Update on Servicing Standards: FHA, Fannie Mae, Freddie Mac, HAMP, and the National Mortgage Settlement For NREI 106 October 29, 2013

HAMP Update Version 4.3 of the HAMP Handbook is available at (select “Program Guidance” under “Programs” tab) Also available on New guidance Escalation form and 3 rd party authorization form for escalating cases (under “Resources” tab) Training materials (under “Learning Center” tab)

HAMP Extended In March, HAMP was extended to December 31, 2015 Application must be submitted by December 31, 2015 Modification must be completed by September 30, 2016

Quick HAMP Review HAMP Tier I: Primary residence Loan <= $729,750 Loan originated on or before 1/1/09 In default or imminent default PITI > 31% of gross income

Quick HAMP Review HAMP Tier I (continued): Waterfall steps to reach target 31% payment: Capitalize arrears (UPB) Drop rate to 2% Extend term up to 40 years Forbear up to 30% of UPB Principal forgiveness is optional Waterfall steps may vary based on investor restrictions

Quick HAMP Review HAMP Tier II: Became effective June 1, 2012 Loans eligible for Tier II include: Loan that failed Tier I waterfall or NPV Default on Tier I TPP Default on Tier I permanent modification and 12 months have passed or changed circumstances Non owner-occupied property

Quick HAMP Review HAMP Tier II (continued): Waterfall: Capitalize arrears (UPB) Set interest rate at weekly PMMS Rate (see plus 50 basis points Extend term 480 months from mod date Forbear principal to get down to 115% LTV or forbear 30%

Quick HAMP Review HAMP Tier II (continued): Must reduce P&I payment by at least 10% Payment must be 25-42% of gross income If borrower defaulted on HAMP Tier I TPP, Tier 2 P&I must be at least 10% less than the P&I under the failed TPP plan.

Quick HAMP Review HAMP UP (Unemployment Program): Must be unemployed and request assistance when borrower is no more than 12 months behind Forbearance payment no more than 31% of gross household income Forbearance must be at least 12 months or until borrower is reemployed Once borrower is reemployed or when forbearance ends, servicer must evaluate borrower for HAMP mod

Quick HAMP Review Not covered in this presentation: 2MP – HAMP Second Lien Modification Program – see Handbook Ch. V HAFA – Home Affordable Foreclosure Alternatives (deed in lieu and short sale) – see Handbook Ch. IV HARP – Home Affordable Refinance Program (must be Fannie or Freddie loan, LTV at least 80%, and payments must be current) – see and

Recent HAMP Changes Non-Borrower Income: consider on the same terms as the borrower Servicers should include non-borrower household income in monthly gross income if it is voluntarily provided by the borrower and... the income reasonably can continue to be relied upon to support the household. Non-borrower household income included in the monthly gross income must be documented and verified by the servicer using the same standards for verifying a borrower’s income. The servicer must verify the occupancy of a non-borrower in the same manner it verifies the occupancy of a borrower... Section of Chapter II

Recent HAMP Changes Income Documentation Requirements: Servicer can require 4506-T or most recent tax return, but can’t require both (Ch. II Sec. 4.2) Benefit income can be documented by benefits statement or letter or evidence of receipt of benefits from bank statement – both are not required (Ch. II Sec ) Servicers are not required to verify monthly gross expenses any more – can rely on borrower’s stated expenses (Ch. II Sec. 5.4)

Recent HAMP Changes Servicing Transfers: If loan transfers servicers during a Trial Peroid Plan (TPP), the new servicer must not re-underwrite the borrower, even if the TPP was calculated incorrectly. (Ch. 1 Sec ) If the borrower successfully completes the TPP, the new servicer must permanently modify the loan. If the TPP payment was at least 10% higher than it was supposed to be, the new servicer must re-run the waterfall with the correct payment.

Recent HAMP Changes Death or Divorce, Co-Borrowers and Non- Borrowers: Non-borrowers who inherit or are awarded sole title to a property may be considered for HAMP even if the original borrower was not already in a TPP. Servicers must evaluate the request as if the new owner were the borrower. (Ch. II Sec. 8.8) If a co-borrower occupant inherits during a TPP, he or she can continue the existing TPP or request evaluation for a new TPP based on his or her own income. (Ch. II Sec )

Recent HAMP Changes Death or Divorce and Non-Borrowers (continued): If a co-borrower non-occupant inherits during a TPP, he or she can continue the existing TPP or request evaluation for a new TPP based on his or her own income, but only under HAMP Tier II, because HAMP Tier I is only available for occupants. (Ch. II Sec ) If a non-borrower inherits the property through death, divorce or other court action, the servicer must give the new owner time to assume the loan

Recent HAMP Changes Death or Divorce and Non-Borrowers (continued): If a non-borrower inherits the property through death, divorce or other court action, the servicer may offer the new borrower a TPP, or place the loan in forbearance and give the new owner time to assume the loan and apply for HAMP. “Servicers may not initiate or continue foreclosure proceedings during the period provided for the new titleholder to attempt to assume the note and re- apply for HAMP” (Ch. II Sec )

Recent HAMP Changes Permanent Modifications Servicer must execute and return a copy of the full- executed modification agreement to the borrower promptly, but no later than 30 days after receipt of the signed agreement from the borrower. (Ch. II Sec. 9.1)

HAMP Foreclosure Protections Servicer must evaluate for HAMP before filing foreclosure (Handbook Ch. 2 Sec. 3.1) Foreclosure in process must be suspended if borrower accepts TPP (Sec. 3.2) No foreclosure referral or sale until escalated case is resolved (Sec )

HAMP Supplemental Directive Released Oct. 18, Effective Jan. 10, 2013 Coordinates HAMP rules with CFPB Regs. Servicers may consider borrower for all options at once, but must offer HAMP first Servicer must acknowledge initial package within 5 days and state whether it is complete

HAMP Supplemental Directive cont. Incomplete Information Notice must give at least 30 days to supply requested docs unless required by law or the best interests of the borrower. The requirement for a second incomplete information notice is eliminated

HAMP Supplemental Directive cont. Home Affordable Unemployment Program (UP): if borrower submits an incomplete package, servicer may limit UP forbearance to 6 months. At the end of 6 month forbearance, servicer must contact borrower to get complete application and proceed with full loss mitigation evaluation.

HAMP Escalations Fannie Mae: FANNIE or Freddie Mac: FREDDIE or Non-GSE: HAMP Solution Center, option 2 or

HAMP Escalations Use forms on Use case submission form Submit release Give as much additional information as possible Highlight urgent deadlines Cite to HAMP Handbook if possible

Fannie Mae & Freddie Mac Update: Coordinating with CFPB Rules Fannie Mae: see SVC Updates are effective 1/10/14 Appeals Process for denial of TPP: Must relate to first package Owner-occupied At least 90 days before sale date Request appeal in writing w/in 14 days of the date of denial letter Servicer has 30 days to decide appeal

Fannie Mae & Freddie Mac Update: Coordinating with CFPB Rules Fannie Mae appeal process cont. Servicer has 30 days to decide appeal If appeal submitted after 14 day appeal period, servicer may treat appeal as part of a new request for assistance. No referral to foreclosure once complete package submitted, while servicer evaluates, while offer is pending, while borrower is complying with terms of an offer, during 14 day appeal period or while appeal is pending.

Fannie Mae & Freddie Mac Update: Coordinating with CFPB Rules Freddie Mac: see Bulletin Effective January 10, 2014 Adds new Guide Chapter 63: Delinquency Management for Mortgages Secured by Primary Residences, including: Guide Sec. 63.4: If first complete package is received at least 37 days before sale date, servicer must delay referral to foreclosure, motion for judgment, or order of sale until assistance is denied or offer is not accepted.

Fannie Mae & Freddie Mac Update: Streamlined Modifications Fannie Mae: see SVC , eff. 7/1/13 Freddie Mac: see cation.html Eligibility Criteria: days delinquent Pre-modified LTV greater than or equal to 80% Originated at least 12 months ago Not previously modified two or more times

Fannie Mae & Freddie Mac Update: Streamlined Modifications (Cont.) Procedure: Servicer offers trial period before borrower returns documents, based on standard Fannie/Freddie loan mod terms If borrower makes three trial payments, loan is permanently modified If borrower returns documents, loan is evaluated for HAMP and other alternatives first

Fannie Mae & Freddie Mac Update: Fannie/Freddie Standard Loan Mod Waterfall: 1.Capitalize arrears 2.Set interest rate to fixed rate: 4.625% as of 9/1/13 3.Extend term to 480 mo. from mod date 4.Forbear principal if pre-mod LTV is greater than 115%, but no more than 30% of UPB 5.Borrower qualifies if resulting PITI payment is 10-55% of gross income and P&I is reduced

Fannie Mae Update: Transfer of Ownership Widows/widowers, executors or administrators of borrower’s estate, heirs, etc. “If the mortgage loan is delinquent and the new property owner is unable to bring the mortgage loan current, he or she must be evaluated for all available workout options.” SVC (8/28/13) Servicers must communicate with the new property owner, and must evaluate the request for a foreclosure prevention alternative as if they were the owner. LL (2/27/13)

Freddie Mac Update: Transfer of Ownership Widows/widowers, executors or administrators of borrower’s estate, heirs, etc. In situations where “the non-Borrower applicant may be able to assume the Mortgage if the assumption is accompanied by a loan modification,” the non-Borrower must submit “a complete Borrower Response Package and the Servicer must evaluate the non-Borrower applicant as if the non-Borrower applicant were a Borrower.” (Freddie Mac Bulletin , 2/15/13)

FHA Update *New* Mortgagee Letter , 9/20/13. Effective 12/1/13 New definition of “continuous income” required to support a modification: income that “is reasonably likely to continue from the date of the mortgagee’s loss mitigation evaluation through at least the next 12 months”, and “includes, but is not limited to, the following: employment income (e.g., wages, salary, or self-employment earnings), social security, disability, Veterans benefits, child support, survivor benefits, and/or pensions.”

FHA Update Other changes were effective 2/14/13 (from Mortgagee Letter (11/16/12): Order of Loss Mitigation Options: First review for Formal and Informal Forbearance, then consider Home Retention Options in this order: 1st, review for Special Forbearance 2 nd, FHA Loan Modifications 3 rd, FHA-HAMP

FHA Update: Informal and Formal Forbearances These are the only option for borrowers without verifiable loss of income or increase in living expenses. They provide for reduced or suspended payments. Informal forbearance: oral agreement of 3 mo. or less Formal forbearance: written agreement of 3-6 mo. If 85% of borrowers surplus income can bring mortgage current within 6 mo., only option is a formal forbearance plan that provides for repayment within 6 mo.

FHA Update: Special Forbearance Only available to unemployed borrowers Not available until 3 months behind in the mortgage Must allow for minimum of 12 months for re- employment Delinquency amount may not exceed 12 months PITI Borrower must be evaluated for more permanent loss mitigation option at the end of the Special Forbearance

FHA Update: Loan Modifications Must have verifiable loss of income or increase in living expenses One or more mortgagor must receive “continuous income” defined above Mortgagor must have surplus income of at least $300 or 15% of net monthly income 85% of surplus income is insufficient to cure arrears within 6 months

FHA Update: Loan Modifications continued PITI must be able to be reduced by greater of 10% of original PITI or $100 by amortizing the loan at the Market Rate (PMMS plus no more than 25 basis points) over 30 years Must complete 3 month trial period (4 months for imminent default) Must not have received FHA Loan Mod or FHA-HAMP in previous 24 months

FHA Update: FHA-HAMP May consist of a Loan Modification, a Partial Claim, or both General FHA-HAMP qualifications: Verifiable loss of income or increase in living expenses One or more mortgagor receives continuous income as defined above Mortgagor’s surplus income is less than $300 or 15% of net monthly income Mortgagor has not received a Loan Modification or FHA-HAMP within the previous 24 months Must complete a 3 month trial plan (4 months for imminent default)

FHA Update: FHA-HAMP Stand-alone Partial Claim may be used where: Current interest rate is at or below Market Rate Current payment is at or below the target monthly payment Stand-alone Loan Modification may be used where: An affordable payment at or below the target payment can be reached be re-amortizing the mortgage for 360 months at or below Market Rate

FHA Update: FHA-HAMP Combination Partial Claim and Loan Modification: Partial Claim can be the sum of the arrearages, legal fees and foreclosure costs, and principal deferment, up to 30% of the loan’s unpaid balance (UPB) The rest is modified according to the terms in the previous slide For examples see Attachment B to Mortgagee Letter

FHA Update: FHA-HAMP More changes to FHA-HAMP (effective 2/14/13): FHA-HAMP Back End DTI ratio of 55% has been eliminated FHA-HAMP Partial Claim 12-month restriction has been eliminated Restriction of FHA-HAMP to 12 months delinquency has been eliminated

National Mortgage Settlement What loans are covered by the National Mortgage Settlement (NMS)? Loans held or serviced by these 5 banks: Ally/GMAC (now assigned mostly to Ocwen and Greentree) Bank of America Corp. Citigroup, Inc. JP Morgan Chase & Co. Wells Fargo & Co.

National Mortgage Settlement What loans are covered by the National Mortgage Settlement (NMS)? FHA loans are covered Fannie and Freddie loans are not covered

National Mortgage Settlement Components of the Settlement: Payments to state and federal government (Pennsylvania used this to re-fund HEMAP) Financial relief for homeowners Principal reduction Refinancing of underwater loans Payments to foreclosure victims Payments of about $1480 went out in June 2013

National Mortgage Settlement: Servicing Standards Highlights The settlement included many servicing standards: End to “robo signing” Monthly billing statement required Itemized summary 14 days before foreclosure referral Review all loans for loss mitigation before foreclosure referral Decision on loan mod application within 30 days

National Mortgage Settlement: Servicing Standards Highlights Cont. Dual track restricted: must review and make decision on loan mod application before foreclosure referral Once foreclosure is begun, no judgment or sale until loan mod application is reviewed Single point of contact (SPOC) Protections for military personnel Denial notice shall contain reasons for the denial and give 30 days to appeal

National Mortgage Settlement: Servicing Standards Highlights Cont. For NPV denial, borrower can contest property value by requesting a full appraisal Proprietary “in house” loan modification programs must have publicly available criteria and terms and be sustainable and affordable Transfer of servicing: new servicer must honor trial and permanent mods of previous servicer Borrowers in bankruptcy cannot be denied loss mitigation because of the bankruptcy

National Mortgage Settlement: Servicing Standards Highlights Cont. Default and attorney fees must be bona fide and reasonable No late fees during loan mod application, during trial mod, or short sale application Servicer can’t cancel insurance for nonpayment, and force placed insurance must be reasonably priced Countersigned permanent mod must be returned to borrower within 45 days

National Mortgage Settlement: Enforcement Each of the 5 banks has a complete settlement agreement, available at The Office of National Mortgage Settlement Oversight (OMSO) is charged with monitoring compliance with the NMS Complaints about violations of the NMS may be filed at OMSO’s website:

National Mortgage Settlement: Pennsylvania Attorney General The Pennsylvania Attorney General is also a party to the NMS and is entitled to enforce it Information on filing complaints to the Pennsylvania Attorney General is available at They have a designated contact at each servicer and are interested in hearing mortgage servicing complaints

Complaining to the Consumer Financial Protection Bureau (CFPB) Consumer complaints may also be filed with the CFPB at their website: The CFPB gives each complaint a tracking number, forwards it to the company, and provides information on the resolution Filing a CFPB complaint may get a higher-level review of your problem at the servicer

Questions? If you have questions about any of this material, you can contact me: Rachel Labush, staff attorney Community Legal Services, Inc. (215)