1. Circuit Court of Cook County Mortgage Foreclosure Mediation Program
Homeowner Advocate Training
Patricia Nelson
Director, Foreclosure Mediation and Access to Justice
Ashley Griffith
Supervising Attorney, Foreclosure Mediation

2. Chicago Volunteer Legal Services “CVLS”
Founded in 1964 – celebrating 50 years
Work from a small staff – leverage resources with volunteers
Our job is to support YOU so that you have a good volunteer experience and in turn our clients get excellent quality representation
Since 2010, we’ve trained over 500 mediation volunteers and mediated close to 5,000 cases
We’ve reached agreements in nearly 50% of cases

3. 2 Possible Components to CVLS assistance for homeowners
Mediation
CVLS is automatically appointed by the court, and we accept all cases
No income caps
Just for mediation – no litigation
Access to Justice
Full legal representation for litigation
Possible representation for failure to mediate in good faith sanctions claims
Possible representation for foreclosure cases that do not settle in mediation

4. Who can participate in the mediation program?
No income caps
Defendant must live in the property
Single family home or building with 4 or less units
Must have an Appearance and Answer on file
Must have met with a HUD-approved housing counselor and been denied a loan modification

5. When is Mediation? Sample Foreclosure Timeline
January-March
Client misses three payments
April
Plaintiff files Complaint
Late April
Borrower is served
May Meets with Chicago Legal Clinic for assistance with drafting an Appearance, Answer to the Complaint to Foreclose Mortgage, and Motion for Mediation
June
Case Management Date: Defendant files an Answer and Appearance and presents a Motion for Mediation. Judge continues the case for 30 days for status on loss mitigation.   
July Borrower’s Motion for Mediation was granted due to either a denial of a loan modification, pending trial payment plan offer, or other legal issue
October
First Mediation
December Second Mediation—results in no agreement
Late December Case is returned to the trial call
Year One
When is Mediation? Sample Foreclosure Timeline

6. When is Mediation? Sample Foreclosure Timeline
February-May Defendant issues discovery and Plaintiff answers.
June Plaintiff files Motion for Summary Judgment and files its Supreme Court Rule 114 loss mitigation affidavit. Borrower gets 28 days to respond. Plaintiff gets 14 days to reply.
October Summary Judgment Entered
January Sale: The sale cannot take place until the redemption period expires; 3 months after judgment or 7 months after service, whichever is later
February Court approves the sale and stays possession for 30 days by statute
March Client must vacate the property
Year Two

7. What are we mediating? 2 categories of resolution Overall goals
Retention
Relinquishment
Overall goals
Ensuring adherence to government programs
Ensuring an end to endless submission of documents
Ensuring fair treatment and no bullying

8. Retention Options Borrower Remains in the Property
Reinstatement
Repayment Plan
Forbearance Agreement
Loan Modification
Hamp Tier I and Tier II
National Mortgage Settlement
Fannie Mae, Freddie Mac, or FHA modifications
In-house (standard) loan modification

9. Retention Option Reinstatement
Borrower pays full arrearages – including missed payments, attorney’s fees, lender’s costs, taxes paid on their behalf
Realistic for some borrowers who can borrow the money from 401(k)

10. Retention Option Repayment Plan
Borrower pays arrearages (missed payments, attorney’s fees, lender’s costs, taxes paid on their behalf) over a period of time, usually 6-12 months
Borrower must make regular mortgage payment in addition to repayment amount
Unrealistic for most borrowers

11. Retention Option Forbearance Agreement
Lender agrees to accept no (or reduced) payments for a specified period of time
Unemployed borrowers or those experiencing a temporary, finite loss of income
Review any Forbearance Agreement to ensure there is some promise or course of action for review for a loan modification once the forbearance is over

12. Retention Option Loan Modifications – under any program
There are only 3 variables in any loan that can be modified
Interest rate
Term
Amount of Principal
There are infinite number of ways regulators and investors can make it complicated
Eligibility rules for borrowers and loans
Restrictions on rates, amounts, terms if certain conditions are met.
If you can understand HAMP, you will be able to apply that understanding to any of the other loan modification programs

13. HAMP Basic Concepts
Home Affordable Modification Program (Making Home Affordable - MHA)
All servicers who received TARP money are required to participate in HAMP Tier 1, subject to investor limits.
The goal is to modify the terms of the loan to make it both affordable for the borrower AND profitable for the investor.
Affordable for the homeowner – Waterfall Analysis
Profitable for Investor – NPV Test
“Guidance” is found in the MHA Handbook –

14. Applying for HAMP
Submission of “Initial Package” triggers servicer’s duty to review for HAMP
Documents need to be fairly current, or may be unusable (“staledated”) – within 60 days for some, 30 days for others
CVLS paralegals will already have submitted an application for you, regardless of the purpose for mediation or any previous denials. Often, you will need to submit additional or clarifying documents or an entirely new package.
Regardless of the submission date, you will need to send current proof of income.

15. Applying for HAMP What needs to be in a HAMP application
Request for Modification (RMA includes Dodd Frank certificate)
Separate list of expenses, signed and dated
Separate free form hardship letter, signed and dated by all borrowers
4506T – tax certification form
Proof of income
30 days-worth of most recent paystubs for W-2 income
Lease, contribution letter, proof of deposits in bank statements
Profit and loss statement for self-employed
Last 2 years tax returns that have been filed
Last 2 months of bank statements – all pages, even if intentionally left blank, for all accounts. Printouts of online activity reports are not accepted
Recent utility bill- proof of occupancy
Sometimes a servicer specific application (ask plaintiff’s counsel)
Most forms are available at – CVLS has samples
of others

16. HAMP – Loan Eligibility
Non-GSE invested loans/Private Investors- servicers, not investors choose to participate
All Fannie Mae/Freddie Mac (GSE – Government Sponsored Enterprise) loans covered – HAMP Tier 1 is mandatory
FHA- insured loans must be evaluated for FHA HAMP, which has slightly different guidelines.

17. HAMP – Loan Eligibility
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

18. HAMP – Borrower Eligibility Income Eligibility
Current monthly mortgage payment including PITIA (principal, interest, taxes, insurance, association fees) must be greater than 31% of monthly gross income.
Does not include private mortgage insurance payments (PMI).
Servicers commonly make mistakes - they deny because current payment is <31% of gross income by leaving out taxes, insurance and/or association fees.

19. HAMP – Borrower Qualification Income considerations
Income – what’s included? (Sec. 5.1 MHA Handbook)
Can include income for non-borrower household members
Can include income for non-resident borrowers, so long as one borrower uses property as primary residence
Rental income gets multiplied by 75%
Unemployment income is not eligible
If self-employed, profit and loss statement without other documentation suffices
Borrower DOES NOT have to disclose child support or alimony
Must be able to document monthly income
There is no income amount that bars application. However, a borrower’s income may be too low or too high for a HAMP mod
Too low and the borrower will fail for unaffordability
Too high and current payment may already be at or under 31%

20. HAMP – Borrower Qualification Steps of the Waterfall Analysis
Target payment – PITIA = 31% of gross monthly income
Waterfall Analysis
Capitalize arrearages
Reduce interest rate
Extend the term of the loan
Principal deferment
Possible principal forgiveness
Servicers will only take steps necessary to get payment to target amount

21. HAMP – Borrower Qualification Waterfall Analysis – Capitalizing Arrearages
All arrearages will be added to principal - Principal debt will increase
Capitalized arrearage includes:
Past due interest
Escrow deficiencies/advances – lender will have paid property taxes
Foreclosure costs and attorney fees
Servicing fees: property inspections, credit report fee
CANNOT include:
Late fees: unpaid fees will be waived
Additional modification fees: no charge for HAMP

22. HAMP – Borrower Qualification Waterfall Analysis – Interest Rate Reduction
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

23. HAMP – Borrower Qualification Waterfall Analysis – Increase Term of Loan
If the interest rate is reduced to 2% and payment still not equal to or less than 31% of gross income, then the next step is term extension. The limit is 40 years.

24. HAMP – Borrower Qualification Waterfall Analysis – Principal Forbearance or Forgiveness
Principal Forbearance (Deferral)
Forbearance of principal is essentially taking a portion of what is owed and not making it due and payable until transfer of the property or the maturity date of the mortgage loan
The principal forbearance amount is treated as a non-interest bearing balloon payment
The lender can forbear the greater of the following:
30% of the UPB after capitalization; or
An amount that would result in a modified interest bearing balance that would create a loan to value ratio equal to 100%
Principal Forgiveness – optional for servicer and very, very rare

25. HAMP – Borrower Qualification Net Present Value (NPV) Test
Measures the benefit to the investor of a loan mod, not the benefit to the servicer or the borrower
Positive NPV test = HAMP Tier 1 loan mod review continues
Negative Tier 1 NPV test = move to HAMP Tier 2 loan mod review if the investor participates in Tier 2

26. HAMP – Borrower Qualification Net Present Value (NPV) Test
Actual HAMP NPV test not public
In mediation, demand inputs – limited to some inputs
FDIC has comparable model online at FDIC.gov.
Servicers can generate their own NPV and use their own numbers for required inputs
However, more information is available at and a whitepaper on NPV at PV-WP.pdf

27. HAMP – Borrower Qualification Reasons for Failing NPV Test
Foreclosure looks attractive
High home value
Chance of cure is high
Mod looks risky
Declining home prices
High chance of re-default
Mod doesn’t generate enough income
Borrower’s income is so low that at 31%, the mod doesn’t generate enough income

28. HAMP – Bankruptcy
Borrowers may not be denied a permanent HAMP modification on the basis of a bankruptcy filing.
BUT – filing BK puts an automatic stay on the mediation.
Effects of Bankruptcy- A bankruptcy discharge through chapter 7 relieves your client of personal liability for the mortgage debt.
It also qualifies as a change in circumstances and triggers a re- review for HAMP.

29. HAMP Tier 2 Expansion of HAMP program, effective June 1, 2012.
Designed to provide additional chance at modification for previous HAMP defaults and denials.
Only participating servicers – Fannie and Freddie do not participate.

30. HAMP Tier 2 – Loan Eligibility
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 – same as Tier 1
Can be a loan on a rental property

31. HAMP Tier 2 – Loan Eligibility
Borrowers who were not eligible for HAMP Tier 1 (for excessive forbearance, failed NPV test, etc.).
Borrowers who did not successfully complete a HAMP Tier 1 trial or permanent loan modification.
Borrowers with a monthly mortgage payment less than 31% of their gross monthly income.

32. HAMP Tier 2 – Target Payment
Target payment is between 25% and 42% debt-to-income ratio.
Some servicers have expanded this DTI ratio to 10%-55%.
See: partners/understanding-guidelines/Documents/ServicerExp_DTI_ pdf

33. HAMP Tier 2 – Borrower Qualification Waterfall Analysis
Waterfall Steps are same as Tier 1.
Step 1: Capitalize arrearages.
Step 2: Adjusts interest rate. Can be more than 2%.
Step 3: Extend term of loan to 40 years.
Step 4: Defer principal.
Must reduce P&I payment by at least 10% from current P&I payment.

34. HAMP - TPP 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
If fails trial period: only HAMP Tier 2 may be possible, otherwise no obligation to re-offer
Reschedule any mediation set for during the TPP until after the TPP to ensure it goes permanent. Do not agree to cancel any further mediations.

35. HAMP – after the TPP
Upon timely payment of all trial payments, permanent modification will be offered – problem can be getting the permanent modification on a timely basis.
Advise your client to continue making trial payments until permanent.
Additional docs and/or meeting with a housing counselor may be needed, but uncommon requirements.
Step-rate interest plan: will remain at modified interest (as low as 2%) for 5 years, then increase 1% point each year until caps out at current market rate (around 5%).
Any amount needed to fully fund escrow will be repaid over 60 months (escrow shortage).
Payment amounts in the documents will not incorporate any PMI payments.

36. HAMP Denial
Written Notice 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
Must evaluate for in house options – there should be a denial letter for each program stating the reason denied for that specific program

37. HAMP Denial for NPV
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
Must review new borrower data, recalculate if likely to change outcome
If property value is challenged, must be recalculated using borrower’s value if there is supporting documentation

38. HAMP Guidance No regulations or statute Guidance
MHA Handbook (found at hmpadmin.com)
There is no private right of action to enforce HAMP, but failing to follow the guidance can be used to support sanctions, unfair business practices, and other consumer fraud related counter-claims in litigation.

39. Other Loss Mitigation Programs
National Mortgage Settlement (DOJ)
Fannie Mae
Freddie Mac
Unspecified In-House (traditional) modification programs

40. National Mortgage Settlement
It is unclear if this is still an option – the banks seemed to have fulfilled their duties under the settlement agreements.
Big five banks entered into settlement agreements (agreed orders) with the state Attorneys General – must call for eligibility
Ally/GMAC:
Bank of America / Countrywide:
Citi:
JPMorgan Chase:
Wells Fargo:
Review prior to HAMP
Offers principal forgiveness

41. Fannie Mae modifications
Fannie Mae has four modification programs.
1. Fannie Mae HAMP – works the same as non-GSE HAMP
2. Fannie Mae Alt Mod – Borrowers who were eligible for a HAMP mod and initiated a HAMP trial plan but were not offered a HAMP permanent mod may be eligible
for borrower’s who failed the hardship test
payment moves to 31% - so it will go up
3. Fannie Mae Standard Mod – where borrower is not HAMP eligible, failed a HAMP TPP or defaulted on a permanent HAMP
provides for a housing expense to income ratio that is greater than or equal to 10% and less than or equal to 55%
40 years, market rate
Guidance is at:

42. Freddie Mac modifications
Freddie Mac offers 2 different modifications:
Freddie Mac HAMP – works the same as non-GSE HAMP
Freddie Mac Standard Modification
Recapitalization, Interest rate is reduced to Market rate, term extended to 40 years
must be lower payment
Guidance is at:
mod.pdf

43. FHA Modifications
FHA insured loans are reviewed in the following order: forbearance, repayment plan, standard modification and then for FHA HAMP (if necessary)
Used to be difficult to get a reasonable modification because FHA- HAMP was unavailable if loan was over 12 months in default. This rule was eliminated 3/15/2013
If client’s loan was denied under old guidelines, ask for re-review
FHA still has the following distinctions:
will not extend maturity date beyond 30 years and the interest rate (even for FHA HAMP) is the market rate plus a risk adjustment
Mortgagee letters available at m

44. Traditional, “In-House” loan modifications
Same Terms to Modify: Interest, Term, Principal
Some servicers use same HAMP Income Target: 31% of Gross… but can vary
Some servicers offer 30 years, or 40 years
Need to evaluate net income and actual expenses to determine how much borrower can actually afford to pay
If payment is unaffordable, look at expenses, will a Chapter 7 reduce expenses to make it affordable?
Can your client offer a down payment on the arrears?
Defer Arrearage as Balloon Payment
Again, forgiveness is extremely rare

45. CVLS Advocate Workbook
Excel workbook with a step by step process to prepare your case for mediation
Does automatic calculations for all loan mod programs

46. Relinquishment Options Borrower Surrenders Property
Evaluate with list in CVLS Advocate Workbook
Short Sale
Deed in Lieu of Foreclosure
Consent Judgment

47. Consumer Financial Protection Bureau (CFPB) Servicing Rules
Apply to all servicers except some exempt “small” servicers.
Went into effect January 2014.
Servicers must evaluate application for completeness within 5 days and send written acknowledgment of receipt.
If application is incomplete, must send notice of what is needed.
Servicer can determine the deadline, must be “reasonable” and take into account the borrower’s other document dates becoming stale.
Comments to the rules suggest nothing less than 7 days for additional or corrected docs is reasonable.
Servicer must evaluate within 30 days of a complete application.
Notice of approval or denial must be sent within 30 days.
14 days to appeal, and 30 days to determine result of appeal.

48. Issue Spotting for all types of loan modifications
Document issues / income verification
Income calculations – contribution, rent, child support
Reasons for previous denials
Incomplete docs
Improper calculations
Change in circumstances
Divorce / title / quit claim issues
Servicing transfers
Failure to review for ALL programs
Investor participation in HAMP

49. Mediation session structure
Introductions
Confidentiality agreement & ground rules
Opening statements & loan figures
Discussion with Q & A
Caucus, if needed (meet privately with client)
Discussion, wrap up
Drafting of Memorandum of Agreement and/or other forms, if applicable
Evaluations
Synopsis of mediation session to CVLS support attorney