Mortgage Loan Modification

Nassau & Suffolk Counties, Long Island Mortgage Loan Modification

Both HAMP and non-HAMP “in-house” modifications seek to prevent foreclosure by absorbing mortgage arrears, lowering monthly payments, and improving mortgage terms.

Negotiations with mortgage lenders was always an option for homeowners having difficulty with their mortgage. However in early 2009 due to what was clearly a foreclosure crisis, the federal government enacted the Making Homes Affordable Program (“HAMP”) and other related programs to encourage mortgage lenders to modify the mortgage loans of qualified homeowners undergoing hardship with their mortgage payments. Most mortgage lenders will review a loan under HAMP criteria. Also, because of political pressure on banks and mortgage lenders,  many have instituted their own “in-house”, non-HAMP programs, in addition or instead of HAMP.

a) HAMP Modifications

Under legislation passed during February of 2009, the Federal government has enacted a voluntary program to encourage mortgage lenders to modify mortgages for “at risk homeowners”. The Making Home Affordable Program allows homeowners to apply to their mortgage lender to renegotiate the terms of their loan under the program. The monthly payment can be lowered by lowering interest and extending the loan term; mortgage lenders can but are not required to reduce the principal of the loan. Loan modifications are strictly voluntary and a mortgage lender can reject, deny or fail to respond to a borrower.

The homeowner must be considered to be “at risk” with serious hardship involving either loss of income, increase in expenses or “payment shock” (due to significant increases in their mortgage payments). The loan must be a 1st lien and the home must be owner occupied. Borrowers with equity loans and second mortgages are not disqualified. The loan must be in default or in imminent default. Borrowers can qualify whether delinquent or not, but must have enough income to handle modified payments. Lenders would lower mortgage payments exceeding 31% of gross income by dropping interest rates to as low as 2%, and if necessary, extending the loan term up to 40 years. The loan interest rate is usually the lowest initially and gradually increases to approximately a 4% interest rate over several years. The amount of the mortgage can not exceed $729,750. for a single unit home and the loan must have been created before January 1, 2009. Mortgage holders who lower mortgage payments would get a financial incentive from the federal government for modifying a loan.

HAMP helps homeowners who are struggling to keep their loans current or who are already behind on their mortgage payments. By providing participating mortgage loan servicers with financial incentives to modify existing first lien mortgages, the Treasury hopes to help homeowners avoid foreclosure regardless of who owns or guarantees the mortgage. Participating servicers may not refer a loan for foreclosure sale or proceed with a foreclosure sale on an eligible loan until the homeowner has been considered for HAMP and, if eligible, a trial modification offer has been made. Participating servicers must use reasonable efforts to contact homeowners facing foreclosure to determine their eligibility, including in-person contacts at the servicer’s discretion. Foreclosure sales may not be conducted while the loan is being considered for a modification or during the trial period. Additionally, once a homeowner has entered into a trial period plan by submitting the first trial period payment, the servicer may not take the first legal action to initiate a new foreclosure.

Participation in HAMP is mandatory for servicers of loans owned or guaranteed by Fannie Mae or Freddie Mac (Government Sponsored Enterprises or GSEs). Participation in HAMP is voluntary for servicers of non-GSE loans. However, incentives are available to servicers and investors who complete modifications under HAMP, and most major servicers already have committed to the Program.

The procedure by which a servicer determines whether an applicant qualifies under HAMP is that the servicer will apply a Net Present Value (NPV) test to determine whether the value of the loan to the investor will be greater if the loan is modified (factoring in the government’s incentive payments). If the modified loan is not of greater value, the investor and servicer may still modify the loan. However, modification in such cases is not required. (Please note: Your servicer may re-run the NPV test before the modification becomes official if they receive new information that could affect the value of the loan). If the modified loan is of greater value, the servicer must offer you a modification under HAMP, and, if you accept the offer, will put you in a trial period plan (which should be three months but it may be longer depending on your situation) at a new trial payment level. If you successfully make all of the required trial payments during the trial period, your servicer will send you a modification agreement to execute. Remember, if you do not qualify for HAMP, your servicer may offer you another foreclosure alternative solution that suits your financial situation.

If your servicer lowers your mortgage interest rate to make your payments more affordable, your initial modified interest rate could be below current market interest rates. In that case, the initial modified interest rate will be fixed for five years, and the amount you pay each month for principal and interest will not change for those five years or 60 months. After five years, your interest rate will increase by 1% per year until it reaches a cap, which is equal the market interest rate being charged by mortgage lenders on the day your official modification agreement was prepared.

The primary objective of HAMP is to help homeowners avoid foreclosure by modifying troubled loans to achieve a payment the homeowner can afford. Servicers may, but are not required to, offer principal reductions. It is more likely that your servicer will use interest rate reductions and term extensions in order to make your payment more affordable. You could end up with a balloon payment through HAMP if your servicer determines that a principal forbearance is required to get your monthly mortgage payment to an affordable level.

Homeowners who receive a modification on their primary residence and make timely payments on their modified loans receive incentive payments. For every month you make a payment on time, you will accrue an incentive that reduces the principal balance on your loan. If your loan ceases to be in good standing (three monthly payments are due and unpaid on the last day of the third month), no further payments will be paid, including accrued but unpaid amounts. The incentive will be applied directly to your loan balance annually—up to $1,000 each year—and over five years the total principal reduction could add up to $5,000. This contribution by the Treasury is designed to help you build equity.

Successful modifications usually involve the client retaining a qualified professional working on their behalf and a concerted and persistent campaign to urge the lender through an application, letters, calls and supportive documents, to modify a particular mortgage loan.

b) Non-HAMP or “In-House Modifications”

While most loans are held by lenders who participate in the HAMP program, non-HAMP or “in-house modifications” are almost as important. Smaller, local and foreign banks more often have their own programs, whereas large banks like Citicorp, Chase, Bank of America and Wells Fargo have “in-house” programs to complement their HAMP program modifications. In-house modifications are similar to HAMP modifications in that they seek similar relief but are often less aggressive with their terms and are usually explored by a bank that offers both types of modifications after the HAMP modification is denied. Essentially the in-house modification is a kind of backup to the HAMP modification and is looked at if HAMP is otherwise unavailable. Also the non-HAMP modifications have advantages to banks in that they do not have the same level of oversight and regulation as the HAMP program. Therefore, even when a loan appears unqualified for a HAMP modification, non-HAMP modification options should be explored.

c) Amendments to HAMP

As of June 1, 2012, the Home Affordable Modification Program (HAMP) has been expanded for many types of mortgage loans. The expansion affects homeowners in four (4) categories who were formerly  subject to denial under the program: 1) a homeowner seeking a modification for a non-primary property that’s rented or that they intend to rent; 2) a homeowner who previously did not qualify for HAMP because their income was too high (debt to income ratio below 31%); 3) a homeowner who defaulted on a trial modification; and 4) a homeowner that defaulted on a permanent modification. Essentially the above expanded terms are significant in that they have eliminated former exclusions that barred many potential homeowners from applying for modifications.

The official HAMP web site recommends that homeowners’ representatives check with their mortgage servicer to begin the HAMP evaluation process. This is true especially if the mortgage is owned, insured, or guaranteed by Fannie Mae, Freddie Mac, FHA, VA or USDA. The official HAMP site explains that not all mortgage services participate in the program, but that some have their own programs to prevent foreclosure.

d) Unemployed Persons

HAMP’s “Home Affordable Unemployment Program” (UP) may help if you are unemployed and may reduce your mortgage to 31% of your gross monthly income or completely suspend mortgage payments for 12 months or more. Eligibility is based on being unemployed and eligible for unemployment benefits and is limited to a primary residence. UP is not currently available for homeowners with mortgages held by Fannie Mae and Freddie Mac. The UP forbearance period is the lesser of twelve months long or when you are re-employed, as permitted by investor and regulatory guidelines. While a source of regular income is a prerequisite for most modifications this program gives hope to those without regular income. Our office can find out if your servicer is a program participant.

d) Second Liens Can Now Be Modified

If your first mortgage was permanently modified under HAMP and you have a second mortgage on the same property, you may be eligible for a modification or principal reduction on your second mortgage as well, through the Second Lien Modification Program (2MP). Under 2MP, when a homeowner’s first lien is modified under HAMP the servicer for the second mortgage may offer to modify or provide some level of extinguishment on the borrower’s second lien. If the servicer of your second mortgage is participating, they can evaluate you for a second lien modification.

A homeowner may be eligible for 2MP if  the meet the following criteria: 1) The first mortgage was modified under HAMP; and 2) the homeowner did not miss three consecutive monthly payments on their HAMP modification; 3) The servicer of the second lien is a 2MP participant.

e) Principal Reduction

HAMP’s Principal Reduction Alternative (PRA) was designed to encourage mortgage servicers and investors to reduce the principal owed on a home. Theoretically such principal reduction is possible under PRA if the borrower meets other HAMP eligibility requirements for a mortgage that is “up-side-down” and is not owned or guaranteed by Fannie Mae or Freddie Mac.

However, despite the fact that the federal government lists Principal Reduction Alternative as a program within HAMP, obtaining a principal reduction from a lender has been considered in the past to be relatively difficult and not readily obtainable since most lenders have been willing to reduce the interest rate, extend the duration of the mortgage and/or to put arrears in the back of the loan, but generally forgiveness of principal has been regarded as an area where most lenders have been reluctant to compromise.

Yet because of a $25 billion settlement agreement in February 2012 between five major banks and the federal and 49 state governments, mortgage lenders have become more willing to compromise and have agreed to broad changes in how they deal with mortgages and modification applications. Yet the reduction of principle may still not be possible for loans owned by Frannie Mae and Freddie Mac

f) HARP Mortgage Refinancing

Eligible homeowners who are current on their mortgages but have been unable to take advantage of lower interest rates because their homes have decreased in value, may have the opportunity to refinance under the Home Affordable Refinance Program (HARP). Through a refinance under HARP, Fannie Mae and Freddie Mac will allow the refinancing of mortgage loans that they own or that they guaranteed in mortgage backed securities. The objective of a refinance under HARP is to help homeowners get into more stable or more affordable loans. Refinancing will not reduce the principal amount you owe to the first lien mortgage holder or any other debt you owe. The Home Affordable Refinance will not return cash to the borrower for the purpose of paying other debts. The objective of a refinance under HARP is to provide creditworthy homeowners who have shown a commitment to paying their mortgage the opportunity to get into a new mortgage with better terms. Homeowners whose mortgage interest rates are much higher than the current market rate should see an immediate reduction in their payments.

g) HAMP Appeals Process

Homeowners denied a HAMP mortgage modification, who believe that they were unfairly denied a modification and that their finances show eligibility for a modification, have recourse through an escalation or appeals process. The process is a two step process. First the homeowner’s representative needs to elevate the concern to a senior manager with the servicer’s organization. Second, the homeowner’s representative should contact the following sources:

Investor Determine if Loan is
GSE-Owned
Contact Information
Fannie Mae Loans www.FannieMae.com/
LoanLookup
Phone: 1-800-7FANNIE
resource_center@fanniemae.com
Freddie Mac Loans www.FreddieMac.com/
MyMortgage
Phone: 1-800-FREDDIE
Non-GSE Loans HAMP Solution Center
Phone: 1-866-939-4469
Fax: 1-240-699-3883
escalations@hmpadmin.com

An escalation specialist will work with the servicer regarding the case and seek to provide you with an initial status within four business days of receipt of the requested inquiry information and borrower authorization. If the servicer is unwilling to comply with program guidance or the escalation team identifies systemic non-compliance, the escalation team may report the servicer to the Making Home Affordable Compliance team.

h) Effect of Large Consent Judgment with Major Banks on Modifications

A $25 billion settlement between five of the nations larges lenders and the federal and 49 state governments is intended to provide homeowner relief and new protection to stop lender abuses. The joint federal-state agreement requires servicers to implement comprehensive new mortgage loan servicing standards and to commit $25 billion to resolve violations of state and federal law.  These violations include servicers’ use of “robo-signed” affidavits in foreclosure proceedings; deceptive practices in the offering of loan modifications; failures to offer non-foreclosure alternatives before foreclosing on borrowers with federally insured mortgages; and filing improper documentation in federal bankruptcy court. The joint federal-state group entered into the agreement with the nation’s five largest mortgage servicers: Bank of America Corporation, JPMorgan Chase & Co., Wells Fargo & Company, Citigroup Inc. and Ally Financial Inc. (formerly GMAC). The terms of the settlement are as follows:

(i) Monetary Amounts Dedicated Under Settlement – Under the terms of the agreement, the servicers are required to collectively dedicate $20 billion toward various forms of financial relief to borrowers. At least $10 billion will go toward reducing the principal for delinquent borrowers; at least $3 billion will go toward refinancing loans for current borrowers, to lower rates to market level for borrowers who are “upside down”; up to $7 billion will go towards other forms of relief, including forbearance of principal for unemployed borrowers, anti-blight programs, short sales and transitional assistance, and other programs. Because servicers will receive only partial credit for every dollar spent on some of the required activities, the settlement will provide direct benefits to borrowers in excess of $20 billion.

(ii) Timing of Financial Remedy – Mortgage servicers are required to fulfill these obligations within three years. To encourage servicers to provide relief quickly, there are incentives for relief provided within the first 12 months. Servicers must reach 75 percent of their targets within the first two years. Servicers that miss settlement targets and deadlines will be required to pay substantial additional cash amounts.

(iii) Payment to State and Federal Governments – In addition to the $20 billion in financial relief for borrowers, the agreement requires the servicers to pay $5 billion in cash to the federal and state governments. $1.5 billion of this payment will be used to establish a Borrower Payment Fund to provide cash payments to borrowers whose homes were sold or taken in foreclosure between Jan. 1, 2008 and Dec. 31, 2011, and who meet other criteria. This program is separate from the restitution program currently being administered by federal banking regulators to compensate those who suffered direct financial harm as a result of wrongful servicer conduct. Borrowers will not release any claims in exchange for a payment. The remaining $3.5 billion of the $5 billion payment will go to state and federal governments to be used to repay public funds lost as a result of servicer misconduct and to fund housing counselors, legal aid and other similar public programs determined by the state attorneys general.

(iv) Required Changes in Servicing and Procedure – The joint federal-state agreement requires the mortgage servicers to implement unprecedented changes in how they service mortgage loans, handle foreclosures, and ensure the accuracy of information provided in federal bankruptcy court. The agreement requires new servicing standards which will prevent foreclosure abuses of the past, such as robo-signing, improper documentation and lost paperwork, and create dozens of new consumer protections. The new standards provide for strict oversight of foreclosure processing, including third-party vendors, and new requirements to undertake pre-filing reviews of certain documents filed in bankruptcy court.

(v) Foreclosure Is a Last Resort – The new servicing standards make foreclosure a last resort by requiring servicers to evaluate homeowners for other loss mitigation options first.  In addition, banks will be restricted from foreclosing while the homeowner is being considered for a loan modification. The new standards also include procedures and timelines for reviewing loan modification applications and give homeowners the right to appeal denials. Servicers will also be required to create a single point of contact for borrowers seeking information about their loans and maintain adequate staff to handle calls.

However, there have been criticisms of the settlement in that there are fairly large exceptions to the settlement in that it does not cover  loans owned by the government’s housing finance agencies, Fannie Mae and Freddie Mac, excluding about half of the nations mortgages. Also, because the banks themselves will be implementing this remedy and have three years to do so, some critics have expressed concern about its timing in terms of being put into effect quickly enough to help those on the verge of foreclosure. Also there is some doubt as to whether the agreement will end much of the run around experienced by homeowners and their representatives by providing a single point of contact.

Our Office Can Help You Obtain a Mortgage Modification

Many homeowners in Suffolk and Nassau Counties, Long Island experiencing financial difficulty with their mortgage payments are obtaining representation in seeking a mortgage modification and are retaining mortgage modification attorneys such as the Law Office of Ronald D. Weiss, P.C. to handle what has become a complex and often difficult negotiation process. The Law Firm of Ronald D. Weiss, P.C. has negotiated hundreds of agreements giving its clients the opportunity to catch up with their mortgage arrears. We have negotiated many mortgage modification agreements, forbearance agreements, payment plans, short sales, deed in lieu agreements and other settlements, which may resolve the foreclosure process. While the ultimate goal of mortgage reduction negotiations is very worthwhile, such negotiations can be difficult and uncertain because many mortgage holders and their attorneys are not sufficiently responsive to negotiated offers thereby requiring a significant and persistent effort that involves careful strategy and planning. Allowing us to represent and negotiate terms for you enhances the probability of a prompter and better resolution of the foreclosure process. Also, it is critical to have the settlement terms agreed to in a legally binding written stipulation of settlement while making sure that your rights are protected at all times.

Our Method in Seeking a Mortgage Modification

Because we are always considering more than one foreclosure solution, and we are not solely dependent on mortgage modifications, our broader approach to mortgage modifications helps our clients. We are able to defend our clients in foreclosure, file bankruptcy cases and complain to government agencies in a manner where another services may not be able to assist a homeowner. This broader ability gives us greater leverage and helps us considerably in negotiating with lenders. In addition we have huge experience in dealing with foreclosure solutions for over 25 years. Finally, our persistence, knowledge and ability to take the lenders to task for delay all help us to negotiate on your behalf. Although the negotiation process can be time consuming and often has many challenges, the goal of a lower mortgage payment and better mortgage terms is very worthwhile. Therefore, the client should maximize their negotiating advantages by having our office seek a modification on their behalf.

Our consultations are free, the advice may be invaluable.

Please call us at (631) 479-2455 or e-mail us at weiss@ny-bankruptcy.com for a free consultation to discuss mortgage modification options in greater detail.