an appeal or online complaint to the CFPB may help.  When that fails, a very good way to make a lender accept your mortgage payments, is to file a Chapter 13.

First there is a modification process available in many bankruptcy courts, including the Middle District Tampa Division that works pretty well.  There is a good faith requirement that does not exist in state court.  So some mods that may be denied outside of court, or in the state court, may actually be approved in a Chapter 13.

A relatively foolproof way to keep a home is also to use a Chapter 13 plan to catch up on the missed payments.  This may be really good for a borrower who had a prior loan modification (with principal reduction) that they fell behind.  A Chapter 13 should be able to revive the terms of the favorable loan mod.  The catch is that the total arrearage (missed payments, and any foreclosure fees/costs) must be paid within no more than five years, while at the same time the regular monthly payment is also made.  A mortgage company cannot object to a plan like this that provides “adequate protection” to the lender.  Many people cannot afford this, but an easy way to see if you can is to check your last mortgage statement for the balance due (not the principal amount).  If it says $20,000, then divide $20,000 by 60 months which is $333.  So if your mortgage payment is $1,500, you would add $333 to catch up and another 10% for the trustee’s fee for a monthly total of $1,983.  If you can afford this, then your mortgage company must accept it — even though they may really want to foreclose.

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loan modOne item not getting a lot of press but it probably should is the expiration of the Treasury Department’s Making Homes Affordable MHA HAMP program on December 30, 2016.  More info can be found here.  The good news is that the deadline won’t cancel any pending mod applications.

The general deadline for HAMP is that a borrower must submit an initial application by Dec. 30; and then the mod effective date must be by Sept. 1, 2017 (which means the trial plan would have to start no later than June 2017, if you work backwards – so it will be important to keep the pressure on servicers to get those applications completed and evaluated timely).

For Streamline HAMPs, the borrower is not required to submit an initial package, however, the modification effective date must be on or before December 1, 2017 (includes all of next year).  Notwithstanding the foregoing, to be considered for a Streamline HAMP Offer after December 30, 2016, the borrower must have submitted at least one component of a Loss Mitigation Application on or before December 30, 2016 for which the servicer has not sent a Non-Approval Notice.  The Modification Effective Date of the loan must be on or before December 1, 2017.  Evidence of borrower submission must be provided by postmark or other independent indicator such as date and time stamp (electronic or otherwise).

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mortgage lenders
Consumer debtors routinely have various related difficulties with mortgages following the filing of a Chapter 7 bankruptcy.  Unfortunately, the first thought is that the bankruptcy attorney messed up when that really is not the case.  They think the attorney put the home into the bankruptcy when it was meant to be left out.  However, all debt and assets must be listed and included for disclosure purpose in a bankruptcy.  Debtors who want to keep their home, have a choice to reaffirm the debt by signing a Reaffirmation Agreement or by simply continuing to make monthly payments.  In most cases, it is advantageous for a debtor not to reaffirm a mortgage debt, but rather just continue to maintain payments, particularly when the home is under water and no equity exists in the property.  If they reaffirmed the debt and eventually had to give up the house because they moved to take another job for instance, they would be back on the hook for the mortgage debt.

So what kind of problems come up when a debtor does not formally reaffirm the debt in bankruptcy, but their intention is to keep the property and continue making payments:

  • Whether or not a reaffirmation of a mortgage is required
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We are still doing loan mods for our clients – three alone this week – one in a Chapter 13 bankruptcy and two outside of bankruptcy.  One has the docs to sign, another was presented with options including a principal reduction, and the other should be finished with underwriting and accepted in less than 30 days.

The June 2015 MHA Handbook Ver.4.5, revised on January 6, 2015 to Ver. 5.0, covers some of the procedures to be followed for borrowers who have filed bankruptcy and are seeking a loan mod to keep their home:

8.5 Borrower in Bankruptcy Borrowers who are currently in a TPP and subsequently file for bankruptcy may not be denied a permanent modification on the basis of the bankruptcy filing. The servicer and its counsel must work with the borrower or borrower’s counsel to obtain any court and/or trustee approvals required in accordance with local court rules and procedures. Servicers should extend the TPP as necessary to accommodate delays in obtaining court approvals or receiving a full remittance of the borrower’s trial period payments when they are made to a trustee, but they are not required to extend the trial period beyond two months, resulting in a total five-month trial period. In the event of a trial period extension, the borrower shall make a trial period payment for each month of the trial period including any extension month.

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Green Tree to Pay $48 Million in Borrower Restitution and $15 Million Fine for Servicing Failures. See this announcement from the CFPB and the Federal Trade Commission.

Locally in Tampa Bay, Florida this is resulting in Greentree seeking continuances for all trials – including one this morning on behalf of one of our clients – to make sure that they are in compliance with this order. Perfect timing, because our client just submitted her loan modification paperwork in an effort to keep her home after her divorce.

I thought it would be useful to post what exactly are some of the mortgage servicing requirements by the new RESPA rules:

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FHFA-principal-reduction-hp-4_11_12.jpgFannie Mae and Freddie Mac’s position is that they will not agree to a principal reduction in a mortgage modification. So our Florida foreclosure defense and bankruptcy clients are out of luck when their home is worth a lot less than the balance owed. This is their position even after a homeowner has filed bankrutpcy and is no longer personally liable for the underlying debt.

However, a new Director may be appointed to head the FHA soon. And if that happens, principal reductions may soon follow. The nominee, Mel Watts, is presently a member of the House of Representatives. While it is not certain that he would permit principal writedowns, it is something that at least is under consideration. HUD Secretary, Shaun Donovan is asking that bankers support Mr. Watts as FHA Director and to begin the process of winding down Fannie and Freddie. Fannie and Freddie have been responsible for more the 90% of the home mortgage market since the mortgage meltdown.

The current FHA director, Edward DeMarco, is against permitting principal writedowns for GSEs for any loan modifications.

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