1. Foreclosure Mediation Program

2. Mortgage Foreclosure Filings in Cook County
,705
,228
,450
,815
,632
,494
,248
,651
,876
,049

3. Mortgage Foreclosure Filings in Cook County
2010
Estimated foreclosure case filings: 48,000 – 52,000
60,766 mortgage foreclosure cases were pending as of March 31, 2010

4. Chicago Volunteer Legal Services “CVLS”
Funded in 1964
Largest, non-government funded
Over 2,900 volunteers
In 2009, CVLS provided free legal services to 17,427 low income people in the Chicago area

5. CVLS Contact Information
Patricia Nelson, Director of Foreclosure Mediation Program ;
Natalie Weidemier, Attorney Support Supervisor ;
Rebekah Rashidfarokhi, Staff Attorney ;
Shirley Chiu, Staff Attorney ;
Veronica Rodriguez, Foreclosure Mediation Administrator ;

6. Access to Justice Court appointed by the Chancery Division
Full legal representation for pro-se litigants
cases/year
Possible representation for foreclosure cases that do not settle in mediation

7. Default Foreclosure Timeline
January – March
Pre-Complaint: 3 missed payments
April
Complaint: Filed
Late April
Jurisdiction: Service
June
Case Mgmt Date: No Appearance filed
July
Motion for Default Judgment entered
November
Sale: No notice if default
December
Sale Confirmed: OP stayed for 30 days

8. Contested Foreclosure Timeline
January – March
Pre-Complaint: 3 missed payments
April
Complaint: Filed
Late April
Jurisdiction: Service
June
Case Mgmt Date: No Appearance filed
July
Motion for Default Judgment: Borrower appears and requests time to file Appearance & Answer. Judge grants 30 days

9. Contested Foreclosure Timeline
August
Borrower files Appearance & Answer
Late August
Borrower issues Discovery to Lender
Late April
Jurisdiction: Service
November
Lender partially responds to Discovery
December
Borrower sends 201(k) letter
January, 2011
Lender complies w/ Discovery

10. Contested Foreclosure Timeline
February
Motion for Summary Judgment: Borrower requests Briefing Schedule (28 days to Respond, 14 to Reply) and Hearing Date
May
Summary Judgment entered – sale cannot take place for 90 days
September
Sale
October
Confirmation of Sale, OP stayed for 30 days
November
Borrower must relinquish possession of property

11. Mediation Process Timeline
January – March
Pre-Complaint: 3 missed payments
April
Complaint: Filed
Late April
Jurisdiction: Service
Early May
Borrower calls Hotline on Summons, receives appt. to meet w/ HUD and CLC
Mid-May
Borrower meets w/ HUD counselor & begins loan mod process. Borrower meets w/ CLC attorney who reviews for legal defenses & assists with Appearance, Answer, Mtn Mediation

12. Mediation Process Timeline
June
Case Mgmt Date: Mediation Order entered, CVLS appointed
CVLS and Plaintiff’s attorney receive Notice of Mediation date. Date will be scheduled w/in 5 weeks of Case Management Date
CVLS volunteer (YOU) agree to accept case
July
You meet w/ client – either personally or over phone

13. Mediation Process Timeline
July
Plaintiff’s attorney to negotiate loan mod. No agreement reached
August
Mediation- case settles w/ a desired loan mod
Receive final written agreement, client executes
September
12 Week Post-Mediation Status: You are not required to attend. Plaintiff dismisses case

14. Retention Options Borrower Remains in the Property
Loan Modification
Lender modifies one or more of these terms:
- Interest Rate
- Term of the Loan
- Principal
Two types: HAMP & Non-HAMP

15. Retention Options Borrower Remains in the Property
HAMP Loan Modification
Federal program
Monthly mortgage payment no more than 31% of gross income
Modification sequence: reduce interest rate, extend term of the loan, forbear principal

16. Retention Options Borrower Remains in the Property
Forbearance
Lender agrees not to accept payments for a specified period of time
Unemployed borrowers or those experiencing a temporary, finite loss of income
UP Program

17. Retention Options Borrower Remains in the Property
Repayment
Borrower pays arrearages (missed payments, attorney’s fees, lender’s costs) over a period of time, usually 6-12 months
Borrower must make regular mortgage payment in addition to repayment amount
Unrealistic for most borrowers

18. Retention Options Borrower Remains in the Property
Chapter 13 Bankruptcy
Stays foreclosure if filed before the sale
Borrower’s debt, including mortgage arrearages, consolidated and borrower makes monthly payment to trustee
Borrower must make regular mortgage payment as well
Last alternative – negative impact on credit

19. Non-Retention Options Borrower Surrenders Possession of Property
Deed in Lieu of Foreclosure
Borrower deeds property to lender and lender agrees not to pursue personal deficiency
Why? Credit score, cannot reinstate, no equity
Why not? Cook County judges rarely grant personal deficiency judgments, less time in the property, credit still negatively impacted

20. Non-Retention Options Borrower Surrenders Possession of Property
Consent Judgment
Similar to DIL except 2nd mortgage on property
2nd mortgagee bound if proper notice & does not object
2nd mortgagee can later file a collection case based on the Note even though mortgage foreclosed

21. Non-Retention Options Borrower Surrenders Possession of Property
Short Sale
Sale price does not cover outstanding mortgage
Lender approval required
Amount forgiven IS taxable if investment property

22. Non-Retention Options Borrower Surrenders Possession of Property
Cash for Keys
DIL variation
Lender pays Borrower to timely vacate home w/out destroying property
Lender avoids incurring eviction costs

23. Non-Retention Options Borrower Surrenders Possession of Property
Exit w/ Post-Foreclosure Rental
Lenders’ inventory of foreclosed homes are increasing which may serve as an incentive to rent the property to the Borrower

24. Non-Retention Options Borrower Surrenders Possession of Property
Chapter 7 Bankruptcy
Chapter 7 will not stay the foreclosure
Chapter 7 will release Borrower from any debt, including any potential deficiency judgment

25. James Brady Legal Assistance Foundation of Metropolitan Chicago
OVERVIEW OF HAMP
James Brady
Legal Assistance Foundation of Metropolitan Chicago

26. OVERVIEW What is HAMP? How does HAMP work?
What loans are eligible?
How do you figure that out?
How does HAMP work?
Waterfall for payment reduction
NPV test
Trial modifications
Denials
Bankruptcy
How does HAMP impact litigation?
Stopping a foreclosure
Waiver
Problems
Related programs

27. WHAT IS HAMP? Home Affordable Modification Program
Component of Making Home Affordable initiative.
Voluntary incentive-based plan
For non-GSE loans, servicers choose whether to participate or not
Mandatory for all Fannie Mae and Freddie Mac insured loans, even if servicer not participating.
Similar HAMP programs for VA and FHA loans
Participating servicers supposed to screen everybody, subject only to investor limits
Uniform modification characteristics
Payments reduced to 31%, following standard waterfall
Modification results in a positive Net Present Value (NPV) for investors
Trial modification followed by permanent modification

28. WHERE IS THERE GUIDANCE?
No regs
No statute
Guidance
Non-GSE: Supplemental Directives, Model Forms & FAQs (hmpadmin.com)
Fannie Mae: Announcements (efanniemae.com)
Freddie Mac: Bulletins (freddiemac.com)
FHA: Mortgagee letters (hud.gov/offices/adm/hudclips/letters/mortgagee/index.cfm)
VA: Circulars (homeloans.va.gov/valeri.html)

29. SERVICER INCENTIVES $1000 for each completed loan mod
$1000 a year for 3 years for sustained loan modification, if payment reduced by 6% (or ½ of the amount the borrower’s monthly payment is lowered by, if less)
Incentives for deed in lieu or short sale
$500 for pre-default loan modification

30. INVESTOR INCENTIVES
$1500 pre-default loan modification with payment reduced by at least 6%
Partial loan guarantees for modified loans (declining principal coverage)
Interest or principal reduction subsidies for half the difference between a payment at 38% DTI and 31% DTI
Home Price Decline Protection (HPDP) payments
Increase as
House price decline index (MSA or non-MSA region) increases
UPB balance increases up to $259,000
MTM-LTV increases, up to 90%
Permanent mods, payment reduced at least 6%, NPV run after 9/1/09
HPDP: Supplemental Directive 09-04

31. HAMP IS FLOOR, NOT CEILING
Servicers can do modifications that go deeper than HAMP and still receive incentive payments
FAQs #3, 19
Servicers can offer non-HAMP modifications, although everyone should be screened for and offered a HAMP mod

32. LOAN ELIGIBILITY All Fannie Mae/Freddie Mac loans covered
Search engine online to see if either owns the loan
List of participating servicers
List with contact information available online
Applies to operating subsidiaries/affiliates
Servicer Participation Agreement (SPA) available online
Websites:

33. FANNIE/FREDDIE SIMILAR PROGRAMS
Similar programs for Fannie & Freddie
Fannie: Announcement 09-05R
Freddie: Chapter C65 of Seller/Servicer Guide
Servicers get same incentives

34. PARTICIPATING SERVICERS MUST MODIFY LOANS
Mandates that banks receiving TARP money on a “going forward basis” offer loan modifications
Servicers who sign contract must modify all eligible loans
Approximately 85% of eligible mortgage debt covered by HAMP servicers
Servicers of GSE loans must modify GSE loans
Servicers, not investors, participate

35. CAN INVESTORS FORBID HAMP MODS?
HAMP doesn’t override PSAs.
BUT, the program follows “the “usual and customary industry standards”
If investor forbids modification, servicer must request waiver
Supp. Dir : servicers required to use “reasonable efforts” to get approval.
Supp. Dir : 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.
15 U.S.C. §1639a creates safe harbor from investor litigation for servicers who modify under HAMP

36. TWO STEP SCREENING PROCESS
Is the borrower eligible?
Default or imminent risk of default
Current payment greater than 31% of income
Property eligibility
Loan eligibility
Does the borrower qualify?
Hardship affidavit
Verified income
NPV test (will the investor profit more by a mod than without a mod?)

37. DEFAULT? Default: must have been caused by hardship
Or default is “imminent” due to hardship
Is the rate about to reset?
Lost income in the home?
Employment income
Divorce/ separation
Death
Fraud in origination
Low cash reserves
Imminent default guidance:
Fannie Mae: Announcement 10-02
Freddie Mac: Bulletin
Non-GSE loans: Supp. Dir gives servicers wide latitude; FAQ #19 refers servicers to GSE guidelines

38. 31% OF WHAT? THE EXPENSES/INCOME RATIO
Gross income for borrowers. Can include income for non-borrower household members.
Net income gets multiplied by 125%
Rental income gets multiplied by 75%
Borrowers receiving unemployment benefits not eligible
Must be able to document monthly income
Borrower DOES NOT have to disclose child support or alimony
Expenses
PITIA on first mortgage only
Mortgage insurance not included
Note: Neither income nor expenses are an absolute bar, but 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 the borrower may already be at or under 31% DTI
Supp. Dir , Supp. Dir , Supp. Dir

39. ELIGIBILITY Property must be: Loan must be:
Primary residence. Investment properties not eligible.
One to four units
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
Supp. Dir

40. APPLYING FOR HAMP
Submission of “Initial Package” triggers servicer’s duty to review for HAMP
Request for Modification and Affidavit (RMA)
4506T-EZ form
RMA and 4506T-EZ Forms available at makinghomeaffordble.gov or hmpadmin.com
Proof of income
As of 6/1/10, will not accept oral/unverified income
Checklist available at makinghomeaffordable.gov
Supp. Dir

41. 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.
Supp. Dir , Supp. Dir , Supp. Dir

42. WATERFALL ANALYSIS Target payment – PITIA 31% of gross monthly income
If servicer reduces payment to 38%, Treasury subsidizes rate reduction to 31%
Waterfall Analysis
Capitalize arrearage
Reduce interest rate
Amortization term extended to 40 years
Principal forbearance
Allowed to forgive principal, but not required.
Servicers will only take steps necessary to get payment to target amount.
Supp. Dir

43. PRINCIPAL DEBT WILL INCREASE
Capitalized arrearage includes:
Past due principal and interest
Escrow deficiencies/advances, though doesn’t have to be.
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. Supp. Dir

44. INTEREST RATE 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.

45. PRINCIPAL FORBEARANCE AND PRINCIPAL REDUCTION
Limited to 30% of unpaid principal balance or 100% LTV (Supp. Dir )
Treated as non-interest bearing balloon payment
Reduction:
Not required
Additional incentives available ($1,000/year for 5 years of successful mod)
Supp. Dir

46. HOW TO REVIEW EXCESSIVE FORBEARANCE
What are the loan mod terms?
Payment
Income
Escrow
Forbearance required
FDIC Loan Mod in a Box
What is the unpaid principal balance?
30%
What is the current value?
Difference between unpaid principal balance and current value

47. HAMP NPV TEST Measures the benefit to the investor of a loan mod
Not servicer
Not borrower
Weighs value and probability of
Current payments
Foreclosure
Loan mod
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.

48. HAMP NPV TEST HAMP NPV test not public Default model based on:
Should demand entire NPV in discovery
FDIC has comparable model online at FDIC.gov.
Default model based on:
FICO score
MTM LTV
Current delinquency
DTI
Value of current loan reduced by probability of default
Value of loan mod reduced by probability of redefault.
Servicers can generate their own NPV and use their own numbers for required inputs

49. REASONS FOR FAILING NPV
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

50. 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
May be required to get housing counseling if back end ratio is more than 55% DTI but need not be completed before modification.
Will be converted to permanent modification upon completion of trial modification
If fails trial period: no further HAMP mod. “1 bite at the apple.”
Supp. Dir , Supp. Dir

51. 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
Supp. Dir , Supp. Dir

52. IF DENIED… Servicers must notify borrowers when: Who gets notices:
Not offering a trial mod
Not offering a permanent mod
Borrower at risk of losing trial mod
Borrower withdraws or refuses loan mod offer
Who gets notices:
Borrower who submitted request for HAMP
Borrower who verbally gave information sufficient for NPV review
Borrower offered trial mod
Supp. Dir

53. IF DENIED…
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
ECOA compliance required by Supp. Dir and FRB guidance
FCRA not specifically cited, but surely included in all other applicable regs

54. 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
Not required to provide property valuation, assumptions, fees
No foreclosure sale for additional 30 days if borrower requests inputs
Must review new borrower data, recalculate if likely to change outcome

55. CHALLENGING DETERMINATION
Process set out in Sup. Dir
If NPV inputs inaccurate, servicer must re-run if “material”
No foreclosure sale until inaccuracies “resolved”
In-house servicer escalation teams
Contact appropriate escalation team
Non-GSE: (866) 939 – 4469
Fannie Mae: FANNIE
Freddie Mac: Phone: FREDDIE

56. BANKRUPTCY: ELIGIBILITY
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.
Servicers cannot object to confirmation of a chapter 13 plan, move for relief from the automatic stay, or move to dismiss the chapter 13 case if on the basis that the borrower paid only the trial period plan payments rather than the scheduled mortgage payments
Supp. Dir

57. BANKRUPTCY: DOCUMENTS
Servicers may accept copies of the bankruptcy schedules and tax returns filed in the case in lieu of the RMA and Form 4506T-EZ, if they are within 90 days.
Borrowers in a chapter 13 case who are determined eligible for HAMP may be converted to a permanent modification without completing a trial period plan if current on post- petition payments and if payments are >31% of gross monthly income.
Supp. Dir

58. WAIVER Should be no waiver
Supplemental Directive 09-01, p. 2
Language in modification agreement, paragraph 4E appears to waive some defences
Can get a HAMP mod even if in active litigation or bankruptcy

59. PROBLEMS Servicer communication Re-verification of income
No response
No details about analysis or determination
Re-verification of income
Documents lost
Homeowner no longer eligible
Accumulation of arrears
Foreclosure sales
Wrongful denials

60. RELATED PROGRAMS: 2MP 2nd Lien Modification Program (2MP)
Voluntary participation: signing separate SPA agreements.
List of participating servicers at makinghomeaffordable.gov
Though announced, Treasury reports not “operational” until August.
Supp. Dir

61. RELATED PROGRAMS: 2MP
To be eligible, borrower must have final HAMP mod on 1st lien
Then, 2nd lien can be modified or extinguished, in whole or in part.
Modification follows first lien:
Interest rate reduced to 1% for 5 years, then rate of first lien
Amortization to match first lien
Proportional principal forbearance

62. RELATED PROGRAMS: UP Unemployment Program, effective July 1, 2010
Three-month “forbearance”
Payments scheduled at 31% of income
Borrower must request forbearance before 3 months of payments are delinquent
Servicer may require borrower to demonstrate receipt of unemployment for 3 months before evaluating for forbearance
If re-employed at end of forbearance, could be considered for HAMP
Otherwise, could be considered for a short-sale or deed-in-lieu
Unemployment income will not be considered in determining HAMP eligibility
Supp. Dir

63. RELATED PROGRAMS: UP
Homeowners must request forbearance plan before 3 months delinquent
Servicers can require homeowners to receive unemployment benefits for up to 3 months before reviewing for forbearance
Borrowers must demonstrate receipt of unemployment benefits through effective date of forbearance agreement
First day of the month following mailing of forbearance plan to homeowner by servicer

64. RELATED PROGRAMS: UP
Borrowers should request forbearance immediately upon becoming unemployed
Borrowers should hold servicers’ to response timelines, so that unemployment benefits do not run out before effective date of forbearance plan
Servicer must send notice of forbearance plan 10 business days after its determination
Will accrue late fees
No referrals to foreclosure or judicial sale during evaluation for UP or during forbearance

65. RELATED PROGRAMS: UP If unemployed, evaluated for UP not HAMP
Evaluated for HAMP mod if:
Not eligible for forbearance
Re-employed
30 days prior to expiration of forbearance
Forbearance period does not count towards 3 month trial plan
Can convert from trial plan to forbearance if become unemployed
Must complete new trial plan
Subject to 3 month waiting period

66. RELATED PROGRAMS: HAFA
Homeowners can get $3000 for completing a short-sale or DIL
Must meet basic HAMP eligibility requirements
No NPV test
Must be evaluated for HAMP and fail or request HAFA
If borrower requests HAFA, they must be informed of HAMP and given 14 days to consider pursuing HAMP
Deficiency must be waived
Borrowers may be required to make monthly payments of 31% of income
Supp. Dir

67. RELATED PROGRAMS: HAFA
Minimum net proceeds defined in advance
Minimum 120 days to sell the property
Borrower supposed to clear subordinate liens; servicer may authorize up to a total of $6K from sale proceeds paid to subordinate lienholders, no more than 6% of the subordinate lien’s outstanding principal balance
Servicer may require borrower to list house first, before entering into a deed-in-lieu

68. RELATED PROGRAMS: FHA-HAMP
Works in tandem with HUD partial claim, but some different rules
HAMP considered last modification tool for FHA loans, rather 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
Mortgagee Letter sets forth basic outline
Be aware of other modification options available for FHA mortgages
See, e.g., Mortgagee Letter (requiring that modifications reduce the base rate to the current market rate)
Supp. Dir

69. RELATED PROGRAMS: VA HAMP
Basic program guidance in Circular , available at
FAQs available at
Largely adopts Treasury forms and models, except
Two step NPV process, with VA guarantee and without
If it passes without but fails with, VA “refund” of the loan should happen
All VA loans eligible for consideration
Only modifications on loans 61+ days delinquent eligible for servicer incentive payment
Divorced spouse of veteran who retains home eligible

70. How Volunteering in Foreclosure Mediation Will Work
Receive CVLS w/ available mediation dates
Volunteer accepts a mediation date
Receive CVLS w/ cases attached
CVLS sends letter to client w/ your contact information
Client contacts attorney (or vice versa)

71. How Volunteering in Foreclosure Mediation Will Work
1st Discussion Between You and the Client
Either in person or over the phone
Scope of Representation
Pre-Mediation & Mediation: purpose, process
Confirm Financials
Reality Testing
Identify Goals: Retention/Non-Retention
Best/Worst Case Scenario

72. How Volunteering in Foreclosure Mediation Will Work
Pre-Mediation Negotiation w/ Plaintiff’s Attorney
Save correspondence ( s, correspondence, etc…)
Be aggressive
Agreements must be in writing and signed before cancelling mediation
Use mediation summary terms

73. How Volunteering in Foreclosure Mediation Will Work
Must have all updated financials
Clients must appear
Be prepared and on time
Use mediation summary terms
Post-Mediation
Report results to CVLS