Legislative Updates from National Association of Consumer Advocates
February 21, 2010
The following post is excerpted from an email alert from the National Association of Consumer Advocates (NACA).
These are a few of the current legislative issues NACA is working on:
Forced Arbitration
NACA is still working hard to get the Arbitration Fairness Act (AFA) and the Fairness in Nursing Home Arbitration Act out of the House Judiciary Committee.
The AFA now has 108 co-sponsors! We are pushing Congressman Steve Cohen (D-TN), the Chairman of the House Judiciary Committee’s Commercial & Administrative Law Subcommittee, to schedule a vote on the bill during the next several months. Subsequently we will push for a full vote in the Judiciary Committee. The vote in the House is our first priority; however, NACA continues to lobby the Senate as well, to garner support and build momentum.
NACA is also working hard to preserve the proposed language in the Consumer Financial Protection Agency Act of 2009 that addresses forced arbitration. The version that passed the House and is similar in the Senate, enables the Consumer Financial Protection Agency (CFPA) to restrict and/or ban the unfair practice of forced arbitration from financial contracts. In the House there were attempts to strip such language, and we anticipate that we will again be called upon to fight to maintain the language in the Senate.
Homeownership / HAMP
Yesterday, the Treasury Department released January data for the Administration’s Home Affordable Modification Plan (HAMP).
The Administration’s current plan is still clearly not working as we see foreclosures across the U.S. continue to soar. After 11 months, only one in ten homeowners participating in the HAMP program have had their mortgage permanently modified.
In late 2009, NACA and NCLC conducted a survey about the occurrence of foreclosure sales in violation of HAMP. Over 100 NACA members from 24 states participated. The results indicated that foreclosure sales were still a significant problem and in need of a substantial policy solution.
Two weeks ago, NACA organized a call with its Institute for Foreclosure Legal Assistance (IFLA) grantees to discuss the shortcomings of the HAMP program and what they are seeing in the field. NACA is presently drafting a letter to Congress and the Administration explaining the IFLA attorneys’ concerns with HAMP and to set forth recommendations on what is needed to make the program work for homeowners facing foreclosure.
Consumer Financial Protection Agency
As you know, the pending financial reform legislation that would rein in many Wall Street abuses and create an independent CFPA is still being negotiated in the Senate.
NACA just learned that Senator Chris Dodd (D-CT), the Chairman of the Senate Banking Committee, will be releasing a new draft of his proposed financial reform package next week. The fight right now is about the very structure of the CFPA and whether it will maintain independence.
NACA has been meeting with Senate offices to convey that independence in regards to the CFPA requires the agency be independently funded, have independent rulemaking authority over both banks and non-banks, the head of the agency be independently appointed by the President for a specified term and have independent managerial decision making power, and that the agency have examination and enforcement authority that is not subject to approval or veto.
Chapter 7 Bankruptcy: Mortgage Reaffirmations and Modifications, Part II
October 16, 2009
Here is more information on reaffirmation of mortgages in bankruptcy, including implications for modifications. The linked article was written by Orlando, Florida bankruptcy attorney Jonathan Alper.
Mortgage Companies Refusing Loan Modifications to Some Chapter 7 Debtors
Chapter 7 Bankruptcy: Mortgage Reaffirmation and Mortgage Modification, Including HAMP
September 20, 2009
We get a lot of questions about whether homeowners should reaffirm their mortgages DURING a Chapter 7 bankruptcy.
(Note: reaffirming a mortgage AFTER a bankruptcy is completed / the filer receives his or her discharge is technically not authorized by the bankruptcy code.)
Many lenders tell homeowners their mortgage documents require them to reaffirm if they file for Chapter 7 bankruptcy. This may or may not accurate, and you would need to consult your loan documents to be sure.
Some servicers require homeowers to reaffirm their mortgage before they will consider them for a mortgage modification. This complicates the reaffirmation analysis for reasons discussed below.
But, first let’s back up a bit and discuss reaffirmation and secured debt in general.
Secured debt in bankruptcy
Secured debt such as a mortgage includes two components: you are personally liable for paying the debt, AND the collateral (your house, in the case of a mortgage) can be taken away if you don’t pay.
A Chapter 7 bankruptcy generally relieves homeowners of personal liability for paying their mortgage.
But, the lender retains the second “part” of the debt– the right to foreclose if you don’t make mortgage payments.
Reaffirmation of a mortgage: what is it?
When you sign a reaffirmation agreement, you agree to remain personally liable on the mortgage after your bankruptcy. Your bankruptcy would otherwise relieve you of this personal liability. More below on why this is significant, but suffice it to say reaffirming your mortgage in a Chapter 7 bankruptcy can be a very bad idea.
Doesn’t the 2005 bankruptcy law require me to reaffirm?
Technically, the 2005 BAPCPA changes to the Bankruptcy Code force debtors to choose between reaffirming a secured loan DURING the bankruptcy or surrendering the collateral.
But, this applies only to secured personal property (example: cars.) It does not apply to real property.
Deficiency judgments
So, what’s the significance of being relieved of personal responsibility for paying the mortgage if your lender can still foreclose on you? Two words: deficiency judgments.
What is a deficiency judgment?
Let’s say your lender forecloses and sells your house for $200,000, but you owed $300,00 on it. That extra $100,00 is called a “deficiency.”
The lender can theoretically sue you personally for the deficiency if (1) you live in a state where deficiency judgments are available and (2) you have not discharged personal responsibility for the debt in bankruptcy.
Although it’s rare, some lenders will try to get deficiency judgments even in cases of short sales or deed in lieu transactions– even though the lender is a willing participant to those transactions. So, read the fine print of your short sale and deed in lieu documents!
On the other hand, some lenders decline to pursue deficiency judgments at all, even in cases of foreclosure. Practices vary widely, so as always you should discuss this with your specific lender and / or mortgage servicer.
How does a bankruptcy discharge affect deficiency judgments?
If you (1) filed bankruptcy, (2) did NOT reaffirm your mortgage and (3) received a discharge, you are likely relieved of personal liability for the mortgage.
In that case, you cannot be sued personally for any deficiency after a foreclosure sale, short sale, or deed in lieu transaction.
If the deficiency judgment was entered against you BEFORE you filed for bankruptcy, you will need to take extra steps in your bankruptcy filing to be sure you are relieved of personal responsiblity for paying the judgment. If the judgment has been reduced to a lien on other property you own, other procedures apply. These scenarios are beyond the scope of this post.
Where are deficiency judgments available?
Check your state’s laws to find out if deficiency judgments on mortgages are available in your state. They are available in Maryland and D.C.
Is it ever a good idea to reaffirm?
In light of the above, it is ever a good idea to reaffirm?
Obviously, if the bankruptcy court tells you to reaffirm or else surrender your house, you will need to consider reaffirming. But, you should also consider whether surrendering the house makes more sense.
And, some mortgage servicers refuse to consider a homeowner for mortgage modification (including HAMP modifications) unless the homeowner reaffirms.
Generally, a homeower should NOT consider reaffirming until he or she has a firm, written modification offer in writing specifying all terms– including the interest rate.
Otherwise you could reaffirm but never actually receive a modification offer. You then would have signed up for personal liability and gotten nothing in return.
Be prepared for a “chicken or egg” problem, however. Considering servicers’ seeming reluctance to process modifications, it can be difficult to get them to produce the modification paperwork before they have everything they want– including the reaffirmation.
Don’t let this deter you from requesting a modification, however. Homeowners have reported some servicers did not even raise the issue of reaffirmation when they applied for a post-bankruptcy modification. (And the homeowners, perhaps wisely, did not “remind” the servicers about the bankruptcy discharge.)
This may just be because the servicers are disorganized. Or, maybe servicers have started to realize it is in their best interest to modify.
What Happens to my HAMP Modification if I File for Bankruptcy?
September 6, 2009
Many homeowners sought HAMP modifications because they thought it would help them avoid bankruptcy. But, mortgage servicers are not processing HAMP mortgage modifications nearly quickly enough to offer any real relief to homeowners. With servicers refusing to even acknowledge receipt of modification documents, what now?
Many homeowners applied for HAMP modifications four or five months ago and were current on their mortgages when they first applied. Had they received a timely response to their modification requests, many could have avoided bankruptcy.
But, homeowners are not receiving timely responses from their servicers. In the meantime, their debt situation becomes more and more dire as they struggle to remain current on their mortgages pending a response to their modification requests.
So, the question becomes: will filing for bankruptcy take these homeowners out of the running for a HAMP modification (assuming their servicer ever decides to process their HAMP application)?
Homeowner has applied for HAMP but not yet in trial period
If the homeowner has applied for HAMP but is not yet in a trial period, it is generally left up to the discretion of the servicer as to whether they will consider a homeowner eligible for a HAMP modification after filing bankruptcy.
If, however, your loan is owned or guaranteed by Fannie Mae or Freddie Mac, new rules may soon make it mandatory for your servicer to offer you a HAMP modification even if you declare bankruptcy. (This is assuming you otherwise qualify for a HAMP modification.) Note: these changes have been proposed, but have not yet taken effect.
In our experience, some servicers decline to offer HAMP modifications to homeowners who have filed for bankruptcy prior to entering the HAMP trial period.
But, homeowners in this situation should ask their servicer about its policy.
If you servicer will not offer you a modification if you file for bankruptcy, you can crunch the numbers to determine whether you would get more relief from a modification or a bankruptcy filing.
What if you are in your HAMP trial period and you need to file for bankruptcy?
If you have already entered a HAMP modification trial period and you file for bankruptcy, the final modification may need to be approved by the bankruptcy court.
The servicer is generally required by the HAMP servicer guidelines to work with your bankruptcy attorney to try to get the modification approved by the bankruptcy court, if necessary.
What if your HAMP modification is in place but you still need to file bankruptcy?
A homeowner’s filing bankruptcy after a HAMP modification might be considered a violation of the modification plan.
Homeowners who think they might need to file bankruptcy even after getting a modification should ask their servicer if a bankruptcy filing will void the modification.
Many of these are gray areas and servicer policies vary widely. Homeowners should always check with their specific servicer as to what its policy might be. But, it’s important to ask the questions.
Effect of HAMP Mortgage Modifications on Credit Reports and Credit Scores
August 12, 2009
Recently our office has received many questions about the proper credit reporting of HAMP-modified mortgages.
This post discusses (1) how they are being reported, (2) how they should be reported, (3) what you can do to get your HAMP-modified mortgage reported correctly, and (4) possible effects even the “correct” reporting might have on your credit score.
How HAMP-modified loans are being reported now
Many servicers are reporting the modified mortgages to the credit bureaus as a “rolling 30-day late” while the modification is in its trial period.
(The “trial period” is generally a three month period during which the homeowner must make all payments on time under a proposed modification plan. If the homeowner does so, he or she will be offered a modification under HAMP.)
Homeowners are deemed “delinquent” during the trial period because the modified payment amount is less than the original mortgage payment amount, but the homeowner is not yet officially in the modification program.
So, the credit reporting system interprets this as the homeowner’s making a partial mortgage payment each month. Consequently, a new 30-day late is reported each month during the trial period.
Some servicers have told homeowners they are required by the Treasury Department to report the modified mortgages this way. Other servicers have told homeowners Treasury instructed them to report the mortgages as “late” in order to weed out people who could afford to pay the original amount of their mortgage.
How HAMP-modified loans SHOULD be reported during the trial period
But, borrowers who are current on their mortgage when they enter into the trial modification period should NOT be reported as late, according to servicer guidelines for Fannie Mae, Freddie Mac, as well as other loans (”non-GSE loans”) being modified by HAMP-participating servicers.
Homeowners who were delinquent when they entered the modification trial period, however, will continue to be reported as delinquent during the trial period. See below for more detail.
Information to forward to your servicer if it’s reporting incorrectly
If your loan is owned or guaranteed by Fannie Mae, see page 12 of Fannie Mae Servicing Guide Announcement 09-05R for information about credit reporting for HAMP-modified Fannie Mae loans. It says:
“If a borrower is current when they enter the Trial Period, the servicer should report the borrower current but on a modified payment if the borrower makes timely payments by the last business day of each Trial Period month at the modified amount during the Trial Period. If a borrower is delinquent when they enter the Trial Period, the servicer should continue to report in such a manner that accurately reflects the borrower’s delinquency and workout status following usual and customary reporting standards. In both cases the servicer should report the modification when it becomes final.”
“Borrowers who are current when they enter into the Trial Period and make payments by the 30th day of each month, report as current, but on a modified payment. Borrowers who are delinquent when they enter into the Trial Period or do not make payments by the 30th of each month, report according to borrower’s delinquency and workout status. Notify when borrowers have completed the modification.”
If your loan is NOT owned or guaranteed by Fannie Mae or Freddie Mac, see page 22 of “HAMP Servicer Supplemental Directive 09-01″ for information about credit reporting guidelines for modified non-GSE loans. It specifies the following:
“The servicer should continue to report a “full-file” status report to the four major credit repositories for each loan under the HAMP … on the basis of the following: (i) for borrowers who are current when they enter the trial period, the servicer should report the borrower current but on a modified payment if the borrower makes timely payments by the 30th day of each trial period month at the modified amount during the trial period, as well as report the modification when completed, and (ii) for borrowers who are delinquent when they enter the trial period, the servicer should continue to report in such a manner that accurately reflects the borrower’s delinquency and workout status following usual and customary reporting standards, as well as report the modification when completed. More detailed guidance on these reporting requirements will be published by the CDIA.”
What does this mean for homeowners who are thinking about applying for a modification?
To help minimize damage to your credit report and score, you should apply and try to get into a trial period while you are still current on your mortgage.
You do not have to be behind on your mortgage to apply for a HAMP modification.
What does this mean for homeowners who have recently applied for a modification?
Verify that your lender or servicer understands how it should be reporting your modified loan. Do this before starting your modification program, if possible.
Several homeowners have told our office they had to send a copy of the relevant HAMP credit reporting guidelines to the servicers, who were apparently unaware the guidelines existed.
Remember, you can review all the HAMP and HARP mortgage servicer guidelines at this link.
Will the reporting of “current, but on a modified amount” hurt my credit?
It is impossible to say for sure because FICO does not publish its scoring model.
But, “current, but on modified amount” might ding your score a little. This reporting is telling the credit bureau you are currently paying as agreed, but less than the original amount you contracted to pay.
The FICO scoring model may not give you full credit for paying as agreed. But, this will not be nearly as damaging as rolling 30-day lates.
What if my modification is not through HAMP?
The credit reporting guidelines above apply only to HAMP-modified loans. If you have arranged a non-HAMP modification with your lender or you have modified your loan through another mortgage relief program, these credit reporting guidelines will not apply.
Be sure to negotiate the credit reporting with your serivcer as part of your overall modification package. Even if the servicer insists on reporting your loan negatively, at least you can make an informed decision as to whether a particular modification package will work for you.
Bank of America, Wachovia, Wells Fargo HAMP Modification Performance Evaluated
August 9, 2009
The Making Home Affordable Plan has released its August 2009 Servicer Performance Report. The report analyzes the progress of the HAMP mortgage modification program.
The Data
To date, Bank of America modified just 4 percent of eligible loans. Wells Fargo has modified 6 percent.
Wachovia Corp. has modified a mere 2 percent of eligible loans. (Wachovia was taken over by Wells Fargo in December 2008.)
Several servicers- each of whom received significant amounts of TARP funds– report modifying ZERO mortgages.
Wachovia / Wells Fargo’s Response
Mike Heid, co-president of Wells Fargo’s mortgage unit, told MSNBC the company tries to sign up most homeowners with one phone call. Heid claims Wells Fargo then sends eligible homeowners a trial offer within two days. http://www.msnbc.msn.com/id/32281959/ns/business-real_estate/from/ET/
The Reality
This, however, is in marked contrast to what our office has heard from homeowners. Many homeowners come to us for help after trying for several months to work with their servicers directly.
Homeowers report that Wachovia and Wells Fargo have consistently failed to process modification request packages.
Once contacted by the homeowner for follow-up, the servicers claim additional documentation is needed– even though the homeowner already submitted all documentation the servicer requested.
However, the servicers do not attempt to notify the homeowners they need additional information. So, the files sit untouched until he homeowners contact the servicer to find out what is going on.
Weeks might go by before a homeowner discovers his or her file has been idle. But, time is obviously of the essence for people trying to avoid foreclosure.
What can be done?
The HAMP incentives were meant to discourage this kind of inefficiency. But apparently the incentives are not working.
As a side note, it does not seem possible the servicers are fulfilling their duty to their shareholders by leaving so much incentive money on the table. Recall the HAMP incentives pay servicers for every loan they modify while the loan is still current.
Our office would like to see some HAMP guidelines that would put a time limit on servicers’ processing, at least for Fannie- and Freddie- owned or guaranteed loans.
A guideline requiring the servicers to notify homeowners when they need additional information would be helpful as well.
What does this mean for homeowners?
If you plan to request or already have requested a HAMP modification:
- Start early. You should request a modification even before your mortgage is delinquent. Maybe you are current now, but you have had a reduction in income due to a layoff. If you qualify for a modification, apply. It will take a very long time for the paperwork to be processed. By the time you are in true crisis, hopefully your request will have been processed. But see below.
- Call your servicer at least weekly to ask the status of your file and whether you need to provide additional information.
- If your servicer seems to be making up requirements as it goes along, check to see if it is complying with the HAMP guidelines in its handling of your file. There have been many reports of homeowners being rejected for HAMP modifications for reasons not permitted under the HAMP guidelines. In fact, Freddie Mac has announced it will start auditing servicers for compliance with the HAMP guidelines.
- File a complaint with Freddie Mac if your servicer seems to be violating the HAMP guidelines and your loan is a Freddie Mac loan.
- File a complaint with the Department of the Treasury if you think your servicer has violated HAMP guidelines in processing your file.
To learn more, see these links:
The Making Home Affordable Servicer Performance Report August 2009
MSNBC: Mortgage modifications moving at snail’s pace
Recent Testimony: Bankruptcy Mortgage Modification Necessary to Enhance HAMP’s Effectiveness
July 29, 2009
On July 9, the House Judiciary Committee’s Subcommittee on Commercial and Administrative Law heard testimony on the effectiveness of voluntary mortgage modification efforts, including the Obama Administration’s Home Affordability Modification Program (HAMP). “Effectiveness” was defined as preventing foreclosures.
Irwin Trauss, of Philadelphia Legal Assistance, testified on behalf of NACBA (The National Association of Consumer Bankruptcy Attorneys.)
Trauss is overall supervisor of the Save Your Home Philly Hotline, which has handled over 10,000 calls from homeowners facing foreclosure. He is also one of the creators of the Philadelphia Court of Common Pleas Foreclosure Diversion Program.
In his testimony, Trauss gave numerous examples of servicers ignoring the requirements of HAMP. Servicers sometimes told homeowners they were not eligible to apply, and often denied applications for reasons that did not comply with the program guidelines.
He also described the program’s failure to help many large sub-groups of homeowners.
Trauss concluded his testimony by stating that “absent significant leverage on the part of homeowners to force a change in behavior, the majority of servicers will continue to find ways to avoid meaningful modifications despite HAMP.
“The only way to change their behavior to the extent required to make meaningful modifications common is to provide the homeowner with leverage over the servicer, such as the threat of a bankruptcy judge imposing a modification.
“The availability of such an option for homeowners would likely complement voluntary programs such as HAMP and the Diversion Program and substantially increase the chances that meaningful long lasting modifications will result.”
The above post was partially excerpted from a National Association of Consumer Bankruptcy Attorneys (NACBA) email alert.
NACBA is a national organization dedicated to serving the needs of consumer bankruptcy attorneys and protecting the rights of consumer debtors in bankruptcy.
HAMP Incentives: What Does Your Lender or Mortgage Servicer Get For Modifying your Mortgage?
July 27, 2009
HAMP: What is it?
The Home Affordable Modification Program (HAMP) was established in March 2009 using 50 billion in funds from the Troubled Asset Relief Program (TARP).
HAMP aims to get mortgage servicers and lenders to modify mortgages in default or in danger of default.
Which mortgages are covered by HAMP?
Your mortgage might be eligible for a HAMP modification if your mortgage servicer participates in the program OR if your mortgage is owned or guaranteed by Fannie Mae or Freddie Mac.
Even if your servicer is not an official participant in the program, it may participate in order to receive the incentive payments described below.
If you need a mortgage modification due to a hardship, ask your servicer to help you modify your mortgage. Do not be discouraged if your servicer is not listed as an “official” participant in the HAMP program.
To find out if your lender or servicer participates in the program, call your loan servicer or visit the Making Home Affordable website.
Once your servicer has agreed to participate, you must determine whether your mortgage meets certain criteria.
You must:
- Be the owner-occupant of a one to four unit home;
- Have an unpaid principal balance that is equal to or less than $729,750 (higher limits apply for dwellings with 2-4 units)
- Have a first lien mortgage that was originated on or before January 1, 2009;
- Have a monthly mortgage payment (including taxes, insurance, and home owners association dues) greater than 31 percent of your monthly pre-tax income; and
- Have a mortgage payment that is not affordable due to a financial hardship you can document.
Why would servicers or lenders participate?
Earlier, similar programs did not provide incentives for lender participation. These programs were not terribly successful.
Consequently, HAMP offers lenders and servicers incentive payments from the government for every mortgage they successfully modify. Some of these incentives are described below:
HAMP Incentive Payments
Lenders are eligible to receive:
- A bonus incentive of $1,500 for any loan modified while the borrower is still current (including less than 30 days delinquent), subject to some restrictions.
- Reimbursement for part of the difference between the “new,” modified mortgage payment and the “old” mortgage payment. The government would pay this to the lenders for up to five years.
- Some compensation to offset losses on previously-modified loans
Servicers (including lenders who service their own loans) are eligible to receive:
- An initial payment of $1,000 for each successful modification.
- Annual payments of up to $1,000 for the first three years following successful modification if the borrower stays in the program.
- A bonus incentive of $500 for any loan modified while the borrower is still current (including less than 30 days delinquent).
Borrowers are eligible to receive:
- Principal reductions of $1,000 for each year they make mortgage payments on time under the program.
- This applies for the first five years of the borrower’s program participation.
- For more information, see the Department of the Treasury website.
HAMP Effectiveness Reviewed by Senate Banking Committee
July 20, 2009
This post is parially excerpted from the MortgageOrb article “Senate Banking Committee Focuses on Hamp” by John Clapp.
On July 28, 2009, there will be a meeting between Treasury officials and servicers participating in the government’s Home Affordable Modification Program (HAMP).
In anticpation of this meeting, the Senate Banking Committee held a hearing Thursday morning (July 16) in an effort to help lawmakers gauge HAMP’s progress - or lack thereof - since its introduction in February.
The hearing included testimonies from the Treasury, as well as Wells Fargo and Bank of America servicing execs. It highlighted the program’s administrative obstacles and shortcomings.
In recent weeks, lawmakers have increasingly expressed concern that HAMP, originally projected to save up to 4 million homes, is both underperforming and being implemented too slowly.
Committee members also focused heavily on the inconsistent application of HAMP’s guidelines. Several senators noted cases of borrowers being denied entry into HAMP despite meeting eligibility requirements.
Participants also discussed the Treasury’s recently announced plan to release performance data in early August.
The data will be broken down according to servicer, and thus will presumably highlight those servicers who are underperforming in their HAMP implementations.
Since the department announced its intentions to release this data, HAMP administrators have seen increased activities from certain servicers.
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