Thanks to Diane Thompson of the National Consumer Law Center for allowing me to use her email explanation of some of the HAMP Mortgage Modification Changes.
It is reprinted below, with some revisions:
HAMP Supp. Dir. 10-02 addresses the problem of foreclosure referrals and proceedings continuing during HAMP review, borrower solicitation for HAMP, and reasonable efforts by the servicer to contact investors. These changes do not become effective until June 1, 2010.
Foreclosures
Under HAMP Supp. Dir. 10-02., servicers may not refer a loan to foreclosure until either the borrower’s eligibility is determined or reasonable efforts at solicitation have failed. HAMP Supp. Dir. 10-02 defines reasonable efforts at solicitation to include over, at least 30 days, 4 phone calls, at different times of the day, and two letters, one sent with confirmation of receipt and one sent regular mail. This is a FLOOR for what reasonable solicitation efforts are.
If the homeowner is turned down for a mortgage modification, under prior Sup. Directives, the homeowner will be sent a “non-approval notice.” In most cases, there should be an additional 30 days after the nonapproval notice is sent before the loan can be referred to foreclosure. The exceptions are if the borrower in not approved because the property or mortgage is ineligible, the borrower withdraws, or the borrower failed to make payments under trial or permanent HAMP mortgage modification. The listing of these exceptions indicates that Treasury, in requiring that borrower eligibility be determined before the loan is referred to foreclosure, contemplated a full evaluation of the borrower, including the running of the NPV test.
Once a borrower is in a trial mod based on verified income (as described in SD 10-01), even if the loan had previously been referred to foreclosure, all foreclosure activity in the case must cease. This is a dramatic change from current policy, which allowed loans to proceed to the point of foreclosure. Note there are some exceptions, such as nonpayment of any trial mod payment.
Servicers can set cut-off dates seven business days before a scheduled foreclosure sale by which they must receive documents from the borrower in order to stop the sale. Servicers can also impose special requirements (such as express mail) for requests received 30 days before a scheduled foreclosure sale, but they must tell the borrowers that.
The servicer must provide the foreclosure attorney a certification of HAMP compliance at least seven business days before the foreclosure sale.
Issues with 10-02
It only stops referrals, not pending foreclosure proceedings, at least until a trial modification based on verified income (as described in SD 10-01) has started, as long as those payments are timely made.
A referral to foreclosure may occur after a denial, even if the borrower is challenging that denial.
The servicer can evade all requirements by putting a note in its system that the borrower indicated she was not interested in a HAMP modification. This could easily give rise to abuse, particularly when the servicer issues a non-approval letter.
The requirement of at least 30 calendar days for reasonable solicitation efforts should keep servicers from making all contacts in an unreasonably short period of time, but could potentially result in servicers relying on solicitations that are out-of-date and months old
Useful Practice Angles
Ask for and get the certification to the foreclosure attorney if a sale has been conducted. The failure to provide this could help bolster a case for wrongful foreclosure.
Servicers must have separate in-house escalation process for review—you can ask for this. Failure to provide it, again, could be used to help bolster a wrongful freclosure case or use of HAMP as a defense to foreclosure. p. 4
Servicers have to accept submissions from legal reps, with appropriate written authorizations p. 4
Servicers should not require multiple submissions of the same documents, which may help address the ubiquitious problem of servicers asking for the income to be verified once for every year of the person’s life. p. 4. (We are also attaching a sheet we prepared on other methods for attacking this problem).
Servicers have to determine investor “nonparticipation” in HAMP within 90 days of signing SPA, and if the investor is not participating, contact the investor in writing, “encouraging the investor to permit modifications under HAMP.” p. 9 As a meaningful standard, this is super lame, but it would be fun to get in discovery. Fannie will also have list of participating investors and number of loans serviced. Remember you can use TILA to obtain investor identity, although your leverage is limited and the clock is ticking.
Potential Areas to Seek Clarification
There are some places where we believe the Sup. Dir. lacks clarity and we will be asking Treasury to issue FAQs. On our list now are the following. If you have others please let one of us know:
Clarify what referral to foreclosure means. Does this mean an issuance of the notice of default, referral to a foreclosure attorney, or something else? We did broach this matter with Treasury before the Sup. Dir. was issued, but Treasury thought it was clear enough. Perhaps hearing more information now will convince them to clarify via FAQ.
Clarify that the NPV test must be run on eligible homeowners and their qualification for HAMP determined prior to a foreclosure referral, and not just their baseline eligibility.
Clarify what happens in the event that a foreclosure referral, judgment, or sale occurs. Treasury has indicated that its intent was that a wrongful foreclosure referral, sale or judgment would be reversed.
HAMP Mortgage Modification Changes
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