Homeowners tend to suffer in silence when it comes to trying to obtain a loan modification or fight a foreclosure action. Foreclosures seem to be “old news” but when you’re the one attempting to modify your loan for the past 3 years or have been fighting a foreclosure action, you’re living this “old news” daily.
Foreclosures are Still an Issue
Despite the skewed data that is being presented that the “mortgage meltdown” is over and that housing has recovered, there are still thousands of homeowners fighting to keep their homes. There is some good news, however, for homeowners that are trying to obtain a loan modification. Over a year ago, in January 2014, the Consumer Financial Protection Bureau (CFPB) finally rolled out federal laws in an effort to standardize the loan modification process. The CFPB has finally put some teeth in the law, albeit baby teeth. The new law finally allows the homeowner to sue the loan servicer for failing to comply with the regulations.
The CFPB has also tackled a tactic used by servicers mercilessly to the detriment of homeowners. Finally, dual tracking is officially prohibited. Dual tracking is the process where the servicer appears to be working with the homeowner by modifying the loan when in fact the servicer is failing to work to modify the loan; instead the servicer moves forward to foreclose on the property.
Send Hard Copy Applications via certified mail.
Now, under the CFPB, when you submit an application for a loan modification, the servicer must notify you within 5 business days to confirm receipt of your application and to let you know whether or not any documents are missing. Even though the servicer may provide you with a fax number to submit the application, you must always mail the hard copy application via certified mail/return receipt so you have proof in the form of the “green card” that the servicer has received your package.
Once the servicer has received a “full package” – that means all documents requested have been provided – the servicer has 30 calendar days in which to make a decision on the application. If the servicer approves that application and a trial period payment plan is offered, the trial period plan must be converted to a permanent modification at the end of the trial period plan, assuming that the homeowner has made all 3 payments timely.
If the servicer denies the application, the servicer must include in the denial letter the name of the owner or investor of the loan and the reason why the modification was denied. The servicer can no longer state the reason for the denial as “investor guidelines” or “no affordability”; the servicer must explain, in detail, why the homeowner was denied. This is where most servicers fail to comply with the CFPB. The computers that generate generic form letters denying a homeowner have not been updated to include the actual reason for the denial. Depending on the reason for the denial, the servicer may be required to enclose a NPV report. NPV stands for net present value and there are 12 to 25 different data inputs that go into the NPV report. Those data inputs include the homeowner’s income, the capitalized amount due, the loan terms, the value of the property, and the owner of the loan. A homeowner must review the NPV report for accuracy. Just because the servicer states your information in one way does not necessarily mean they are correct.
Another CFPB requirement if the application is denied is to allow the homeowner to appeal the denial. The servicer will typically give the homeowner 15 to 30 days to appeal the denial and the homeowner must appeal the denial or potentially waive their right to dispute the reason for the denial. A homeowner can dispute the denial based upon the servicer’s value of the property or the servicer may have incorrectly added the income. However, most of the time the reason to dispute a denial is due to the servicer’s failure to provide a reason for the denial as required by the CFPB.
Why would the servicer want to foreclose on a home?
Many homeowners question why the servicer would want to foreclose on a home or why would the servicer want the house instead of receiving a monthly modified payment? First, the entity that you are paying your mortgage to, most likely the servicer, does not own your loan. Think of the servicer as a property manager, collecting the mortgage payment, paying the actual owner of the loan, and making sure the taxes and insurance are paid. The servicer in most cases is not the same as the owner/investor of your loan.
Does Fannie/Freddie own my loan?
The actual owner of the loan may be Fannie Mae or Freddie Mac. The easiest way to determine whether Fannie or Freddie owns your loan is just Google “Does Fannie/Freddie own my loan?” This search will bring you to a website to insert your information to find out if either owns your loan. If neither Fannie nor Freddie owns you loan, there is a good chance your loan was sold on the secondary market in a process called “securitization”. That is where your loan was sold generally at least three times before it ended up in a “pool” of loans wherein the monthly income stream from the loans is sold to investors.
The answer to the question as to why a servicer would foreclose rather than modify your loan: money and greed. The servicer makes its money by “servicing” the loan which includes sending letters to the homeowner, soliciting the homeowner to modify the loan, attempting to modify the loan, and even sending out contractors to take pictures of your house. On average, if a servicer modified a homeowner’s loan within 60 days as HAMP requires, the servicer would receive $1500.00. If, on the other hand, the servicer purposefully frustrates the modification process for 2 years and requires more documents, the documents become stale, the servicer requires more documents, and then the servicer denies the loan modification due to missing or incomplete documents. In this scenario, the servicer could average $6,000.00 more in servicing fees. So it is in the servicer’s best interest to keep the foreclosure in limbo whereas the homeowner tries exhaustively to modify their loan but then the servicer unilaterally forecloses and the servicer realizes thousands of dollars’ worth of fees owed to it.
Under the CFPB, as a homeowner you have a right to bring a lawsuit against the servicer for failure to comply with the CFPB requirements. However, you will need a capable and experienced attorney to assist you in this process. It is in the best interest of the homeowner to retain an attorney at the beginning of the process so that the servicer’s compliance or lack thereof, with the CFPB, can be monitored. If your application is denied, you need someone that knows not just the CFPB requirements, but also understands all of the different investor and servicer modification guidelines, the requirements under National Mortgage Settlement, and requirements under other related settlements and consent orders.