This article is an update as of September 28, 2013 of the status of obtaining a modification for Long Island homeowners. The update is based on newspaper articles discussing recent legal and policy changes regarding modifications and foreclosures and trends on Long Island compared to the rest of the country. It was researched by the Law Office of Ronald D. Weiss, P.C., a Long Island modification attorney located in Melville, New York.
Homeowners living on Long Island, seeking a loan modification, are being helped by more favorable laws, cases and legislation. The trends are showing that nationally there are more modifications and less foreclosure starts. However, contrary to the national situation, the trends for Long Island foreclosures are showing a sharp increase in the rates of foreclosure starts in Nassau County and Suffolk County. Several factors make the Long Island area unique in its recent upsurge of foreclosures at a time that the national situation is improving. Also a concern is a high default rate in many of those who had obtained a modification, causing worry that as modifications are becoming more available, their failure rate is also going up.
The laws that affect a modification effort by a Suffolk County or Nassau County homeowner are: the statutory law and the case law of the State of New York, and the federal HAMP laws and other federal laws and regulations of the United States government and its agencies. Long Island modifications are also affected by a string of recent court cases; decisions in our New York and Long Island state courts may have a binding effect on courts in our jurisdiction, while those from other jurisdictions, are not binding but may be persuasive on our local courts. However the biggest effect on the modifications is the approach of lenders and how the above laws, regulations and court decisions pressure lenders to more readily approve the modification requests of distressed homeowners and grant permanent loan modifications that are sufficiently helpful so as to help resolve the continuing foreclosure crisis on Long Island.
1. Legislation in New York Intended to Prevent Lenders’ Attorneys Keeping Homeowners in Legal Suspense
A bill that was suggested by New York’s chief judge, Jonathan Lippman and by the state’s attorney general, Eric T. Schneiderman, and which awaits the governor’s signature would prevent homeowners being kept in legal suspense. The bill would prevent lender’s attorneys from waiting and holding off the filing a required RJI which is needed to start the process of negotiating the mortgage with Court supervision. Under laws in New York State such conferences must be scheduled within 60 days of the filing of a required special RJI which would trigger such meetings. A delay with filing the RJA also delays such conferences to the detriment of homeowners. The legislation would require the lenders to file the RJI shortly after filing their complaint.
(Prevost, NY Times 8/25/13)
Our Analysis: This bill will enforce existing laws requiring timely foreclosure conferences.
2. Ability to Sue Banks Over Permanent Modification Denial
In a recent decision by the 9th Circuit Court of Appeals it was ruled that Wells Fargo & Co can face lawsuits by aggrieved homeowners who complied with a trial modification, but were thereafter denied for a permanent modification, if they can show that they were qualified to receive a HAMP modification. The Court decided that the alternative of binding the bank only upon the signing of an actual signed modification agreement would create “unfettered discretion” for the bank to arbitrarily deny modifications in an unfair manner. A federal court in Chicago reached the same conclusion last year.
Our Analysis: This appellate court decision as well as similar one in Chicago give grounds to sue a lender to homeowners here who have succeeded under a temporary modification, but who without reason were not given a promised permanent modification. While these decisions are not binding on a New York Court, they would be persuasive.
(Stempel, Yahoo News 8/8/13)
3. New Proactive Program That Eliminates Burdensome Paperwork Announced
A new program called the Streamlined Modification Initiative was recently announced by the Federal Housing Finance Agency where there would be no burdensome paperwork and where borrowers only have to make three monthly payments on time before the modification becomes permanent. The start date of the new program was officially July 1, 2013 and it expires December 31, 2015 and the program applies to all mortgages owned or guaranteed by Fannie Mae or Freddie Mac. The characteristics of the modification are as follows:
a) The payment that results has to be equal or less than the unmodified payment; b) The arrears are added to the loan balance and the term extended to 480 months and the interest rate is currently approximately 4 percent; c) For underwater mortgages, the borrower will not pay interest on up to 30 percent of the unpaid loan balance. However there is no reduction in the principal balance; d) Unlike HAMP which is restricted to loans originated before January 1, 2009, this program is given to any loans held at least a year; e) The program, unlike HAMP does not base itself on attempting to reduce the mortgage payment to 31 percent of gross monthly income, so it will be easier to qualify, but the reduction may be less than under HAMP.
Our Analysis: the Streamlined Modification Initiative if it actually takes off and if it is not just another program that becomes cause for false hope may correct many of the problems in the modification process which is fraught with long delays and nit picking over irrelevant paper work which often becomes an excuse to deny an applicant.
4. High rates of Default Under TARP Supported Programs
More than a third of the homeowners who received loan modifications under the Treasury Department’s Troubled Asset Relief Program, or TARP, have redefaulted, causing the agency to question whether the program is sufficiently beneficial and whether the modifications were sufficient, since in many cases it was less than 10 percent of the monthly payment that was reduced on a regular basis. At first, servicers received $1,000 for every loan modified. Now they are paid $400 to $1,600 for permanent loan modifications, depending on how many months in arrears the homeowner was (a modification made at the first sign of trouble is more effective than one made after many months of failure to pay). They can receive extra money if they reduce the monthly payment more or the loan modification lasts longer. Because many of those given modifications were already high risk individuals, these factors are also a major contributor to the default rates.
(Dewan , 7/25/13 New York Times) http://www.nytimes.com/2013/07/25/business/new-defaults-trouble-a-mortgage-program.html?ref=loanmodifications
Also see, http://www.dailyfinance.com/2013/08/01/hamp-mortgage-modification-redefaults/ (Grgurich 8/1/13 DailyFinance.com) as to the costs for the taxpayer based on many defaulted modification agreements. Christy L. Romero, the Special Inspector General for the Troubled Asset Relief Program. TARP, in a report noted that more than 163,000 of the 600,000 or so homeowners who received permanent loan modifications under the Home Affordable Modification Program have redefaulted. About $4.4 billion has been spent to help troubled homeowners. That $815 million spent on loans that redefaulted amounts to 18 percent of the total — a not insignificant failure rate on the part of the lenders and borrowers.
Our Analysis: defaults on modifications should be studied to see if the reasons for the default are that the lender gave an insufficient modification or was unduly harsh based on a relatively small default.
5. Mixed Record of Compliance by Mortgage Lenders With $25 Billion Settlement
Last year’s settlement with the five largest lenders has a mixed level of compliance according to a recent report by the settlement’s independent monitor who found that the lenders have largely met their financial obligations under the settlement but still need to end the maze of frustrations that borrowers must navigate to modify their loans. Under the settlement he banks are required to submit a corrective action plan and compensate affected borrowers. Banks are subject to fines of up to $5 million if they do not improve their performance on a failed metric. But they are allowed a certain number of errors, usually 5 percent, before they are considered to have failed. Critics of the settlement point out that in contrast, homeowners seeking help are required to submit virtually perfect paperwork to prevent the loss of their homes.
Shaun Donovan, the federal housing secretary and one of the chief architects of the settlement, said the report showed that the process was working. But state officials in New York, Massachusetts, Florida and Illinois have expressed deep disappointment with the banks’ performance in other areas in what they said were many of violations of the settlement, including a failure to adhere to the required timetable or provide reasons for the denial of an application. Banks are subject to fines of up to $5 million if they do not improve their performance on a failed metric. But they are allowed a certain number of errors, usually 5 percent, before they are considered to have failed. Critics of the settlement point out that in contrast, homeowners seeking help are required to submit virtually perfect paperwork to prevent the loss of their homes.
(Dewan 6/19/13 New York Times)
Our Analysis: The compliance agreement with the five (5) largest lenders is a possible way to defend homeowners in distress if the bank can be shown to have violated the Settlement. Because there are many remaining violations this may be an area of future litigation.
6. Federal Program for Distressed Homeowners Is Extended Through December 31, 2015
The Obama administration’s Treasury Secretary, Jacob Lew, and Department of Housing and Urban Development Secretary, Shaun Donovan announced at the end of May 2013 an extension of the Making Home Affordable program, through the end of 2015. They were due to lapse at the end of 2013. Under HAMP, the federal government gives financial incentives to mortgage providers to modify the loans of eligible borrowers so the homeowners’ monthly payments do not exceed 31 percent of their monthly income. After being introduced in early 2009 banks were slow to participate Over time, administration officials refined the initiative and pressured lenders to help borrowers. Participation increased, if not to the anticipated levels of three million to four million homeowners. According to the Treasury Department, about 1.3 million homeowners received direct assistance from the Making Home Affordable initiatives. Another 300,000 have received other relief, like forbearance in mortgage payments for homeowners who suddenly lost their jobs. As of March 2013, Treasury said, more than 1.1 million homeowners had moved from trial modifications to permanent modifications of their mortgages, for median savings of $546 a month, an amount that exceeds the median relief resulting from private sector modifications.
Our Analysis: The backlog of distressed mortgages is still very high. On Long Island modifications have been delayed by a frustratingly difficult review process by the lenders and therefore there is a need to extend to laws encouraging modifications now that the lenders are starting to comply on a more frequent basis.
7. New York State Will Sue Two Large Mortgage Lenders, Bank of America and Wells Fargo Over Settlement Abuses
New York’s attorney general, Eric T. Schneiderman, plans to sue two mortgage titans, Bank of America and Wells Fargo, over claims that they breached the terms of a multibillion-dollar settlement intended to end foreclosure abuses. Mr. Schneiderman says that Bank of America and Wells Fargo did not follow guidelines dictating how the banks field and process requests from homeowners trying to modify their mortgages. The move by Mr. Schneiderman is the first time that an attorney general has readied a lawsuit against one of the five participating banks on charges related to the settlement and more attorney generals could follow New York’s lead.
Mr. Schneiderman set the potential penalty in motion on Friday when he sent a letter to the settlement monitoring committee, outlining his plans to penalize the banks. “I am writing to inform you about a persistent pattern of noncompliance,” Mr. Schneiderman wrote, according to the letter. The committee has 21 days to decide whether to initiate a lawsuit, or whether Mr. Schneiderman will pursue the action alone.
Bank of America and Wells Fargo said on Monday that they would take steps to handle the issues raised.
Our Analysis: the continuing problems with lenders presenting modification applicants with a discouraging bureaucratic maze that undermines their efforts is not just confined to two lenders but is industry wide. However suing two of the largest lenders in New York is a good start. This may also give applicants a private right to sue or counterclaim against these lenders based on the same or similar allegations as they apply to the specific case.
(Silver-Greenberg New York Times 5/7/13)
8. Checks Issued to Homeowners In Settlement
Months after brokering a multibillion-dollar settlement with banks over mortgage foreclosure abuses, the Federal Reserve and the Office of the Comptroller of the Currency are set to dole out roughly $1.2 billion in the first batch of payments. By April 12, the regulators expect to mail 1.4 million checks. An additional round of checks will be sent out by the middle of July, according to the regulators. The settlement, which scuttled a deeply flawed review of millions of loans in foreclosure, will ultimately provide $3.6 billion in cash relief to borrowers who entered foreclosure in 2009 or 2010. The largest category of borrowers slated to get money are the more than half a million homeowners who were deprived of a loan modification or other loss mitigation assistance. The 568,476 borrowers that fall into that group are to receive $300 each.
Our Analysis – Checks in the amount of $300 are not a solution to the foreclosure crisis. This cash settlement was not the main benefit from the settlement with the five largest lenders. The main benefit for homeowners was the promise by lenders to streamline the modification process in terms of its paperwork and review. The suit that may be initiated by the New York Attorney General against Bank of America and Wels Fargo shows that the lenders can be held to task for agreements that that they have violated pursuant to the settlement earlier this year.
9. Consumer Financial protection Bureau Announces New Rules to Protect Homeowners
The rules, expected to be introduced on Thursday by the Consumer Financial Protection Bureau, are intended to prevent many of the failings and abuses that occurred after the market downturn. The rules, which take effect in January 2014, require servicers to keep accessible records of borrower information and keep reliable, timely accounts of borrower payments. Servicers must correct errors within 30 days. The bureau also focused on so-called force-placed insurance. Servicers sometimes bought such policies without giving borrowers enough time get their own, cheaper insurance. After the premiums were taken out of their monthly payments, some borrowers fell behind on their mortgages. Under new rules, servicers that want to place insurance on a property will have to give more notice and price information.
Our Analysis – More than more new rules what is necessary is more enforcement. The question with all the new laws intended to protect consumers in distress with their mortgage is the level of enforcement with any of the laws passed. Enforcement is necessary to assure self-compliance by lenders.
(Eavis, Gregory Bull/Associated Press 1/17/13)
10. Modifications Up, Foreclosure Starts Down; Regulations Play Role
From April through June of this year, an estimated 204,000 homeowners received permanent loan modifications from mortgage servicers. Of those modifications, approximately 160,000 homeowners received proprietary loans modifications and 44,860 homeowners received loan modifications completed under the Home Affordable Modification Program.
The mortgage industry completed more than 6.52 million total permanent loan modifications for homeowners since 2007. More than 5.31 million of those loans were proprietary programs and 1,223,449 were completed via HAMP.
Second quarter numbers were at an estimated 329,000 foreclosure starts, compared to 472,000 during the previous quarter, a drop of more than 30%, and 527,000 in the second quarter of 2012, a decline of 38%.
Month-over-month, foreclosure starts were estimated at 97,000 in June compared to 115,000 in May, down 16%. Foreclosure starts were estimated at 52,000 in June were down 8% from May’s 48,000. On a monthly basis, short sales completed dropped 7% from 28,000 in May to 26,000 in June.
Delinquencies of 60+ days remained unchanged in June at 2.22 million.
Reasons for the national decline in foreclosures are: a) many markets have worked their way through the difficult batch of bad loans made during the housing bubble; b) prices have now bottomed out in most markets; c) foreclosure mitigation efforts have been helping avoid more foreclosure activity; d) local state legislation designed to ease the foreclosure process has helped; e) rising home prices have given people the incentive and ability to keep or voluntarily sell their homes.
Our Analysis – These are national figures. In the State of New York, because the foreclosure process is a judicial process and takes much longer than in some other states with a non-judicial process, the pipeline of foreclosures and unresolved mortgage arrears issues is still very long. The trend on Long Island is unfortunately the opposite, with Long Island bucking the national trend with Newsday noting in its cover story on 9/29/13 that there is a 53% spike in Long Island foreclosure filings, while there has been a 34% decrease in nationwide foreclosure filings during the first eight months of 2013 compared with the first eight months of 2012. However, the national trend which is a general improvement in the overall U.S. situation is inspiring hope that the same will eventually also happen to the foreclosure situation on Long Island and New York.
(Hopkins 8/14/13, HousingWire.com)
11. Rising foreclosures hurt Long Island as nation recovers
“LI Foreclosure Spike” (Newsday Cover Story 9/20/13). New foreclosure cases on Long Island are spiking, even as the mortgage crisis fades in the rest of the United States.
During the first eight months of 2013, there was a 53 percent increase in foreclosure starts from homes in distress on Long Island compared to a 34 percent nationwide decrease during the same period. In Suffolk County and Nassau County lenders filed 12,271 initial foreclosure cases here during this period which is double the nationwide average.
According to the Newsday article Long Island is struggling with more foreclosures during a time when the national trend shows sharp decline for several complex reasons as follows:
a) NY’s 3-4 year slow judicial process which is tied with NJ for the longest in the nation with more homes sliding into foreclosure and fewer homes being sold at foreclosure sales; b) LI’s high percentage of high risk loans made prior to the foreclosure crisis ; c) the region’s difficulty in bring back high paying jobs with income in Nassau County have declined an average of 7% since 2008, and in Suffolk County average income decline 5.7% during the same period; d) delays with modifications with major banks violating settlement terms intended to ease the difficulties with obtaining modification agreements; e) Long Island’s high property taxes which are escrowed into a mortgage mean that it is more difficult to give some homeowner’s modifications give that their total payment appears to be unaffordable; f) the demise of the law office of Steven J. Baum P.C., which represented lenders in approximately 40% of the foreclosures in New York State, due to large fines in settlements with the government over their foreclosure practices and negative publicity which caused large delays in their actions moving to other foreclosure firms which needed to carefully review the files and often start a new action; and g) the economic effects of Hurricane Sandy, at the end of October 2012 and its devastating effect on many homeowners in the Long Island area; h) many homeowners obtaining modifications have defaulted on the modifications or have declined modification offers due to decreases in income which make even the reduced, modified, monthly payments unsustainable.
Our Analysis – As the Newsday article discusses in detail there are many factors contributing to the sharp increase in Long Island filings at a time when this problem is fading in the rest of the country. In response New York Courts should continue to give time for Long Island homeowners in distress to negotiate loan modifications and should pressure lenders and foreclosure conferences to be forthcoming with modifications that really address the homeowner’s financial woes rather than just pay lip service to the process. New federal laws, efforts by the New York Attorney General, and favorable court cases help. But pressure on lenders needs to increase to streamline a modification process that has turned into a bureaucratic maze and a nightmare for many Long Island homeowners who should qualify for a modification.
(McDermott 9/28/13 Newsday)
Also see, http://data.newsday.com/long-island/data/foreclosures/2012-2013/ chart, with specific towns and villages showing that the rate of foreclosures on Long Island has increased in the last year bucking national trends. (Source Long Island Profiles, 9/28/13).
Long Island homeowners seeking a loan modification, are being helped by more favorable laws, cases and legislation. The trends are showing that nationally there are more modifications and less foreclosure starts. However, the trends on Long Island are different than the nation trends and show and increase in foreclosures in Suffolk County and Nassau County. The trends also show that many of those who had obtained modifications default again, causing worry that now that modifications are becoming more available, their failure rate is also going up.
To increase the probability of obtaining a loan modification, a Long Island homeowner should consider retaining attorneys with expertise with negotiating with lenders and defending foreclosures. The Law Office of Ronald D. Weiss, P.C., located in Melville, New York is a law firm dedicated to helping its clients resolve their mortgage and foreclosure challenges. Our expertise and experience that will give Nassau County and Suffolk County homeowners the best chance of obtaining a mortgage modification.
Please contact the Law Office of Ronald D. Weiss, P.C. located at Melville, NY for a free consultation about loan modification, foreclosure defense and bankruptcy options. Visit our website for information about mortgage modification. https://www.ny-bankruptcy.com/services/mortgage-modifications-and-negotiations/mortgage-loan-modifications/
Please call us at 631-271-3737 to schedule a free consultation.
Or email us at: [email protected]