Archives for April 2014

Alert- SLOWING DOWN Of FORECLOSURES- NEW MORTGAGE SERVICING RULES

Will there be a Slowing Down of Foreclosures:  New Mortgage Servicing Rules are in effect which will cause a slowing down of foreclosures.  This may be old news to some but when talking about having to follow rules, news moves slowly.  Two new changes in Regulation X took effect in January.  (Section 1024.38) sets out general servicing policies and procedures for mortgage servicers (most people just say “my mortgage co”).  Reg. X requires servicers of loans to have policies and procedures in place to provide accurate and timely information to borrowers, properly evaluating loss mitigation applications.  (Section 1024.41) sets out loss mitigation procedures.

The CFPB (Consumer Financial Protection Bureau) rules protect consumers from risky mortgage servicing business practices.  These rules modify Regulation Z of the Truth in Lending Act (TILA) and Regulation X of the Real Estate Settlement Procedures Act (RESPA) dealing with the procedures for various servicing of loans.

Servicers are required to acknowledge the receipt of a loss mitigation application within 5 business days if received 45 days or more before foreclosure.  If a complete application is received more than 37 days before a scheduled foreclosure sale, the servicer is required to evaluate the borrower within 30 days for all loss mitigation options and notify the borrower of any loss mitigation offers.

Of significance is the rule’s prohibition of making the “first notice or filing” required by law for any foreclosure process until the loan is more than 120 days delinquent.  If the borrower submits a complete loss mitigation application during that time, the servicer cannot initiate foreclosure until the loss mitigation process is exhausted.  If foreclosure has started and the application is received, the servicer cannot move for judgment or conduct a foreclosure sale until the loss mitigation process is exhausted.  So, “Yes”, there will be a slowing down of foreclosures.

 

 

CAN A MORTGAGOR WAIVE FORECLOSURE DEFENSES?

Can a mortgagor waive foreclosure defenses in a modification or forbearance agreement?  Historically, lenders have routinely included such provisions in return for borrowers entering into a loan modification or forbearance agreement.  The argument favoring barring waivers is that (a) waivers are overly broad and eliminate the borrower’s ability to save the house later when unrelated claims of future conduct cause a foreclosure, (b) homeowners cannot determine whether a waiver is a worthwhile trade-off, (c) allowing for waivers rewards misconduct on the part of lenders.

Recently the U.S. Department of the Treasury and the Consumer Financial Protection Bureau (CFPB) have sought to curtail this practice.  Note that under HAMP (Home Affordable Modification Program) modifications are prohibited from containing waivers.  Complicating matters is the fact that some servicers of loans did not elect to participate in HAMP.

The U.S. Department of Justice sanctioned limited waivers with respect to the Servicemembers Civil Relief Act litigation. Fannie Mae requires lenders to waive claims against borrowers.(See SVC 2012-19) for guidelines directing servicers to release borrowers from liability from any deficiency upon successful completion of a short sale or deed-in-lieu of foreclosure.  In an attempt to standardize and have consistency in the law, the CFPB states that an agreement between borrower and lender may not be used to prevent the borrower from bringing a claim in court for alleged violations of federal law.  To confuse you event more, the Office of the Comptroller of the Currency (OCC)  entered into an agreement with several large lenders which also limited the use of waivers.

The bottom line is that to waive foreclosure defenses is no longer routine and is no longer permissible.

 

SLOWING DOWN FORECLOSURES

New Mortgage Servicing Rules are in effect which will be slowing down foreclosures.  This may be old news to some but when talking about having to follow rules, news moves slowly.  Two new changes in Regulation X took effect in January.  (Section 1024.38) sets out general servicing policies and procedures for mortgage servicers (most people just say “my mortgage co”).  Reg. X requires servicers of loans to have policies and procedures in place to provide accurate and timely information to borrowers, properly evaluating loss mitigation applications.  (Section 1024.41) sets out loss mitigation procedures.

The CFPB (Consumer Financial Protection Bureau) rules protect consumers from risky mortgage servicing business practices.  These rules modify Regulation Z of the Truth in Lending Act (TILA) and Regulation X of the Real Estate Settlement Procedures Act (RESPA) dealing with the procedures for various servicing of loans.

Servicers are required to acknowledge the receipt of a loss mitigation application within 5 business days if received 45 days or more before foreclosure.  If a complete application is received more than 37 days before a scheduled foreclosure sale, the servicer is required to evaluate the borrower within 30 days for all loss mitigation options and notify the borrower of any loss mitigation offers.  All of this will be slowing down foreclosures.

Of significance is the rule’s prohibition of making the “first notice or filing” required by law for any foreclosure process until the loan is more than 120 days delinquent.  If the borrower submits a complete loss mitigation application during that time, the servicer cannot initiate foreclosure until the loss mitigation process is exhausted.  If foreclosure has started and the application is received, the servicer cannot move for judgment or conduct a foreclosure sale until the loss mitigation process is exhausted.