A couple of months ago I wrote an article about the settlement between the state attorneys general in 49 states, HUD, the Department of Justice, the Conference of State Bank Supervisors and the following five lenders/servicers: Ally Financial(formerly GMAC), B of A, Citigroup, JPMorgan Chase, and Wells Fargo. The original suit was for claims of lender misconduct in foreclosure, loan servicing and loan origination. The settlement includes $25 billion to be allocated by lenders/servicers for monetary sanctions and for relief and to assist homeowners.
There is a lot of information about this settlement but what I’d like to highlight here are the main features of the settlement that will or can affect the everyday homeowner.
There are various provisions that make the loan modification process easier; here is a list of some of the new rules (from the legal section of the C.A.R.’s website):
- Lenders/servicers must evaluate the borrower’s situation for possible loss mitigation options prior to referring a borrower’s loan to foreclosure.
- Borrowers will have the ability to appeal decisions turning down their request for loss mitigation.
- Lenders/servicers must follow specific timelines when handling loan modification. For example: banks/servicers must review and make a determination on the borrowers’ completed loan modification application within 30 days of receipt.
- Upon receipt of a loan modification request, the lender/servicer must consider all possible loan modifications prior to referral of loan for foreclosure.
- HAMP trial modifications should be promptly converted to permanent modifications.
- New timeline requirements to be followed for the loan modification process.
- SPOC – Single Point of Contact Person for borrowers who are having difficulty making loan payments.
- New Restrictions on Dual Tracking. Dual tracking is where the lender/servicer while on the one hand is negotiating with a borrower on the other they are simultaneously proceeding with the foreclosure. The settlement contains new restrictions on the lender’s use of this practice.
- No fees for applying for a loan modification.
- Strengthened protections for service members (members of the military), including having service members referred to employees who are specially trained on the protections extended by the Service Members Civil Relief Act.
- Forbearance agreements.
- The actual investors and holders of the loan must be disclosed to borrowers.
- Restrictions on default fees, third party fees and late fees.
- Restrictions and regulations concerning the ability of lenders/servicers to impose force-placed insurance on the borrowers. Force-placed insurance is when a lender/servicer obtains, for example, property insurance on the property when the lender/servicer believes or has reason to believe the borrower has not.
The settlement also will affect short sales; here are some of the provisions that will hopefully make the process more efficient:
- Lenders/servicers are to develop a process to allow the borrower to obtain a short sale evaluation prior to marketing the home.
- Lender/servicers are to confirm in writing the receipt of a short sale request. The confirmation shall also explain the lenders/servicers short sale process.
- Lenders/servicers shall make information publicly available explaining their short sale requirements.
- Lenders/servicers shall review the short sale request submitted by borrowers and communicate the disposition of borrower’s request no later than 30 days after receipt of all required information and third party consents.
- Possible relocation assistance.
The settlement also implemented new foreclosure requirements:
- There is a new pre-foreclosure notice. A new notice is required informing a borrower of the loan status 14 days before a delinquent loan is referred to a foreclosure attorney. The notice has various requirements including: a borrower’s right to request the borrower’s payment history, a copy of the mortgage note, the name of the investor holding the note, a plain language summary of the amount required to bring the note current, and the terms of the loan and how to contact the bank or a HUD housing counselor.
Remember, when you are reading these new requirements, that the settlement is a gradual process and some of these requirements could take time to be in place.
Diana D. Hill