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Office of the Illinois Attorney General December 5, 2012 Mortgage Servicing and Foreclosure Process Settlement.

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Presentation on theme: "Office of the Illinois Attorney General December 5, 2012 Mortgage Servicing and Foreclosure Process Settlement."— Presentation transcript:

1 Office of the Illinois Attorney General December 5, 2012 Mortgage Servicing and Foreclosure Process Settlement

2 Overview of Settlement Plaintiffs: US Department of Justice (for HUD, Treasury, and US Bankruptcy Trustee), Federal Trade Commission, Consumer Financial Protection Bureau (CFPB), 49 state attorneys general and state banking regulators (all states except Oklahoma) Defendants: Bank of America, Citigroup, JP Morgan Chase, Ally Financial/GMAC, Wells Fargo Filed in U.S. District Court for District of Columbia Entered: April 4, 2012 by Judge Collyer Monitor Info: Joseph A. Smith, Jr., former Commissioner of Banks for North Carolina, has been appointed as the independent settlement monitor. He will monitor compliance with the terms of the consent judgments. A monitoring committee comprised of representatives of the state attorneys general, the U.S. DOJ, and HUD will oversee and enforce the terms of the settlement. The Illinois Attorney General’s Office is on the Monitoring Committee. Page 1

3 Overview of Settlement The consent judgments have four main components: 1) Money payments/Consumer relief (no GSE loans) 2) Injunctive provisions setting servicing standards 3) Enforcement provisions 4) Exceptions to Release of Liability The consent judgments remain in effect for 3½ years from the date of entry. Page 2

4 Big Picture Monetary Provisions Page 3

5 Summary of Consumer Redress Provisions 3 main groups of borrowers who will receive some form of monetary relief: 1) Borrowers who have lost their homes to foreclosure 2) Borrowers who are still in their homes but are behind on their mortgage payments and underwater are eligible for principal reductions on 1st or 2 nd liens. 1 st liens: Principal and interest must be reduced by 10% and the DTI must be no greater than 31%. 2 nd liens: If principal is reduced on 1 st lien and 2 nd lien is owned by the servicer, then servicer must modify the 2 nd as well. If a participating servicer holds the 2 nd lien and another participating servicer reduces the 1 st lien, then the servicer holding the 2 nd must reduce its 2 nd lien. 3) Borrowers who are current on their mortgage but are underwater are eligible for a refinance. Borrower must have an interest rate over 5.25%, have an LTV over 100%, and the loan must have been originated before January 1, Does not cover FHA or VA loans. Interest rate will be reduced to at least 5.25% ** Does not include Fannie Mae or Freddie Mac loans. Page 4

6 How the Consumer Relief Provisions Work The banks will put $20 billion nationwide towards loss mitigation and refinancing for underwater borrowers. They have up to 3 years to meet their obligation. The banks receive “credit” for the following remediation efforts: First and second lien principal reduction Borrower transitional funds Short sales / extinguishment of 2 nd liens Deficiency waivers Forbearance for unemployed homeowners Anti-blight provisions The banks do not always pay $1.00 and receive $1.00 in credit. Sometimes, they pay $1.00 and receive less than $1.00 in credit. For example, when a bank gives a borrower a first lien principal reduction, for every $1.00 they pay, they get $1.00 in credit. On the other hand, when a bank forgives forbearance on an existing loan modification, for every $1.00 the banks forgive, they receive $.40 credit. Page 5

7 How the Consumer Relief Provisions Work (continued) The servicers cannot use all their credits in one form of relief— there are minimums and maximums for the various forms of remediation. A minimum of 60% of their credits must be used in first and second lien principal reductions. There is a cap on the following types of remediation: Borrower transitional funds – 5% Deficiency waivers – 10% Anti-blight provisions – 12% * IL will receive approximately $1.2 billion in estimated benefits to Illinois consumers directly from the servicers. Page 6

8 Consumer Relief – Credit Towards Settlement First Lien Mortgage Modification PORTFOLIO LOANSCredit Towards Settlement i) First lien principal forgiveness mod ii) Forgiveness of forbearance amounts of existing modifications iii) Earned Forgiveness over a period of no greater than 3 years – provided consistent with PRA SERVICE FOR OTHERS iv) First lien principal forgiveness modification on investor loans (forgiveness by investor) v) Earned forgiveness over a period of no greater than 3 years – provided consistent with PRA LTV 175%; $1.00 writedown = $.50 credit (for only the portion of principal forgiven over 175%) $1.00 writedown = $.40 credit LTV 175%; $1.00 writedown = $.50 credit (for only the portion of principal forgiven over 175%) $1.00 writedown = $.40 credit LTV 175%; $1.00 writedown = $.20 credit (for only the portion of principal forgiven over 175%) Page 7

9 Consumer Relief – Credit Towards Settlement Second Lien Mortgage Modification PORTFOLIO LOANSCredit Towards Settlement i) Performing Second Liens (0-90 days delinquent) ii) Seriously delinquent second liens (> days delinquent) iii) Non-performing second liens (180 or more days delinquent) $1.00 writedown = $.90 credit $1.00 writedown = $.50 credit $1.00 writedown = $.10 Page 8

10 Consumer Relief – Credit Towards Settlement Borrower Transitional Funds PaymentCredit Towards Settlement i) Servicer makes payment ii) Investor makes payment (non-GSE) $1.00 payment = $1.00 credit (for the amount over $1,500 $1.00 payment = $.45 credit (for the amount over the $1,500 average payment established by Fannie Mae and Freddie Mac) Page 9

11 Consumer Relief – Credit Towards Settlement Short Sales i) Servicer makes payment to unrelated 2 nd lien holder for release of 2 nd lien ii) Servicer forgives deficiency and releases lien on 1 st lien Portfolio Loans iii) Investor forgives deficiency and releases lien on 1 st lien investor loans iv) Forgiveness of deficiency balance and release of lien on Portfolio Second liens Performing 2 nd liens (0-90 days delinquent) Seriously delinquent 2 nd liens (> days delinquent) Non-performing 2 nd liens (180 or more days delinquent) $1.00 writedown = $1.00 credit $1.00 writedown = $.45 credit $1.00 writedown = $.20 credit $1.00 writedown = $.90 credit $1.00 writedown = $.50 credit $1.00 writedown = $.10 Page 10

12 Consumer Relief – Credit Towards Settlement Deficiency Waivers i) Deficiency waived on 1 st and 2 nd liens $1.00 writedown = $.10 credit Credit Towards SettlementDeficiency Waived Page 11

13 Consumer Relief – Credit Towards Settlement Forbearance for Unemployed ForbearanceCredit Towards Settlement i) Servicer forgives payment arrearages on behalf of borrower ii) Servicer facilitates traditional forbearance program $1.00 new forgiveness = $1.00 credit $1.00 new forbearance = $.05 credit Page 12

14 Consumer Relief – Credit Towards Settlement Anti-Blight Provisions Anti-Blight ProvisionCredit Towards Settlement i) Forgiveness of principal associated with a property where Servicer does not pursue foreclosure ii) Cash costs paid by Servicer for demolition of property iii) REO properties donated to accepting municipalities or non-profits or to disabled servicemembers or relatives of deceased servicemembers. $1.00 property value = $.50 credit $1.00 payment = $1.00 credit $1.00 property value = $1.00 credit Page 13

15 Payments to Borrowers Who Have Lost Their Home In Foreclosure $1.5 Billion Nationwide, $50,911, Illinois The borrower’s mortgage must have been serviced by one of the 5 settling banks The borrower’s home must have been sold in foreclosure between January 1, 2008 and December 31, 2011 Borrower may be eligible for a payment of up to $2,000 per borrower Do not have to release any private claims. This is separate from the federal government’s OCC foreclosure review process. Rust Consulting is the Claims Administrator chosen by the Attorneys General. Claim forms have already gone out. Page 14

16 Summary of Illinois’ Share of Money Settlement Illinois will receive $106.8 million to be distributed for legal aid services, housing counseling, and other foreclosure remediation and prevention purposes. Attorney General Madigan has already distributed $20 million for legal assistance for borrowers and renters. An additional RFP for up to $3 million for foreclosure court mediation was announced and proposals are under review. An additional $1.2 billion in estimated benefits primarily 1 st and 2 nd lien reductions and refinancing will be distributed to Illinois consumers directly from the servicers. Homeowners who have lost their homes will receive up to $2,000 for a total of over $50 million in Illinois. Page 15

17 Servicing Standards at a Glance I. Provisions concerning accuracy and transparency in foreclosure and bankruptcy proceedings II. Enhanced loss mitigation protection for the borrower III. Restrictions on servicing fees IV. Measures to deter community blight Page 16

18 I. Provisions Concerning Accuracy and Transparency in Foreclosure and Bankruptcy Proceedings Prevent robosigning (i.e., signing affidavits without personal knowledge) Banks/servicers shall properly document their authority to file a foreclosure action Pre-foreclosure referral notices shall be sent to borrowers 14 days before a delinquent loan is referred for foreclosure which outline the basis for the servicers’ right to foreclose, a statement outlining loss mitigation attempts on behalf of the borrower, an account summary including the amount necessary to reinstate, and upon request payment histories, notes, assignments and the name of the investor New protections to ensure accuracy of borrowers’ account information Third-party provider oversight, such as law firms Page 17

19 I. Provisions Concerning Accuracy and Transparency in Foreclosure and Bankruptcy Proceedings Prevent robosigning: “Servicer shall ensure that factual assertions made in pleadings... bankruptcy proofs of claim...declarations, affidavits, and sworn statements filed by or on behalf of Servicer in judicial foreclosures or bankruptcy proceedings...are accurate and complete and are supported by competent and reliable evidence.” (I.A.1.) “Servicer shall ensure that affidavits, sworn statements, and declarations are based on personal knowledge, which may be based on the affiant’s review of Servicer’s books and records, in accordance with the evidentiary requirements of applicable state or federal law.” (I.A.2.) Page 18

20 I. Provisions Concerning Accuracy and Transparency in Foreclosure and Bankruptcy Proceedings Prevent robosigning: “Servicer shall ensure that affidavits, sworn statements and declarations executed by Servicer’s affiants are based on the affiant’s review and personal knowledge of the accuracy and completeness of the assertions in the affidavit...set out facts that Servicer reasonably believes would be admissible in evidence, and show that the affiant is competent to testify on the matters stated.” (I.A.3.) “Affiants shall confirm that they have reviewed competent and reliable evidence to substantiate the borrower’s default and the right to foreclose, including the borrower’s loan status and required loan ownership information.” (I.A.3.) Page 19

21 I. Provisions Concerning Accuracy and Transparency in Foreclosure and Bankruptcy Proceedings Prevent robosigning: “If an affiant relies on a review of business records for the basis of its affidavit, the referenced business record shall be attached if required by applicable state or federal law or court rule.” (I.A.3.) “Separate affidavits…shall be used when one affiant does not have requisite personal knowledge of all required information.” (I.A.3.) Page 20

22 I. Provisions Concerning Accuracy and Transparency in Foreclosure and Bankruptcy Proceedings Prevent robosigning: “Servicer shall review and approve standardized forms of affidavits …prepared by or signed by an employee or officer of Servicer, or executed by a third party using a power of attorney on behalf of Servicer, to ensure compliance with applicable law, rules, court procedure, and the terms of this Agreement.” (I.A.4.) “Affidavits...shall accurately identify the name of the affiant, the entity of which the affiant is an employee, and the affiant’s title.” (I.A.6.) Affiants must be individuals (I.A.11.), all signatures must be by hand (except for permitted electronic filings) (I.A.11.), and signatures must be dated (I.A.13.) Page 21

23 I. Provisions Concerning Accuracy and Transparency in Foreclosure and Bankruptcy Proceedings Prevent robosigning: “Servicer shall not rely on an affidavit of indebtedness or similar affidavit...filed in a pending pre-judgment judicial foreclosure… which (a) was required to be based on the affiant’s review and personal knowledge of its accuracy but was not, (b) was not, when so required, properly notarized, or (c) contained materially inaccurate information in order to obtain a judgment of foreclosure…” “In pending cases in which such affidavits...may have been filed, Servicer shall, at Servicer’s expense, take appropriate action, consistent with state and federal law and court procedure, to substitute such affidavits with new affidavits and provide appropriate written notice to the borrower or borrower’s counsel.” (I.A.16.) Page 22

24 I. Provisions Concerning Accuracy and Transparency in Foreclosure and Bankruptcy Proceedings Prevent robosigning: “In pending post-judgment, pre-sale cases in judicial foreclosure proceedings in which an affidavit or sworn statement was filed which was required to be based on the affiant’s review and personal knowledge of its accuracy but may not have been, or that may not have, when so required, been properly notarized, and such affidavit or sworn statement has not been re-filed, Servicer, unless prohibited by state or local law or court rule, will provide written notice to borrower at borrower’s address of record or borrower’s counsel prior to proceeding with a foreclosure sale or eviction proceeding.” (I.A.17.) Page 23

25 I. Provisions Concerning Accuracy and Transparency in Foreclosure and Bankruptcy Proceedings Provisions concerning the right to foreclose: Servicer must implement processes to ensure that it or the foreclosing entity has a “documented enforceable interest in the promissory note and mortgage...under applicable state law, or is otherwise a proper party to the foreclosure action.” (I.C.1.) Servicer must include a statement in a pleading, affidavit of indebtedness or similar affidavit “setting forth the basis for asserting that the foreclosing party has the right to foreclose.” (I.C.2.) This information must be provided to the borrower in the pre-foreclosure notice. (I.C.3.) Page 24

26 Provisions concerning the right to foreclose: Servicer must ensure good faith efforts be made to locate a note lost while in its possession. Servicer shall adopt procedures that are designed to ensure that Servicer would locate a note or assignment if in the possession or control of Servicer. If Servicer prepares or causes to be prepared a lost note or lost assignment affidavit, it shall use good faith efforts to obtain or locate the note or assignment and shall recite in the affidavit that Servicer has made a good faith effort in accordance with its procedures for locating lost notes. (I.C.4.) Servicers must ensure that mortgage assignments executed by or on behalf of Servicer are executed with appropriate legal authority, are properly acknowledged, and accurately reflect the completed transaction. (I.C.6.) Provisions concerning regular reviews of affidavits: Servicers shall conduct quarterly reviews of a statistically valid sample of affidavits to ensure documents are accurate and in compliance. I. Provisions Concerning Accuracy and Transparency in Foreclosure and Bankruptcy Proceedings Page 25

27 I. Provisions Concerning Accuracy and Transparency in Foreclosure and Bankruptcy Proceedings Pre-foreclosure referral notice to borrower: Servicers must send a notice to borrowers no later than 14 days prior to referral to foreclosure attorney. (I.A.18.) The notice must include: Facts supporting Servicer’s or holder’s right to foreclose (I.C.2,3) Statement outlining loss mitigation attempts made to date (IV.B.13.) An account summary, including total amount needed to reinstate/bring current and date of last full payment (I.B.10.) and contact information for the housing counseling agencies Informing borrowers of their right to request certain information (I.B.10):  Payment history  Copy of the note  Copies of any assignments of mortgage required to demonstrate the right to foreclose  The name of the investor that holds the borrower’s loan Page 26

28 I. Provisions Concerning Accuracy and Transparency in Foreclosure and Bankruptcy Proceedings Third-party provider oversight: Servicer has a duty to properly oversee and manage third-party providers including foreclosure counsel. (II.A.) This duty includes: Amending agreements to require compliance with terms of the Settlement (II.A.2) Ensuring that foreclosure counsel have appropriate access to information in Servicer’s books and records (II.A.4) Ensuring all information provided to third-party providers is accurate and complete (II.A.5) Continued on next slide Page 27

29 I. Provisions Concerning Accuracy and Transparency in Foreclosure and Bankruptcy Proceedings Third-party provider oversight (continued): Conduct periodic reviews of third party providers, including a review of a sample of foreclosure documents prepared by third- party providers for compliance with state and federal law and terms of the Settlement and a review of fees and costs by the third-party provider. (II.A.6) Third-party providers are required to disclose to Servicer any imposition of sanctions or professional disciplinary action taken against them for misconduct relating to the performance of services provided to Servicer. (II.A.6) Servicer must ensure that foreclosure counsel have an appropriate Servicer contact to assist in legal proceedings and to facilitate loss mitigation questions on behalf of the borrower. (II.B.3) Page 28

30 Requirements for Accuracy and Verification of Borrowers’ Account Information Servicer shall maintain procedures to ensure accuracy of borrowers’ account information. Servicer shall promptly accept and apply all borrower payments. Shall be posted no more than two business days after receipt. Servicer shall apply at least 2 partial payments from the borrower if the payment comes within $50 of the amount due (including principal, interest, taxes and insurance), except if notice has been given that the borrower is in default. Servicers shall provide a monthly billing statement to the borrower that shows:  Total amount due  Allocation of payments  Unpaid principal  Fees and charges  Current escrow balance  Reasons for payment charges Page 29

31 Requirements for Accuracy and Verification of Borrowers’ Account Information Servicers must adopt enhanced billing dispute procedures and shall take appropriate action to remediate any inaccuracies. Suspense Accounts Can post to suspense if: Discloses to borrower Credit with full payment when sufficient to cover a full payment and Apply according to loan terms Cannot pay fees until pay interest, principal, escrow Page 30

32 II. Enhanced Loss Mitigation Protection For the Borrower New loss mitigation requirements Loan modification timelines Dual track restricted Communication of borrower’s status Single point of contact, including specific duties of SPOC Communication with homeowners Requirement to develop loan portals Denial notice requirements Independent evaluation of loan modification denial Appeal process Short sales Transfer of servicing of loans pending for permanent loan modification Restrictions on servicing fees Protections for military personnel Bankruptcy provisions Page 31

33 II. Enhanced Loss Mitigation Protection For the Borrower New loss mitigation requirements: The same uniform standards apply to all types of loans. Servicers shall notify borrowers of all loss mitigation options prior to foreclosure referral. Upon receipt of a complete loan modification application, servicers shall evaluate borrowers for all available loan modifications prior to foreclosure referral. Servicers shall facilitate and offer loan mods if mod is NPV positive rather than initiate foreclosure Servicers shall maintain adequate staffing (IV.H.1) Servicers shall maintain adequate staffing and caseloads for SPOCS (IV.H.2) Servicers shall establish minimum experience for loss mitigation staff Servicers shall track key events electronically The servicer shall not instruct the borrower to default in order to qualify for loss mitigation relief (IV.H.8) continued on next slide Page 32

34 II. Enhanced Loss Mitigation Protection For the Borrower Servicer cannot require a borrower to release claims and defenses as a condition of approval for a loan modification program or loss mitigation. However, a servicer can require a release in connection with the resolution of a contested claim. (IV.H.10) Servicer cannot charge application fees for a loan modification request and shall provide the borrower with a pre-paid overnight envelope (IV.H.11) Servicers shall make public all requirements for a proprietary loan modification (IV.I.1.) Servicer shall design sustainable proprietary loan modifications (IV.I.2) with affordable payments. Servicers shall track outcomes of loan modification waterfalls, and eligibility criteria on a public website (IV.I.4) Page 33

35 Loan modification timelines Borrower sends modification application to servicer Servicer acknowledges receipt within 3 business days Servicer sends missing items letter within 5 business days Borrower has 30 days to send in missing items Servicer must make decision within 30 days of receiving completed application Servicer must send denial letter within 10 days of denial Borrower has 30 days to appeal denial in some cases Servicer generally can’t proceed with sale until 15 days after appeal is denied or 14 days after modification offered as a result of appeal II. Enhanced Loss Mitigation Protection For the Borrower Page 34

36 II. Enhanced Loss Mitigation Protection For the Borrower Dual track restricted (IV.B): If borrower submits a complete loan modification application before120 days of delinquency, the Servicer must not refer the loan to foreclosure until it has completed its review of the request for a modification. (IV.B.1) The borrower has an additional 10 days if application is substantially complete. Substantially complete means the application must include all required documents except the hardship letter. After the loan is referred to foreclosure, if the borrower submits a complete loan modification application to the Servicer within 30 days of the Post Referral Foreclosure Solicitation Letter going out, Servicer will not move for foreclosure judgment or proceed with a foreclosure sale pending review of that application. (IV.B.4) continued on next slide Page 35

37 II. Enhanced Loss Mitigation Protection For the Borrower Dual track restricted (IV.B) (continued): From 30 days after the Post Referral Foreclosure Solicitation Letter going out to 15 days before a foreclosure sale is scheduled, the Servicer will postpone a foreclosure sale pending review of a complete loan modification application. (IV.B.6 &8) If borrower submits a complete loan modification application within 15 days before a scheduled foreclosure sale, Servicer may review it but nothing is postponed during the review and sale will move forward unless Servicer completes review and offers a loan mod before the sale. (IV.B.9) Servicer shall not move to judgment or sale if: The borrower is in compliance with the terms of a trial loan modification, forebearance or repayment plan or A short sale or deed-in-lieu has been approved. Page 36

38 II. Enhanced Loss Mitigation Protection For the Borrower Communication with borrowers: Servicers shall reach out to borrowers who are delinquent and explain their loss mitigation options (IV.D.1) Servicers shall cease all collection efforts while the borrower is making timely payments under a trial loan modification or has submitted a complete application (IV.D.4) Within 5 days after referral to foreclosure, servicers shall send a written communication (Post Referral to Foreclosure Solicitation Letter) that informs the borrower that the borrower can still pursue a loan modification and how to do so. Development of loan portals: Servicers shall develop an online portal where borrowers can check the status of their first lien loan modifications Servicers shall participate in the implementation of a nationwide portal for housing counselors Servicers shall update the status of pending loan modifications at least every 10 business days. Page 37

39 II. Enhanced Loss Mitigation Protection For the Borrower Single Point of Contact (SPOC) (IV.C.): Servicer must establish an easily accessible and reliable SPOC for each borrower so that borrower has access to a Servicer employee to obtain information throughout the loss mitigation and foreclosure process. (IV.C.1) Servicer must provide one or more direct means of communication with the SPOC. (IV.C.2) The SPOC will have primary responsibility for communicating loss mitigation options to the borrower, coordinating receipt of borrower documents, being knowledgeable about borrower’s situation and status in loss mitigation, and ensuring that the borrower is considered for all possible loss mitigation options. (IV.C.3) Page 38

40 II. Enhanced Loss Mitigation Protection For the Borrower Independent evaluations of first lien loan modification denials and the appeals process Any denial of a loan modification shall be subject to an independent in house evaluation by the servicer. The servicer shall send a written denial notice identifying the reasons for denial and the information considered. If a modification is denied by an investor, servicers shall disclose in the denial the name of the investor. If the denial is the result of an NPV calculation, servicers shall provide the monthly gross income and property value used in the calculation. Appeals Process A borrower shall have 30 days to request an appeal of a loan modification denial. If a loan modification was denied as the result of an NPV calculation, the borrower can contest the property valuation and request a full appraisal by an independent appraiser via the HAMP process. Page 39

41 Servicing Standards: Short Sales Servicers must develop a cooperative short sale process in which the servicer is aware that the borrower can pursue a short sale evaluation before the home is put on the market (IV.K.2) The requirements for the short sale process shall be posted publicly (IV.K.1) Servicers shall confirm in writing within 10 business days that the servicer has received the borrower’s request for a short sale. The confirmation must include basic information on the short sale process. (IV.K.4) The borrower must be informed of any missing documents within 30 days (IV.K.5) The servicer must tell the borrower the outcome of the request within 30 days of receiving all the required information (IV.K.6) If the short sale request is accepted, the servicer shall at the same time notify the borrower of any deficiency liability. If the short sale request is denied, the servicer must provide the reasons in writing. (IV.K.7) Page 40

42 Servicing Standards: Transfer of Loans Pending for Permanent Loan Modifications Transfer from servicer to successor servicer or subservicer At the time of sale, the servicer shall inform the successor servicer/subservicer whether a loan modification is pending (IV.M.a) Any contract for the transfer or sale of servicing rights shall obligate the successor servicer to accept and continue processing pending loan modification requests. (IV.M.b) Any contract shall obligate successor servicers to honor trial and permanent modifications (IV.M.c) Any contract for sale or transfer shall designate borrowers as third party beneficiaries (IV.M.d) Transfer from servicer to servicer When a servicer acquires servicing rights from another servicer, it shall accept and continue processing loan modification requests and honor trial and permanent modifications (IV.M.2) Page 41

43 III. Restrictions on Servicing Fees Default fees: Reasonable, appropriate, disclosed and allowable by law (VI.A & B.2) Attorneys’ fees: Reasonable, assessed for work actually performed (VI.B.3) If foreclosure terminated, attorney can only charge for services to date. Late fees: Cannot be charged to borrower in particular circumstances, including while loan modification is being considered, borrower is making timely trial payments and a short sale is being evaluated (VI.B.4) Third-party fees: Can’t charge unnecessary or duplicative fees (VI.C.1) Preservation fees: Cannot be imposed while in loss mitigation or pending loss mitigation unless reasonable basis for fee (VI.C.1.a) Inspection fees: Cannot be imposed any more frequently than GSE timeframes allow (VI.C.1.b) Page 42

44 III. Restrictions on Servicing Fees BPO Valuations: Only every 12 months unless requested for a loan modification, short sale or required as part of foreclosure (VI.C.1.c) Price of fees charged: Reasonable market value (VI.C.2) Cannot assess a fee when the servicer’s affiliate performs the service unless the fee is a genuine market rate. (VI.C.3) The market rate shall be determined by a 3 rd party via a market survey. Referral fees: Cannot collect unearned fees or give/accept referral fees from 3 rd parties (VI.C.4) No mark-ups: Cannot impose mark-up on bank initiated 3 rd party default or foreclosure services (VI.C.5) Force-Placed Insurance: Cannot place unless reasonable cause to believe homeowner hasn’t paid property insurance, and only by providing disclosures and at a commercially reasonable price (VII) For escrowed accounts, Servicer must continue to advance insurance payments for homeowner’s existing policy unless the borrower or insurance company cancels the policy (VII.A.1) If the borrower does not escrow, the servicer must offer to create an escrow account and advance the payment. Page 43

45 Servicing Standards: Protections for Military Personnel The banks/servicers shall comply with Service Members Civil Relief Act and similar state laws and the banks/servicers shall engage independent consultants to review foreclosures from January 1 st 2009 to December 31, 2010 for compliance with SCRA. If a person has received military orders to commence active military service or has been in the military within the last 9 months and is in default on his or her mortgage, he or she is entitled to a specially SCRA trained SPOC. If the persons are not in default, he or she is entitled to be routed to an employee specially trained on the SCRA. Bank/Servicer must assess whether a troubled borrower is SCRA eligible not only at the time of default as required by SCRA, but bank/servicer must go beyond the requirements of the SCRA and assess if a borrower is SCRA eligible in the following additional circumstances: 1.) before a loan is referred for foreclosure, 2.) within 7 days of a foreclosure sale, and 3.) the later of promptly after a foreclosure sale and within three days before the regularly scheduled end of any redemption period. continued on next slide Page 44

46 Servicing Standards: Protections for Military Personnel When a servicemember requests a reduction in the interest rate on debt pursuant to the SCRA but does not provide the documentation required by the SCRA (military orders), the servicer shall accept orders from the commanding officer. Servicers shall notify borrowers who are days delinquent that they may be entitled to certain protections under the SCRA and to counseling. The servicer shall include a toll-free number on the notice. For active duty servicemembers in combat areas, servicers shall not sell or foreclose on their homes (unless there are investor limitations). This is an improvement on the SCRA which provides in Section 533 that a stay of a foreclosure or sale can only be requested if the mortgage debt was incurred prior to military service. Now those in combat areas can receive this protection regardless of when the debt was incurred. continued on next slide Page 45

47 Servicing Standards: Protections for Military Personnel Servicers shall not require a servicemember to be delinquent to qualify for a short sale, loan modification or other loss mitigation relief if the servicemember is suffering from financial hardship and is eligible for loss mitigation. Many times when a servicemember receives Permanent Change of Station (PCS) orders they are underwater on their home so they can’t sell, it is difficult to rent at the mortgage amount, they can’t get a modification because they are not in default, and they can’t refinance because their old home will no longer be their primary residence. Under this new provision, when determining whether a servicemember is suffering a financial hardship with regard to a short sale or deed in lieu, the bank/servicer shall take into account whether the servicemember has been ordered to relocate to a new duty station at least 75 miles away from his/her former home. With regard to a loan modification, the servicer shall consider as part of the hardship determination if the servicemember must relocate. The Section prohibits the servicer from making an inaccurate report to credit reporting agencies when a servicemember who has not defaulted before relocating obtains a short sale, loan modification or other loss mitigation. Page 46

48 Servicing Standards: Protections for Military Personnel Consumer Redress Benefits for Service Members: Blight Remediation Servicers receive credit for donating repo properties to disabled servicemembers or relatives of deceased service members. Short Sales/Portfolio Loan (HFI) Servicemembers that qualify for SCRA benefits will be able to avail themselves of a special short sale program to allow them to move, pursuant to PCS orders 50 miles away from their current home. Deficiency Waivers If an eligible servicemember qualifies for a short sale, the servicer shall waive deficiencies less than $250,000. Page 47

49 Servicing Standards: Bankruptcy Servicer can’t deny loss mitigation just because borrower is in bankruptcy (IV.L.1) Servicer must notify borrower of a payment change at least 21 days before change is effective, otherwise waive late fees (III.B.1.e) Servicer must extend a trial loan mod as necessary to accommodate delays in bankruptcy approval (IV.L.2) Servicer can’t object to confirmation of Chapter 13 plan just because borrower has only paid trial modification payments instead of full payments (IV.L.3) In Chapter 13, within 6 months of an expense/charge being incurred, the servicer must: (III.B.1.a-b) Send to borrower/counsel/trustee an itemized list of recoverable post-petition expenses incurred that the servicer intends to collect Reply to any notice that the debtor has completed payments If servicer fails to send the 6-month notice or fails to reply to a notice that debtor has completed payments then the charges are waived (unless they are for escrow items) (III.B.1.c) In Chapter 13, servicer must promptly apply payments and reconcile payments as of date of bankruptcy dismissal (I.B.11) Page 48

50 IV. Measures to Deter Community Blight Development and implementation of policies to participate in state and local anti-blight programs (VIII.A.2) Implementation of policies to ensure REO properties do not become blighted (VIII.A.1) In the pre-foreclosure notice, Servicer must notify borrower of borrower’s obligation pay taxes until sale or transfer of title has occurred and request the borrower contact Servicer if the borrower intends to abandon the property in order to discuss alternatives to foreclosure (VIII.A.3) When Servicer decides not to pursue foreclosure it must: Notify borrower of its decision not to pursue the foreclosure and release the lien and inform the borrower of the right to occupy the property until a sale or other title transfer; and Notify local authorities such as tax authorities, courts, and code enforcement departments (VIII.A.4) Tenants Rights: comply with laws concerning tenants rights (VIII.B.1.2) Page 49

51 Release – What’s Not Released? Criminal claims or enforcement Securities and securitization claims Claims against MERS or MERSCORP Claims of county recorders Claims arising out of fair lending laws Claims of state and local governments as investors Tax claims including claims relating to real estate transfer taxes Claims of county and local governments that have separate and independent jurisdiction than the Attorney General Some specific pending actions settled Claims and defenses asserted by private third parties, including individual mortgage loan borrowers, in their own capacity Claims to clear a cloud on title Page 50

52 Contact Information for Questions The State Executive Committee’s website: The Settlement Monitor’s website: Illinois Attorney General Office: Homeowner Helpline: Page 51

53 Q&A Thank you! Please let us know if you have additional questions. Page 52


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