As a foreclosure mediator in New
Mexico, I like to report on news/cases in this special area and the big news right now is the Consent Decree/Judgment entered on April 4, 2012 against 5 financial defendants:
- Bank of America
- Citigroup
- JP Morgan Chase
- Ally Financial/GMAC, and
- Wells Fargo
The Consent Decree derived from investigations concerning the "robo-signing" of foreclosure
affidavits (meaning their signing outside of the presence of a notary public, and without personal knowledge of the facts so sworn), as well as allegations of various mortgage servicing improprieties. Such suits were filed by the US Department of Justice, the Federal Trade Commission, and 49 state attorneys general and banking regulators (including New Mexico). Although it is with these 5 defendants, it also binds their agents, such as attorneys, or sub-Servicers like Country Wide for Bank of America.
affidavits (meaning their signing outside of the presence of a notary public, and without personal knowledge of the facts so sworn), as well as allegations of various mortgage servicing improprieties. Such suits were filed by the US Department of Justice, the Federal Trade Commission, and 49 state attorneys general and banking regulators (including New Mexico). Although it is with these 5 defendants, it also binds their agents, such as attorneys, or sub-Servicers like Country Wide for Bank of America.
The settlement provides two types of relief or remedy:
(1) monetary relief to Homeowners whose loans are owned by the named defendant as well as some Borrowers whose loans they service, provided the note holder or loan servicer is not a "government sponsored enterprise" (GSE) such as Fannie Mae, Freddie Mac, HUD, etc.; and
(2) creation of servicing standards that apply to all loans that the defendant bank services, whether they are the holder of the note or just servicing it for another financial institution, and whether or not they are GSE loans or not.
Sounds nice, right? But what will it do for foreclosure mediation participants? Well, that's difficult to say at this point. So far I have only had one mediation involving one of these five defendants. The Homeowner in that case was able to receive a frankly amazing reduction in principle and interest as a "DOJ modification." The Homeowners' payment was reduced more than 50%, which was obviously welcome, but there are some caveats.
First, most properties in foreclosure will be a GEL loan so they will not get such a favorable "DOJ modification," although they may nonetheless benefit from the new servicing standards if a defendant bank is involved in any capacity.
Second, in this case it was notable that the payment period was extended quite a bit. It is possible the Homeowner would have preferred to have a payment that was not lowered quite so much in exchange for maintaining the existing loan term. However, the terms of the DOJ modifications or workouts are still established by investors, and not subject to negotiation--as
I’ve discussed elsewhere regarding other loan workouts.
Finally, at this point there is limited practical ability for Homeowners to enforce the Consent Decree. The New Mexico Attorney General was a party to the settlement but it has a limited role in enforcement. Although it may bring an action against any defendant bank for a pattern of misconduct, and therefore wants to hear about compliance issues, it cannot intervene in an individual homeowner's case. Moreover, Homeowners could face a high bar in establishing that the Settlement was intended to confer any kind of right they could personally enforce. See Tennessee Court of Appeals agrees: no private right of action under HAMP (noting most courts are not finding a right of private action under HAMP, the Home Affordable act); but see Skov v. U.S. Bank N.A. (--- Cal.Rptr.3d ----, Cal.App. 6 Dist., June 8, 2012) (concluding California laws imposing processing standards does confer a right of private action).
However, I do not mean to minimize the benefits of the Settlement. Monetary benefits in New Mexico include the following:
- up to $85 million for first and second lien reductions and refinancing;
- 4.5 million NM Homeowners who have lost their homes to foreclosure between January 1, 2008 and December 31, 2011 will receive up to $2,000 to homeowners; and
- NM will receive $11.1 million to use for a foreclosure hotline, free legal services for Homeowners, increased housing counseling, community outreach, and development of a settlement facilitation pilot project.
Sounds nice, right? But what will it do for foreclosure mediation participants? Well, that's difficult to say at this point. So far I have only had one mediation involving one of these five defendants. The Homeowner in that case was able to receive a frankly amazing reduction in principle and interest as a "DOJ modification." The Homeowners' payment was reduced more than 50%, which was obviously welcome, but there are some caveats.
First, most properties in foreclosure will be a GEL loan so they will not get such a favorable "DOJ modification," although they may nonetheless benefit from the new servicing standards if a defendant bank is involved in any capacity.
Second, in this case it was notable that the payment period was extended quite a bit. It is possible the Homeowner would have preferred to have a payment that was not lowered quite so much in exchange for maintaining the existing loan term. However, the terms of the DOJ modifications or workouts are still established by investors, and not subject to negotiation--as
I’ve discussed elsewhere regarding other loan workouts.
Third, the Settlement will only be in place for three and a half (3.5) years. At this point, as I've previously written, it's estimated that there is as much "shadow inventory" of properties
for which foreclosure is likely, as there are foreclosure properties. Accordingly, the foreclosure crisis itself is likely to far outlast the formal benefits of the Settlement Decree. Finally, at this point there is limited practical ability for Homeowners to enforce the Consent Decree. The New Mexico Attorney General was a party to the settlement but it has a limited role in enforcement. Although it may bring an action against any defendant bank for a pattern of misconduct, and therefore wants to hear about compliance issues, it cannot intervene in an individual homeowner's case. Moreover, Homeowners could face a high bar in establishing that the Settlement was intended to confer any kind of right they could personally enforce. See Tennessee Court of Appeals agrees: no private right of action under HAMP (noting most courts are not finding a right of private action under HAMP, the Home Affordable act); but see Skov v. U.S. Bank N.A. (--- Cal.Rptr.3d ----, Cal.App. 6 Dist., June 8, 2012) (concluding California laws imposing processing standards does confer a right of private action).
However, I do not mean to minimize the benefits of the Settlement. Monetary benefits in New Mexico include the following:
- up to $85 million for first and second lien reductions and refinancing;
- 4.5 million NM Homeowners who have lost their homes to foreclosure between January 1, 2008 and December 31, 2011 will receive up to $2,000 to homeowners; and
- NM will receive $11.1 million to use for a foreclosure hotline, free legal services for Homeowners, increased housing counseling, community outreach, and development of a settlement facilitation pilot project.
Perhaps the greatest benefits, however, will arise from the new servicing standards. As noted, these standards will apply to all loans that the defendant bank services, whether they are the holder of the note or just servicing it for another financial institution, and whether or not they are GSE loans or not. Additionally, although the term of the Settlement will only be for 3.5 years, that may be sufficient time to cause an shift in industry standards. Here are some of the highlights.
Leading up to and right before foreclosure is filed, the Servicers are required to take proactive steps to promote loss mitigation. Before foreclosure referral, loan Servicers shall notify Borrowers of all loss mitigation options, and evaluate Borrowers for
all available loan modifications; additionally, they shall no longer instruct Borrowers to default in order to qualify for loss mitigation relief (IV.H.8). Before filing for foreclosure, Servicers shall reach out to Borrowers who are delinquent and explain their loss mitigation options (IV.D.1), and shall cease
all collection efforts if Borrower is making timely payments under a
trial loan modification or has submitted a complete application
(IV.D.4). Then, within 5 days after a referral to foreclosure, the Servicer shall send a written communication that informs the Borrower that the Borrower can still pursue a loan modification and how to do so.
Once a Borrower elects to pursue loss mitigation, the Servicer is generally prohibited from pursuing a "dual track" of foreclosure alongside loss mitigation. If the Borrower submits a complete loan modification application before 120 days of delinquency, the Servicer must not refer the loan to foreclosure until it has completed its review of the loan mod application. If the Borrower submits a complete loan mod application after the loan is referred to foreclosure AND within 30 days of the Post Referral Foreclosure Solicitation Letter going out, the Servicer cannot move for foreclosure judgement or proceed with foreclosure sale, pending review of the loan modification application. If a complete loan mod is submitted more than 30 days after the Post Referral letter, the Service must postpone any foreclosure sale pending review. If a complete loan modification application is submitted within 15 days before a scheduled foreclosure sale, the Servicer may review it but nothing is postponed during the review. However, the Servicer shall not move to judgment or sale if the Borrower is in compliance with the terms of a trial loan mod, forebearance or repayment plan, or if a short sale or deed-in lieu has been approved.
During the loss mitigation process, there are a number of obligations. Loan Servicers shall make make public all requirements for a propriety loan modification. They shall also identify for Homeowners a single point of contact (SPOC), his or her specific duties, and one or more direct means of communication with the SPOC (IV.C.1-2). 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).
Servicers are also required to maintain adequate staffing, and to maintain adequate staffing and caseloads and minimum experience for SPOCs (IV.H.1-2).
If a Homeowner is denied loan modification, that denial shall be subject to an indepedent in house evaluation by the Servicer. Additionally, the Servicer must send a written denial notice identifying the reason for denial and the information considered. If modification is denied by an investor, the Servicer must disclose the name of the investor. If modification is denied based on the result of a Net Present Value (NPV) calculation, the Servicer shall provide the monthly gross income and property value used in the calculation.
After denial, the Borrower shall have 30 days to request an appeal, during which he or she can contest property valuation and request a full appraisal if denial was based on a NPV calculation.
The Settlement also imposes tight timelines on the loan modification and disclosure processes:
- 14 days prior to referral to foreclosure attorney, the Servicer must send notice to the Borrower of the facts supporting the right to foreclose including an account summary;
- Servicer must acknowledge receipt of a modification application within 3 business days;
- Servicer must send a "missing items letter" within 5 business days;
- Borrower then has 30 days to send in missing items;
- Servicer must send a denial letter within 10 days of denial;
- as noted, Borrower has 30 days to appeal denial; and
- and Servicer generally cannot proceed with sale until 15 days after the appeal is denied or 14 days after modification is offers as a result of appeal and rejected or not accepted.
There are also a number of provisions geared to prevent robo-signing in the future. Moreover, "[i]n 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.) Similarly, there are provisions devoted to ensuring transparency concerning Servicer's right to foreclose, including making good faith efforts to locate a note lost while in its possession.
This is, of course, only a summary and the Settlement includes many other provisions and protections. If
you are interested in mediation services for a foreclosure matter (residential
or commercial), please contact Pilar
Vaile, P.C. at (505)
247-0802 or info@pilarvailepc.com.
