New Options For Mortgage Modifications

On Wednesday, it was announced by the Federal Government that there is a new loan modification program available for homeowners.  This new program is specifically designed to help a larger percentage of homeowners, given the new program does not require the borrower to prove their income or financial hardship status.

The Streamlined Modification Initiative requires that borrowers with home loans that are backed by  Fannie Mae or Freddie Mac must be at least 90 days past due on their current mortgages,  and they must be able to  make three consecutive trial payments on time. This new program is headed by the Federal Housing Finance Agency, the agency that regulates both Fannie May and Freddie Mac.

Initiative Explained

Past programs, including HAMP, or Home Affordable Modification Program required all borrowers to show proof in documentation of their financial situations, including income and financial hardship information.  The requirement of this proof led to many mortgage servicers being unable to provide modifications for risky borrowers, which in turn minimized the overall effectiveness of the modification programs themselves.

Starting July 1, 2013, the new initiative will allow for the more lenient requirements.  By this date, all mortgage servicers are required to contact all delinquent borrowers by mail and offer them a chance at loan modification.

The new initiative will provide borrowers with a new interest rate that is either equal to or lower than the current rates they are paying.  The rates will be based on the typical averages of 30-year fixed rate mortgages, and borrowers will be allowed a longer term-up to 40 years.  Additionally, any borrower that owes more money on their homes than the actual home is worth will not be required to pay any interest on up to 30% of the overall unpaid balance.  The predicted savings on monthly mortgage payments is around 30% per borrower.

Eligibility Requirements

Eligibility requirements for the new program state that homeowners must be currently between 90 days and 24 months past due  on their loans, and their first lien mortgage must be at least 12 months old.  Additionally, the total amount that the homeowners currently owe on their mortgage must be at least 80% of the home’s total value.

The FHFA has stated that there are various screening measures in place that will make certain this new initiative program cannot be exploited-in other words, homeowners that purposely stop paying their mortgages will not be able to qualify for a mortgage modification.

Currently, the FHFA does not have a specific number of expected borrowers for the new program, but a recent pilot program showed that 70% of individuals that were offered the new program were willing to participate in the trial, and 50% of those individuals actually obtained a loan modification.

Currently, it is estimated that 1 in every 5 homeowners owe more money on their mortgage than the actual value of their home.  This alone is what is slowing down the overall improvement of the real estate market.

In their fourth quarter, Fannie Mae and Freddie Mac have provided assistance for 130,000 homeowners in order for them to avoid going into foreclosure.  Since 2008, they have helped approximately 2.7 million mortgage borrowers avoid foreclosure completely.  This calculation includes 1.3 million borrowers who were saved through repayment and forbearance plans, loan modifications, and short sales.

Thirteen Mortgage Servicers Reach 9.3 Billion Settlement Agreement

The aftermath of the mortgage and housing crisis is not only affecting past homeowners, it looks as though a variety of mortgage servicers will be paying a hefty price for their behavior as well.   Currently, there are thirteen mortgage servicers who have been ordered to pay a grand total of $9.3 billion dollars in order to settle a variety of complaints that focus on mortgage processing methods, as well as unfair foreclosure processing methods.

On Thursday, the Office of the Comptroller of the Currency, along with the Federal Reserve announced the final settlement amount as amendments to enforcement actions against the thirteen responsible mortgage servicers. The mortgage servicers held responsible are Wells Fargo, JP Morgan Chase, Morgan Stanley, PNC, Sun Trust, U.S. Bank, Aurora, Bank of America, Goldman Sachs, Met Life Bank, Sovereign, HSBC, and Citibank.

The OCC and the Fed states that the grand total includes $5.7 billion in loan modifications and deficiency judgment forgiveness, and $3.6 billion in cash payments.

Banks Practiced Unfair Foreclosure Methods

The thirteen mortgage banks practiced improper and unfair foreclosure methods from 2009-2010.  Practices included robotic signatures or foreclosure documents and forwarding said documents to the court system without an actual agent going over them. These practices were investigated thoroughly, and the end result is a national settlement throughout the 50 states, engineered by the Attorney General.

Robotic signatures at one point in time were quite common in the debt collection industry.  A robo-signature would sign off on a complaint, allowing the courts to send out a legal summons to the debtor.  The debtor would only have so much time to respond to the complaint, often resulting in default judgments in favor of the debt collector, who in actuality never even read the complaint.  While the Fair Debt Practices regulations have definitely helped to minimize these practices, there are still debt collectors that engage in these types of practices.

Anyone that worked with one of these thirteen mortgage servicers who had their home in any stage of foreclosure between 2009 and 2010 will be included in the settlement amendments.  Currently, the total number of eligible borrowers is 4.2 million.

By the end of this month, Rust Consulting Inc. of Minneapolis plans on contacting all affected borrowers.  The agency specializes in class action settlement distributing, and will be dividing up the settlement in various amounts. Certain borrowers are entitled to a few hundred dollars in settlement funds, while others are entitled to larger amounts, the highest being $125,000.

Affected Borrowers Who Where Foreclosed On Between 2009-20010

All borrowers involved in the settlement do not need to take any action in order to receive their settlement payment.  Additionally, borrowers do not need to sign any type of waiver that forfeits any pending legal claims that are currently in progress against their mortgage servicer in order to obtain payment in the settlement.   Any borrowers in need of more information can contact Rust Consulting at  1-888-952-9105.

Federal regulators have stated that the $5.7 billion in assistance is to be used in the undertaking of loss mitigation efforts that are primarily focused on the prevention of home foreclosure.

First preferences will be given to specific practices that are designed to help borrowers stay in their homes, as these home preservation actions are both affordable and realistic for home owners.

GMAC Mortgage, One West and Ever Bank are yet to enter agreements with the regulators, and their foreclosure review process is ongoing. All three institutions oversaw 457,000 mortgages during a stage of foreclosure during 2009 and 2010.  The federal regulators currently expect that the reviews will be completed over 2014.