Foreclosure Mediation Foreclosure Update and Market Overview by Lili Sotelo Northwest Justice Project

3/2/2012

Northwest Justice Project & WA State Bar Association

What’s New in Washington • • • • • •

Foreclosure Fairness Act Washington AG Investigation of Trustees Multi-State Attorneys General Settlement Housing Counselors Foreclosure Prevention Unit MERS Question

3/2/2012

Northwest Justice Project & WA State Bar Association

U.S. Foreclosure Filings

Source: RealtyTrac 3/2/2012

Northwest Justice Project & WA State Bar Association

Completed Foreclosures and Other Home Forfeiture Actions 9/30/10

12/31/10

3/31/11

6/30/11

1Q %Change

1Y %Change

Total Foreclosures Completed

189,285

95,070

119,739

121,209

-7.0%

-40.5%

New Short Sales

56,270

49,061

50,108

56,406

1.9%

2.1%

New D-I-L Actions

1,729

2,085

1,700

2,547

2.9%

51.5%

247,284

146,216

171,547

180,162

-4.1%

-30.1%

Total

Source: OCC Mortgage Metrics Report 3Q 2011

3/2/2012

Northwest Justice Project & WA State Bar Association

Number of New Home Retention Actions 9/30/10

12/31/10

3/31/11

6/30/11

9/30/11

1Q %change

1Y %change

Other 174,862 Modifications

152,375

106,512

80,185

83,589

4.3%

-52.2%

HAMP Mods

58,856

56,340

53,250

70,071

53,941

-23.0%

-8.4%

Other Trial-Period Plans

71,890

81,034

181,099

118,928

127,463

7.2%

77.3%

HAMP Trial-Period Plans

45,087

53,022

57,649

44,148

29,338

-33.5%

-34.9%

Payment Plans 119,589

131,988

158,821

142,678

164,559

15.3%

37.6%

Total 470,284

474,759

557,331

456,010

458,899

0.6%

-2.4%

3/2/2012

Northwest Justice Project & WA State Bar Association

Type of HAMP Mod Action by Investor and Product Type 3Q 2011 Fannie Mae

Freddie Gov. Mac Guar.

Private Inv.

Portfolio

Overall

Capitalization

98.6%

99.0%

93.2%

93.5%

84.4%

93.7%

Rate Reduction

84.4%

92.7%

86.9%

84.9%

86.9%

86.8%

Rate Freeze

0.0%

0.0%

1.3%

4.3%

3.5%

2.2%

Term Extension

62.2%

64.8%

98.5%

10.8%

69.0%

48.4%

Principal Reduction

0.0%

0.0%

0.0%

7.4%

33.4%

10.2%

Principal Deferral

24.3%

27.1%

0.4%

37.0%

50.7%

34.9%

Not Reported

0.4%

0.1%

0.0%

0.0%

0.3%

0.2%

3/2/2012

Northwest Justice Project & WA State Bar Association

3/2/2012

Northwest Justice Project & WA State Bar Association

3/2/2012

Northwest Justice Project & WA State Bar Association

3/2/2012

Northwest Justice Project & WA State Bar Association

Washington Foreclosure Filings

Source: RealtyTrac 3/2/2012

Northwest Justice Project & WA State Bar Association

Mediation’s Effect on Foreclosure “Twelve states saw an unchanged or lower foreclosure rate (for 3Q 2011). Among those states, New Jersey, Arkansas and Washington had significant decreases across all loan types, an implication that there might have been state specific factors causing what might be a temporary stop on the initiation of the foreclosure process. These states also saw significant increases in the percentage of loans that are 90+ days delinquent. “ Source: 3Q Mortgage Delinquency Survey, Mortgage Bankers Association

3/2/2012

Northwest Justice Project & WA State Bar Association

3Q 2011 Number and Percentage of Mortgage Modifications HAMP Mods

Other Mods

Total

National

53,941

39.2%

83,598

60.8%

137,539

100%

Washington

1,196

42.0%

1,654

58%

2,850

2.1%

Total HAMP Mods in Washington: 17,231

Source: Dec. 2011 Making Home Affordable Performance Report and OCC Mortgage Metrics Report 3Q 2011 3/2/2012

Northwest Justice Project & WA State Bar Association

CONCLUSIONS/PREDICTIONS Delinquencies will continue to be steady or increase Number of mediations will increase Increase in foreclosure avoidance agreements, including short sales Increase litigation in areas of modification scams and trustee misconduct

3/2/2012

Northwest Justice Project & WA State Bar Association

Mediation Advocacy-Representing Homeowners under the Foreclosure Fairness Act WSBA February 28, 2012 1

BRUCE NEAS CO LU M B I A L E G A L S E RV I C E S 7 1 1 C A P I T O L WAY O LY M P I A , WA [email protected]

Intent of the FFA-Legislative Findings 2

 Home foreclosures continue to rise to unprecedented

levels…a new wave of foreclosures has occurred due to rising unemployment, job loss, and higher adjustable loan payments;  Washington's nonjudicial foreclosure process does not have a mechanism for homeowners to readily access a neutral third party to assist them in a fair and timely way;  Foreclosure mediation programs provide a cost-effective process for the homeowner and lender, with the assistance of a trained mediator, to reach a mutually acceptable resolution that avoids foreclosure.

Judicial vs. Non-Judicial Foreclosure 3

Bank has to file a lawsuit to foreclose Bank must follow proper civil and court procedure Proof that it owns the loan Mediation and Dispute Resolution Right of Redemption for Homeowner Court Decision Bank serves and records Notices Trustee conducts sale (auction) 90 days after NTS No court oversight No requirement to mediate until recently Trustee’s Sale

Process is faster and less expensive for banks

Scope of the Harm-Foreclosures in Washington WA 14th in the Nation 4

 7,000 foreclosure filings in 2007.  31,000 foreclosure filings in 2009.  52,000 foreclosure filings in 2010.  Between 44,000 and 50,000

foreclosure filings in 2011.

5

Foreclosure Mediation Programs Work 6

 From 2008 and 2010, 13,823 Connecticut homeowners

requested mediation under the law. 60% of the mediations resulted in homeowners staying in their homes. 42% of mediations resulted in loan modifications.  New York scheduled 89,093 foreclosure conferences from January 2010 to mid-October 2010. Homeowners appeared and participated in over 80 percent of scheduled sessions. Early indications from New York City are that roughly half of the conferences conclude with settlements keeping borrowers in their homes.

Foreclosure Mediation Programs Work-continued 7

 Nevada, Rhode Island, New Jersey and Florida, also

report that roughly half, or more, of the mediated cases are settling with borrowers remaining in their homes.

Structure of the FFA 8

 Effective Date-July 22, 2011.  Notice of Pre-Foreclosure Options.  Only

   

formal notice to homeowner of right to mediation Homeowner can request mediation ONLY through housing counselor or attorney. Mediation request must be “appropriate” and “based on individual circumstances.” Commerce trains and selects mediator. Foreclosure cannot proceed until mediation concluded.

Changes after July 22, 2011-Before Notice of Default 9

 Beneficiary serves Notice of Pre-Foreclosure Options  Beneficiary/Servicer must offer to meet and confer  Homeowner has 30 days to respond to offer to meet  Acceptance adds 60 days to the process  If no response, beneficiary/servicer serves NOD  Homeowner can still request mediation before NTS  Contact a housing counselor or attorney early!

Before Notice of Trustee’s Sale-After July 22nd 10

 Only Attorney or Housing Counselor can refer to

mediation  Parties must mediate in good faith  Must try to reach a resolution to avoid foreclosure  Beneficiary’s lack of good faith is a CPA violation   

Basis to restrain the sale Attorney’s fees Treble damages

Parties to Mediation-Borrower 11

 “Owner-occupied residential real property” as of date

of initial contact (Notice of Pre-Foreclosure Options).  All deeds of trust-no date of loan restriction as under previous law-except:  No commercial loans, HOA foreclosures, or sellerfinanced sales.  Notice of Default on or before the effective date of the Act and home not yet been sold at foreclosure sale, OR after the July 22nd effective date, have not received the Notice of Trustee’s Sale.  Referred by housing counselor or attorney.

Parties to Mediation-Beneficiary 12

 "Beneficiary" means the holder of the instrument

or document evidencing the obligations secured by the deed of trust.  “Beneficiary” or “authorized agent” is used.  “Person with Authority.”  Exceptions to Mediation for Beneficiaries who are:  “Federally-insured depository institutions”; that,  Do less than 250 trustee sales of owner-occupied residential real property in preceding calendar year.

Mediators-Requirements 13

 Active members of the WSBA.  HUD-approved housing counseling agencies

or counselors approved by the Washington State Housing Finance Commission.  Employees or volunteers of dispute resolution centers.

Mediators Must Be Familiar With: 14

 Relevant aspects of the law;  Knowledge of community-based resources

and mortgage assistance programs, and:  Refer borrowers to these programs where appropriate.

Department of Commerce Duties: Mediators 15

 Maintain list of approved mediators;  Establish a required training program;  Require mediators to attend training before

approved;  May remove any mediator from the approved list of mediators;  Create mandatory statutory forms.

Foreclosure Mediation Timeline 16

1. 2. 3. 4. 5. 6.

Within 10 days of receiving mediation request, Commerce to notify parties and select mediator. Mediation scheduled no later than 45 days after the mediator is selected, unless otherwise agreed. Mediator will set a time, date and place for the mediation 15 days before the mediation session. At least 10 days prior to the mediation, parties exchange documents. Mediation of 1-3 hours, unless otherwise agreed. Within 7 days of mediation, the mediator must issue written certification-results & good faith.

Mediator Responsibilities-Productive Mediation 17

Schedule phone conferences & other communications prior to mediation. 2. Section 7(5)(b) Notice to Parties:  Borrower may be represented by attorney or other advocate;  Person with authority must be present or on telephone;  Complete list of documents prior to mediation;  Duty of good faith in mediation and consequence of failure. 3. Have participants address issues of foreclosure that lead to resolution: loan mod; restructuring of debt; workout plan; other, e.g., short sale, deed in lieu, cash for keys. 4. Collect the mediator fee, unless waived. 5. Mediator Certification. 1.

Participant Issues at Mediation 18

 Borrower’s current and future economic

circumstances, debts and obligations.  NPV of receiving payments pursuant to a loan mod versus foreclosure sale.  Any loan modification programs applicable, e.g., HAMP or other loss mitigation program.

Documents Required at Mediation-Borrower 19

 Current and future income.  Debts and obligations.  Tax returns for past 2 years.

Documents Required at Mediation-Beneficiary 20

 Balance of loan as of first day of month of mediation;  Copies of note and deed of trust;  Proof beneficiary is the owner of any promissory

    

note or obligation secured by the deed of trust. May be a copy of the declaration in RCW 61.24.030(7)(a); Arrearage, itemized statement with fees and charges; Payment history for last 12 months; Input data for NPV analysis & recent appraisal; Explanation of why loan modification denied; If applicable, portion of PSA preventing a loan mod.

EXAMPLE OF POOLING & SERVICE AGREEMENT (PSA) 21

The following is an example of a PSA that does not allow for loan modifications. The name of the trust (beneficiary) is: Wells Fargo Bank, N.A., as Trustee for Securitized Asset-Backed Receivables LLC 2005-F3 Mortgage Pass-Through Certificates, Series 2005-FR3. Section 3.01(c): “…and the Servicer shall not permit any modification with respect to any mortgage loan that would change the mortgage rate, reduce or increase the principal balance or change the final maturity rate on such mortgage loan…”

Outcomes at Mediation 22

 Resolution: loan modification; work out;

debt forgiveness; short sale; deed in lien, cash for keys; principal reduction; etc.  No resolution AND parties mediate in good faith, foreclosure proceeds.  No resolution AND homeowner fails to mediate in good faith, foreclosure proceeds.

Outcomes at Mediation-continued 23

 If no resolution AND beneficiary fails to

mediate in good faith, foreclosure proceeds, but homeowner may be able to enjoin foreclosure in court.  If no resolution and the certification shows the NPV of a modified loan exceeds the anticipated net recovery at foreclosure, then borrower may use to enjoin foreclosure.

Duty of Good Faith-Section 7(8) 24

 Timely participation;  Provide required documentation in timely

manner;  Pay the mediator fee;  Designate representative with adequate authority to reach resolution with borrower in mediation;  Not requiring waiver by borrower of any future claims.

Mediator Certification 25

 Certification form to be created by Commerce;  Certification of results of mediation required 7

business after mediation concludes;  Trustee may not proceed with foreclosure until Certification received, but:  If Certification not received 10 days after certification due, Trustee may proceed with foreclosure;  If Certification shows failure of good faith by beneficiary, trustee may NOT proceed with sale.

For More Information on Foreclosure Mediation Programs 26

 It's Time We Talked: Mandatory Mediation in the

Foreclosure Process http://www.americanprogress.org/issues/2009/06/time we talked.html  Walk the Talk: Best Practices on the Road to Automatic Foreclosure Mediation http://www.americanprogress.org/issues/issues/2010/1 1/pdf/walk the talk.pdf  Foreclosure Mediation Programs http://www.nclc.org/issues/foreclosure-mediationprograms.html

How to Refer a Homeowner to Mediation * Meredith Childers Northwest Justice Project

Three Questions 1. Can I Refer the Homeowner to Mediation? 2. Should I Refer the Homeowner to Mediation? 3. How do I Refer the Homeowner to Mediation?

Can I Refer the Homeowner to Mediation?

YES •Homeowner is Borrower/Guarantor. •Owner-Occupied Residential Real Property. •Notice of Default  20 days after Notice of Trustee’s Sale recorded.*

Can I Refer the Homeowner to Mediation?

NO • Commercial Loan. • Seller-Financed Sale. • Association Beneficiary. • Exempt Beneficiary. • Before Notice of Default or > 20 Days after Notice of Trustee’s Sale recorded*

* What’s the Date on the Notice of Default?

On or before July 22, 2011? Homeowner can be referred to mediation up to the day before the Trustee’s Sale.

When is the Beneficiary is Exempt?

< 250 Notices of Default in preceding year.

www.commerce.wa.gov

Should I Refer the Homeowner to Mediation?

“The housing counselor or attorney determines that mediation is appropriate based on individual circumstances and the borrower has received a notice of default. “ FFA Sec.2

• Duty of Good Faith to the Homeowner • Homeowner’s Goals & Objectives

How do I Refer the Homeowner to Mediation? • • • •

Gather Documents. Complete Referral Form. Contact Trustee. Copy the Homeowner.

What Do I Need? 1. Referral to Mediation Template www.commerce.wa.gov

2. Notice of Default

What Else Might I Need? • Assessor’s Records. • Deed of Trust. • Mortgage Statements. • Beneficiary Contact Information. • Notice of Trustee’s Sale

Property Information • Washington State Digital Archives: www.digitalarchives.wa.gov

• Local Property Record Websites: http://publicrecords.netronline.com/

Loan Number

October Mortgage Statement Loan Number: 50000555505 Statement Effective Date: 02/17/2012 Borrower Name: Elvin Presler

Beneficiary & Servicer Contact Information •Notice of Default •Notice of Trustee’s Sale • MHA Website: Contact Your Mortgage Company – www.makinghomeaffordable.gov • U.S. Securities and Exchange Commission: http://www.sec.gov/edgar.shtml •Google!

Mediation Referral Checklist A. Mediation Referral Form  Emailed to Department of Commerce.  Mailed hard copy to Department of Commerce. B. Letter to Trustee  Faxed/Mailed to Trustee with copy of referral form.  Called Trustee to postpone/cancel sale if necessary. C. Letter to Client  Mailed to Client with enclosures.

What’s Next? • Email Confirmation from DOC. • 10 Days  Notice from DOC appointing Mediator. • Mediator will contact parties for scheduling. • Parties will exchange documents. • 70 Days  Mediator will convene a mediation session in the county where the borrower resides.

Thank you. Thank you very much.

Preparing for Mediation Meredith Childers * Northwest Justice Project

Mediation Timeline Mediation Referral 10 days ↓ DOC Confirmation 23 days ↓ Homeowner Documents Due

70 days

20 days ↓ Beneficiary Documents Due

↓

Mediation (Note: 30 days prior to mediation the Mediator must send written notice of date, time and location of mediation and homeowner must pay $200 fee.)

Mediation Timeline July Sun

Mon

Tues

Wed

Thurs

Fri

Sat

1 Refer

2

3

4

5

6

7

8

9

10

11 DOC Notice

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

30

31 M Notice

August Sun

Mon

Tues

Wed

Thurs

Fri

Sat

1

2

3 H Docs

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23 B Docs

24

25

26

27

28

29

30 Mediate

31

Department of Commerce Confirmation

• Send a Notice to Mediator and Beneficiary if you intend to represent the homeowner. •You have 23 days to prepare and submit documents.

Homeowner Documents

Making Home Affordable Application or DOC Homeowner Financial Information Worksheet (not yet available) What Else? • MHA Application Supporting Documents • Proof of Income, Proof of Residence, 4506-T, Dodd Frank Certification, Tax Returns & Hardship Affidavit.

• •

NPV Test Mediation Brief/Statement of Goals

Making Home Affordable Application

www.makinghomeaffordable.gov

Property Information •

Proof of Residence • A utility bill (not an online statement).

•

Property Value • Broker Price Opinion (BPO) • County Assessor • Zillow/Redfin

•

Property Tax • County Assessor

•

Property Insurance • Ask the Homeowner.

•

Clean Title? • Title Search • County Auditor • Court Records

Income Monthly Household Income Monthly Gross Wages

$

Overtime

$

Child Support/Alimony/Separation

$

Social Security/SSDI

$

Other monthly income from pensions, annuities or retirement plans

$

Tips, commissions, bonus and self-employment income

$

Rents Received

$

Unemployment Income

$

Food Stamps/Welfare

$

Other (investment income, royalties, interest, dividends)

$

Total (Gross Income)

Income

• • • • • • •

Pay stubs. Child support order. Benefits award letter(s). Pension/Annuity/Retirement plan. Rental agreement. Profit and loss statement. Non-borrower income.

Debts & Expenses Monthly Household Expenses/Debts First Mortgage Payment Second Mortgage Payment Insurance Property Taxes

$ $ $ $

Credit Cards/Installment Loans(s) (total minimum payment $ per month) Alimony, child support payments Net Rental Expenses

$ $

HOA/Condo Fees/Property Maintenance

$

Car Payments

$

Other______________ Total Debt/Expenses

$

Assets Household Assets Checking Account(s)

$

Checking Account(s)

$

Savings/money Market

$

CDs

$

Stocks/Bonds

$

Other Cash on Hand

$

Other Real Estate (estimated value)

$

Other ________________

$

Other ________________

$

Do not include the value of life insurance or retirement plans when calculating assets (401K, pension funds, annuities, IRAs, Keogh plans, etc.) Total (Gross Income) * Two Months of Bank Statements (not online statement).

Hardship Letter • State Homeowner’s goals. • Describe Homeowner’s hardship. • Describe any changes in circumstances. • Explain why the Homeowner’s goals are reasonable. • Keep it short and simple.

Tax Return Transcript

Dodd-Frank Certification

Net Present Value Evaluation Check My NPV: https://checkmynpv.com/

FDIC Net Present Value Calculator: http://www.fdic.gov/consumers/loans/prevention/NPVCa lculator.html

Mediation Notebook 1. 2. 3. 4.

5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18.

Homeowner Mediation Brief Mediation Referral Documents Foreclosure Notices Making Home Affordable Application • Income, Expenses, Debt & Assets • Hardship Affidavit • Dodd Frank Certification • 4506-T • Utility Bill Homeowner Income Records Homeowner Tax Returns – 2 years Mortgage Balance* Promissory Note* Deed of Trust* Beneficiary Declaration of Ownership* Mortgage Arrearage, Fees & Charges* Mortgage Payment History* Net Present Value Tests* Modification Denial Explanation* Property Appraisal* Pooling and Servicing Agreement Excerpt* Correspondence Miscellaneous

Mediation Checklist A. Mediation Waiver and Fee: Deadline ________. B. Homeowner Documents: Deadline __________. C. Beneficiary Documents: Deadline __________. D. Day of Mediation – What to Bring: •

Mediation Notebook/Documents (plus one extra copy)

•

Calculator

•

Home Affordable Modification Program Handbook (HAMP)

•

Deed of Trust Act

•

Foreclosure Fairness Act

Good Luck!

Net Present Value Models: It’s Just Math Presented by Catherine West Staff Attorney, Foreclosure Prevention Unit Northwest Justice Project

Outline of Presentation • Net Present Value (NPV) • How NPV fits in to the Foreclosure Fairness Act • NPV models • Federal Deposit Insurance Corporation (FDIC) • Making Home Affordable Modification Program (HAMP) • Bank models

Affordable Loan Modifications • Good for everyone! • Loan modifications avoid the societal and individual costs of massive mortgage foreclosures, and ensure that lenders are still able to make money.

Loan Modifications • Determining a payment the borrower can afford and • Protecting investors’ interests by requiring that the cost of the modification is less than the costs of foreclosure (the Net Present Value floor).

Net Present Value • A NPV assesses borrower and loan information, and • Determines whether the outcome is positive or negative (and the amount) for a given modification.

Net Present Value • Standard test comparing the value of modifying past due loans and foreclosing • Consistency • Standard assumptions

• Simplicity • Ensure a consistent standard for affordability

• GOAL: An AFFORDABLE payment, or 31% borrower mortgage debt-toincome ratio

NPV must be considered during mediation • The net present value must be considered in mediation – Value of receiving payments under a modified mortgage loan, compared with – Anticipated net recovery following foreclosure • Costs of foreclosure • Selling home at a reduced price

– RCW 61.24.163(7)(b)

Two types of NPV: HAMP or FDIC • Under FFA (RCW 61.24.163(7)(c)), must use either: – The NPV at www.checkmynpv.com, if the servicer participates in HAMP. – For non-HAMP participating servicers, the FDIC NPV (http://www.fdic.gov/consumers/loans/preventi on/NPVCalculator.html)

HAMP Standard Modification Waterfall (NPV steps)

HAMP Standard Modification Waterfall (NPV steps) • Servicers must apply the modification steps in order. – Capitalize arrears – Reduce interest rate incrementally – Extend loan term – Forbear principal (Chapter II: HAMP (09/01/11) 6.3: Standard Modification Waterfall, http://www.allregs.com/tpl/main.aspx)

Step 1—Capitalization Spreading the arrears over the remaining term

If that achieves 31% of borrower’s income, then exit the waterfall.

Step 1—Capitalization Spreading missed payments and fees over the life of the loan

fees  loan

Step 1—Capitalization • accrued interest • out-of-pocket escrow advances to third parties • any required escrow advances that will be paid to third parties by the servicer during the Trial Period Plan • servicing advances that are made for costs and expenses incurred in performing servicing obligations

Step 2—Interest Rate Reduction Reducing the current interest rate incrementally.

If that achieves 31% of borrower’s income, then exit the waterfall.

Step 2—Interest Rate Reduction • Servicer reduces the starting interest rate in increments of 0.125% to get as close as possible to the target monthly mortgage payment ratio.

• 6.5%  6.375%   6.125%  6% 5.875% . . .

6.25% 

Step 2—Interest Rate Reduction • Interest rate floor: • The HAMP interest rate floor is 2% • The FDIC interest rate floor is 3%

• Interest rate ceiling: • Primary Mortgage Market Survey (PMMS), published weekly at www.freddiemac.com/pmms • PMMS for Jan 8 = 3.91%

Step 2—Interest Rate Reduction • If the resulting interest rate is below the PMMS, this reduced rate will be in effect for the first five years. • After the 5th year, the interest rate increases to catch up to the PMMS (3.91%, as of Jan. 8).

Step 2—Interest Rate Reduction • Annual increases of 1% until the interest rate reaches the PMMS • Then, the rate will be fixed for the remaining loan term. • • • •

For example: Loan Year 1 – 5 = 2% interest rate Loan Year 6 = 3% Loan Year 7 = 3.91% (fixed thereafter)

Step 2—Interest Rate Reduction • Servicer reduces the starting interest rate in increments of 0.125% (continued) • If the resulting rate exceeds the PMMS, then that rate is the permanent rate. • For example, if 6% interest rate creates an affordable housing payment, that’s the fixed rate.

Step 3 – Term Extension Extending the loan term.

If that achieves 31% of borrower’s income, then exit the waterfall.

Step 3—Term Extension • Servicer extends the term and reamortizes the mortgage loan by up to 480 months. • The term extension steps must be made in one-month increments. – For example, first try: 27 year loan + 1 month; – Then try: 27 year loan + 2 months; – Then try: 27 year loan + 3 months . . . – All the way up to 480 months.

Step 3—Term Extension • If a term extension is not permitted under the servicing agreement, – reamortize the mortgage loan – based upon an amortization schedule of up to 480 months – with a balloon payment due at maturity.

Step 4 – Principal Forbearance Take some of the loan off, and make it due at the end of the term.

If that achieves 31% of borrower’s income, then exit the waterfall.

Step 4—Principal Forbearance • The principal forbearance amount is noninterest bearing and non-amortizing. • The amount of principal forbearance will result in a balloon payment fully due and payable upon the earliest of the borrower's – transfer of the property, – payoff of the interest bearing unpaid principal balance (UPB), – or at maturity of the mortgage loan.

Principal Forgiveness • Servicers may forgive principal up front or on a deferred basis. • Under HAMP, there are 116 servicers required to develop standards for Principal Reduction Alternative (PRA). – For the complete list of servicers participating in the PRA program: http://www.makinghomeaffordable.gov/progra ms/lower-payments/pages/pra.aspx.

Principal Forgiveness • Servicers may forgive principal up front or on a deferred basis. – Ocwen Bank announced a Shared Appreciation Modification – Ocwen CEO Ronald Faris. "Our analytics tell us that an underwater mortgage is one-and-ahalf to two-times more likely to default than one with at least some positive equity.” –

http://shareholders.ocwen.com/releasedetail.cfm?ReleaseID=601517

Principal Forgiveness • With Ocwen’s SAM, the principal of the loan is written down to 95% of the current market value of the home. • The written-down portion is forgiven in onethird increments over the next three years, so long as the homeowner stays current on the modified mortgage. • When the house is later sold or refinanced, the borrower must share 25% of the appreciation with the investors that own the loan; borrowers keep 75% of the gain.

Variation from Standard Waterfall • Servicers may provide borrowers with a more favorable modification than that required by HAMP. • For example: – Interest rate may be below 2%. – Payments may be below 31% of borrower’s income.

HAMP Loan Modification CheckMyNPV.com

Capitalize arrears

FDIC “mod in a box” NPV www.fdic.gov/consumers/loans/prevention/NPVCalculator.html

Alter Highlighted Terms for Interactive NPV Analysis Program Parameters Current Freddie rate

3.9%

Program interest rate floor

2.0%

(Freddie rate – use www.freddiemac.com/pmms Check the program rate: HAMP floor is 2%)

FDIC “mod in a box” NPV Loan origination information and current status $300,000 Original Loan Amount Original Amortization Term 360 Original Interest Rate Interest only loan (Y/N) Current UPB (unpaid principal balance) Current Rate Remaining Term Months past due Property state Advances/Escrow

7.000% n $200,000 7.000% 330 3 wa $741

(Bankrate calculator: http://www.bankrate.com/calculators.aspx)

Current Monthly Mortgage Payment (only P & I)

$1,995.91

Current Interest Payment

$1,750.00

Current Principal Payment

Past Due Interest UPB Adjusted for Accrued Interest and Escrow

$245.91

$4,667

$205,408

(Is the homeowner’s income being counted properly? For HAMP, some income is“grossed up” x 125%, usually if it’s untaxed income.)

Borrower status Monthly Income* Monthly Taxes and Insurance

$3,000 $400

(Can the homeowner reduce her taxes through a senior or disabled property tax exemption? Or, is cheaper property insurance available?)

Foreclosure Scenario UPB Adjusted for Accrued Interest and Escrow Current Value Home Price Appreciation Forecast REO Stigma Discount Months to Foreclosure Sale Months to REO sale Foreclosure & REO Disposition Costs Future Interest and Advanced Escrow REO Value Zero Cure PV Loss Cure Rate PV Probability Wtd Loss

$205,408 $300,000 -5% 20% 2 6 $7,226 $5,037 $215,737 $10,077 15% $8,565

Present Value of Modification

Affordable DTI level

Modified Payment

Interest Rate at 30 Year Term Interest Rate with 40 Year Term

31%

$530.00 Interest rate less than program floor, extend amortization -1.1% term Principal forbearance 0.8% required

Modified Loan Terms Required to Achieve Modified Payment UPB adjusted for Accrued Interest and $205,408 Escrow

Modified Rate Modified Payment Modified Loan Term

2.00% $530.00 450

Modified Full Am Payment

$649.20

Difference from Affordable Payment

$119.20

Principal Forbearance PV Reduced Cash Flow

$37,714.04 ($43,723.83)

Valuation Given Redefault After Modification Redefault Rate Months to Redefault Home Price Appreciation Forecast (from current date)

Future Interest and Advanced Escrow REO Value PV Estimated Loss

40% 3

-4%

$7,212 $215,962 $10,924

Value of Modification

Modification Value

Benefit from Modification

NPV Test (Pass/Fail)

($21,865)

($30,430.22)

Fail - consider short sale

Modification Terms % Difference from Original Payment

-73.4%

Borrower Payment after months: 1

$530.00

60

$610.19

72

$685.68

84

$685.68

96

$685.68

108

$685.68

If the NPV analysis fails, verify the inputs! You can negotiate about the inputs, including the current value of the home, income etc., which may result in a passing NPV.

Foreclosure Scenario UPB Adjusted for Accrued Interest and Escrow Current Value Value of Modification Modification Value Benefit from Modification NPV Test (Pass/Fail)

$205,161 $200,000 ($51,334) $2,915.30 Pass

If we change just one input – the current value of the home – then, the homeowner passes, with all the same terms.

Modification Terms % Difference from Original Payment

-73.4%

Borrower Payment after months: 1

$530.00

60

$610.19

72

$685.68

84

$685.68

96

$685.68

108

$685.68

In summary, the NPV assesses the economic benefit to the investor. If you can show that modifying the loan would result in a greater economic benefit to the investor than foreclosure, then the NPV passes.

The FPU thanks you!

Thank you for your service!

Foreclosure Prevention Contacts • Washington Homeownership Information Hotline at 1-877-894-HOME (4663) – Housing counselors

• Northwest Justice Project’s Foreclosure Prevention Unit at 1-800606-4819 – Attorneys and paralegals

Helpful Citations • • • • •

CheckMyNPV.com Quick Start Guide CheckMyNPV.com Input Worksheet CheckMyNPV.com Income Worksheet CheckMyNPV.com FAQ CheckMyNPV.com Glossary

HAMP Handbook

http://www.allregs.com/tpl/Main.aspx

HAMP Related Modification Programs • HAMP GSE (Fannie Mae/Freddie Mac) • HAMP Non-GSE • FHA HAMP • RHS HAMP http://www.allregs.com/tpl/Main.aspx https://checkmynpv.com/ • VA Loan http://www.directvaloans.com/VA_Home_Loan_Guide/A39/ VA_Loan_Modification.aspx

http://www.freddiemac.com/pmms/

Principal Reduction • Wells Fargo – https://www.wellsfargo.com/press/2010/20100 413_Testimony

• Bank of America – http://homeloanhelp.bankofamerica.com/en/n hrpannouncement.html

Effective Foreclosure Mediation Turn the requested financial documents in well before the scheduled mediation date. If the borrower turns in documents that were used for previous reviews, the documents may be too outdated for the beneficiary or its servicer to review. As a general rule, all forms and documents should be dated within 60 days of the mediation.

Come to mediation with a plan. Does the borrower want to retain the home? If home retention is not an option, does the borrower want to pursue an alternative liquidation option such as short sale or deed in lieu of foreclosure?

Prepare your client. Many borrowers we mediate with are under the impression that mediation means they will be given a modification of their loan. Unfortunately, not everyone will be eligible for a loan modification. It’s helpful to prepare your client for this reality.

The NPV calculation is the last step of the review waterfall test. An NPV test is the last step in the review waterfall test. The first step, once the borrower’s complete financials are received, is a review of the borrower’s financials for affordability. The NPV is used only when the beneficiary was able to successfully solve for the 31% DTI to qualify borrowers for HAMP (the percentage may vary for internal modification products).

Attend mediation with all parties to the Note. Divorced couples with only one person attending must either come to the mediation with a copy of the recorded quit claim deed awarding the mediation borrower the property and divorce decree awarding the mediation borrower the property, or both parties should be present. Without a quit claim deed and divorce decree, both parties will be required to sign any agreement avoiding foreclosure.

The focus of the mediation is foreclosure alternatives. The intent of foreclosure mediation is to discuss possible foreclosure alternatives. Discussions concerning loan origination or the beneficiary’s standing to foreclose are not appropriate for mediation. Other avenues are available for borrowers to address those issues outside of mediation if they are legitimate concerns. To help protect your privacy, PowerPoint prevented this external picture from being automatically downloaded. To download and display this picture, click Options in the Message Bar, and then click Enable external content.

Questions Thank you! Wendy Walter – [email protected] Susana Davila – [email protected]

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Washington State Department of Commerce

The Role of the Mediator

Valerie Grigg Devis Foreclosure Fairness Program Manager February 28, 2012

The Role of Commerce Program Management • • • •

Collect Funds Train and Approve Mediators Assign Mediators for Referrals Report Outcomes

The Foreclosure Fairness Program LESS THAN 1 YEAR OLD… …Created April 22, 2011  6+ months of Foreclosure Mediations  More than 1,100 Referrals  About 200 Completed Mediations

The Foreclosure Fairness Program No Operator’s Manual….

• Training Requirements • Policies & Procedures • Administrative Issues

Who are the Foreclosure Mediators? • Attorneys & Judges • Volunteers & Staff of Dispute Resolution Centers

Who are Foreclosure Mediators? 137 DRC Volunteers & Staff 64 Attorneys 6 Judges

67% 30% 3%

195 Mediators Currently Active Statewide

Foreclosure Mediator’s Role • • • • •

Assures that each party is fully and fairly heard. Requires participants to exchange documents. Seeks to reach Agreement if possible. Determines whether each party acted in Good Faith. Certifies the Outcome.

Mediator Requirements EXPERIENCE: 10 or more mediations AND EITHER A minimum of 200 hours of mediation experience OR 60 hours of experience and 40 hours training.

Mediator Requirements TRAINING: 3 Days of Foreclosure Mediation Training Plus Additional Training As Required.

Mediator Training JUNE 28 & 29 2011 Two Full Days: – State Law – Foreclosure Alternatives – Mortgage Industry – Loan Modifications

Mediator Training

Mediator Training

Mediator Training JULY 2011 One Full Day: – Mock Mediations – Foreclosure Prevention Resources – Best Practices

Where can we find more information? Please visit our website at: http://www.commerce.wa.gov/foreclosures

Best Practices #1 Confirm Client Eligibility DO NOT SUBMIT INELIGIBLE REFERRALS

 You will be screened out…by our staff, the Trustee, the Beneficiary, the Lender Attorney or the Mediator !  If your client isn’t in foreclosure yet – PLEASE WAIT !  Don’t waste resources that could serve others !

Best Practices

#1 Confirm Eligibility

Know the ALL of the following…

 Is  Is  Is – –

it “Owner Occupied”? Beneficiary Exempt from Mediation? the Foreclosure Status of Property Eligible? On or Before July 22, 2011: A Notice of Default (Section 8] After July 22, 2011: Notice of Default OR Notice of Preforeclosure Options until notice of sale recorded [Section 6 (3)(b)]  Is the Borrower in Bankruptcy?  Has a Notice of Sale been Recorded?

Best Practices #2 COMPETE THE “Referral for Mediation” FORM CORRECTLY

DATES:  The Notice of Preforeclosure Options  The Notice of Default  If Notice of Sale, include NOD

Best Practices #2 COMPETE THE “Referral for Mediation” FORM CORRECTLY CONTACT INFORMATION  Trustee (REQUIRED!)  Beneficiary (REQUIRED!)  Borrower (PHONE!)

YOUR SIGNATURE (REQUIRED!)

Best Practices #1 Confirm ELIGIBILITY #2 COMPETE the Form

Thank you !

Program Results Over 1,145 Referrals to Mediation … ____

42% from King County 20% from Snohomish County 13% from Pierce County

As of February 14, 2012

Program Results 168 Referrals Completed 73 Agreements 89 No Agreement 6 No Mediation Occurred

due to prior agreements, borrower withdrawal, etc. Of the 73 agreements, at least 39 stayed in the home. Others left under their own terms – such as Cash for Keys or Short Sale.

As of February 14, 2012

For more information… Please visit our website at: http://www.commerce.wa.gov/foreclosures

Foreclosure Fairness Program

Questions ? PS: Please send suggestions about Best Practices and Mediator Training to: [email protected]

Role of Mediator A mediator’s perspective

Role of Mediator: Mediator’s perspective. Maralise Hood Quan, PCCDR & Resolution WA

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Mediation • A formal process lead by a professional, impartial, third party who facilitates the communication of the parties to reach agreements. • Facilitated negotiations by an impartial 3rd party.

Role of Mediator: Mediator’s perspective. Maralise Hood Quan, PCCDR & Resolution WA

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Professional Standards of Conduct • • • • • • •

Self-Determination Impartiality Conflicts of Interest Competence Confidentiality Quality of the Process Obligations to the Mediation Process

---Model Standards of Conduct for Mediators: ABA/AAA/ACR 2005

Role of Mediator: Mediator’s perspective. Maralise Hood Quan, PCCDR & Resolution WA

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Standards: Self Determination • A mediator shall conduct a mediation based on the principle of party selfdetermination. • Self-determination is the act of coming to a voluntary, uncoerced decision in which each party makes free and informed choices as to process and outcome. Role of Mediator: Mediator’s perspective. Maralise Hood Quan, PCCDR & Resolution WA

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Standards: Impartiality • A mediator shall decline a mediation if the mediator cannot conduct it in an impartial manner. Impartiality means freedom from favoritism, bias or prejudice.

Role of Mediator: Mediator’s perspective. Maralise Hood Quan, PCCDR & Resolution WA

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Standard: Confidentiality • A mediator shall maintain the confidentiality of all information obtained by the mediator in mediation, unless otherwise agreed to by the parties or required by applicable law.

Role of Mediator: Mediator’s perspective. Maralise Hood Quan, PCCDR & Resolution WA

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9 steps in Mediation Process Homeowner: Contacts Attorney or Housing counselor 1. Atty/Housing Counselor: Refers case to mediation to Commerce 2. Commerce: Referral to Mediator & Commerce informs all Role of Mediator: Mediator’s perspective. Maralise Hood Quan, PCCDR & Resolution WA

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9 Steps in Mediation Process

3. Mediator: Initiates contact with invitation for date and clarify steps to take 4. Mediator: Receives Fees, Documentation, and clarifications from all 5. Mediator: Pre-mediation telephone conference and confirm mediation date with parties 6. Mediator: Convenes Mediation and facilitates agreement of all parties. 7. Mediator: follows up per agreement and Sends Certificate to Commerce and all Role of Mediator: Mediator’s perspective. Maralise Hood Quan, PCCDR & Resolution WA

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9 Steps in Mediation Process 8. Mediator: follows up per agreement and sends Mediator Certificate to Commerce and all. 9. Commerce: Reports on case and closes.

Role of Mediator: Mediator’s perspective. Maralise Hood Quan, PCCDR & Resolution WA

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Mediation Process • Commerce slides

Role of Mediator: Mediator’s perspective. Maralise Hood Quan, PCCDR & Resolution WA

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Mediators • Who are your mediators? o 137 of the Foreclosure mediators are Dispute Resolution Mediators all have: • 40 hours of training as facilitative mediators • More than 200 hours experience mediating, • Continual education • All are volunteer mediators committed to continual learning and giving back to their community. Role of Mediator: Mediator’s perspective. Maralise Hood Quan, PCCDR & Resolution WA

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Mediators • Dispute Resolution Centers as part of mediator team o Safe, impartial, comfortable, and professional setting for mediation o Staff with mediator training: • Coordinate case intake and case set up for mediations • Coach and coordinate parties in pre-mediation conferences • Coach and support Mediators in preparing for mediation. • Continual development of best practices for statewide network.

Role of Mediator: Mediator’s perspective. Maralise Hood Quan, PCCDR & Resolution WA

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Mediators • Many of the private attorney mediators are volunteering at dispute resolution centers to work as co-mediators. • Working as a team with DRC’s to develop best practices for foreclosure mediation process . • Establishing statewide standards through the network of 20 Dispute Resolution Centers throughout Washington State. Role of Mediator: Mediator’s perspective. Maralise Hood Quan, PCCDR & Resolution WA

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Best Practices for efficient productive FFA mediation o Mediation Preparation o Mediation Process o Mediation follow up.

Role of Mediator: Mediator’s perspective. Maralise Hood Quan, PCCDR & Resolution WA

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Role of Mediator: Mediator’s perspective. Maralise Hood Quan, PCCDR & Resolution WA

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Mediation teams

Role of Mediator: Mediator’s perspective. Maralise Hood Quan, PCCDR & Resolution WA

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Best Practices Mediation Preparation • Direct communication with: o o o o

Homeowner and Attorney or Housing Counselor Beneficiary and Attorney Trustee Department of Commerce Foreclosure Program

• Clear communication through correspondence: o Mediation Date o Documents required and dates o Fee expectations

Role of Mediator: Mediator’s perspective. Maralise Hood Quan, PCCDR & Resolution WA

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Pre-Mediation Conference • Telephone pre-mediation conferences: o Review documentation required for a productive session o Clarify who will be present for the mediation o Clarify roles and expectations in the mediation room o Clarify scope of the mediation session o Explore extension if required to have a productive mediation session. Role of Mediator: Mediator’s perspective. Maralise Hood Quan, PCCDR & Resolution WA

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Mediation Session • What is hybrid style mediation: o Facilitative: all parties directly effected by conflict share session expectations and what brings them to the table. o Directive: Agenda is set by FFA

• Getting started: o Confidential caucus with Mediators o Clarifying who is on the phone or need to contact during session.

Role of Mediator: Mediator’s perspective. Maralise Hood Quan, PCCDR & Resolution WA

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Mediation Session

• Joint session:

o Clarify procedures and roles in the room o Initial statement by the parties o Dialogue towards resolution with FFA agenda

• Reaching agreements: o Memorandum of understanding: next steps towards resolution o Agreements

Role of Mediator: Mediator’s perspective. Maralise Hood Quan, PCCDR & Resolution WA

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Best Practices Mediation Follow up • Mediator Certificate to Department of Commerce and all parties. • Track continued agreements • Schedule 2nd Sessions when necessary.

Role of Mediator: Mediator’s perspective. Maralise Hood Quan, PCCDR & Resolution WA

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Debrief-continued learning • Each mediator spends an hour after each session to identify lessons learned and give feed back on best practices for continued learning of all mediators. • Mediators often choose to observe other mediations to learn new skills and techniques, to improve their mediation ability.

Role of Mediator: Mediator’s perspective. Maralise Hood Quan, PCCDR & Resolution WA

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Post-Mediation Considerations Mediation Advocacy: Representing Homeowners under the Foreclosure Fairness Act February 28, 2012 Presenter: Joseph Jordan

Step 1: Case Assessment Reason for Denial/non-agreement Client’s goals

Certification Results Client’s Hardship

Step 2: Identify a Course of Action Graceful Exit

Cash for keys or Short Sale

Escalation – HAMP or Internal Legal Action

Escalate Internal Escalation

HAMP Escalation: www.hmpadmin.com

Does lender participate? Chapter 1 Section 3.2 of the MHA guidelines Requests that you address internal escalation first Violations of Servicer Participation Agreement

Potential Causes of Action  FFA

Violations  Servicing Violations – Real Estate Settlement Procedures Act (RESPA), 12 USC §§ 2607-2617 Fair Debt Collection Practices Act (FDCPA), 15 USC §§ 1692 et. seq. Deed of Trust Act, RCW 61.24  Contract Claims  “Show me the note”

Deed of Trust Act RCW 61.24.130(2) No court may grant a restraining order or injunction to restrain a trustee's sale unless the person seeking the restraint gives five days notice to the trustee of the time when, place where, and the judge before whom the application for the restraining order or injunction is to be made. This notice shall include copies of all pleadings and related documents to be given to the judge. No judge may act upon such application unless it is accompanied by proof, evidenced by return of a sheriff, the sheriff's deputy, or by any person eighteen years of age or over who is competent to be a witness, that the notice has been served on the trustee.

Servicing Violations Fannie Mae Guidelines

Freddie Mac Guidelines MHA Guidelines

Internal Guidelines

Pooling and Servicing Agreements

Traditional Contract Claims Breach of Agreement – Think TPP

Promissory Estoppel (Consideration) Unjust Enrichment

Violation of Duty of Good Faith

Violation of HAMP Servicer Participation

Agreement (third-party beneficiary issue)

Bases to Enjoin the Trustee’s Sale under FFA 

RCW 61.24.163(11)



(a) - The mediator's certification that the beneficiary failed to act in good faith in mediation constitutes a defense to the nonjudicial foreclosure action that was the basis for initiating the mediation. In any action to enjoin the foreclosure, the beneficiary shall be entitled to rebut the allegation that it failed to act in good faith.



(b) The mediator's certification that the beneficiary failed to act in good faith during mediation does not constitute a defense to a judicial foreclosure or a future nonjudicial foreclosure action if a modification of the loan is agreed upon and the borrower subsequently defaults.



(c) If an agreement was not reached and the mediator's certification shows that the net present value of the modified loan exceeds the anticipated net recovery at foreclosure, that showing in the certification shall constitute a basis for the borrower to enjoin the foreclosure. (But not CPA violation)

Good Faith 

RCW 61.24.163(8)

◦ (vii) All borrower-related and mortgage-related input data used in any net present value analysis ◦ (viii) An explanation regarding any denial for a loan modification, forbearance, or other alternative to foreclosure in sufficient detail for a reasonable person to understand why the decision was made; (x) The portion or excerpt of the pooling and servicing agreement that prohibits the beneficiary from implementing a modification, if the beneficiary claims it cannot implement a modification due solely to limitations in a pooling and servicing agreement, and documentation or a statement detailing the efforts of the beneficiary to obtain a waiver of the pooling and servicing agreement provision

Good Faith Cont. 

(e) Failure of a party to designate representatives with adequate authority to fully settle, compromise, or otherwise reach resolution with the borrower in mediation

Consumer Protection Act Claims RCW 61.24.135(2) – It is an unfair or deceptive act in trade or commerce and an unfair method of competition in violation of the consumer protection act, chapter 19.86 RCW [“Consumer Protection Act”], for any person or entity to: (a) Violate the duty of good faith under RCW 61.24.163 [“FFA”]…

Assessing Damages

Harm and Damages Did the client suffer actual injury? Economic losses Pain and anguish Can you easily quantify the injury? Damages Up to a judge or jury to decide

Alternatives  Deed in lieu (“Cash for Keys”)  Short Sale

 Bankruptcy

Bankruptcy  Can delay foreclosure

 Can negotiate mortgage debt (i.e.

mediation) during bankruptcy proceeding.  Chapter 13 payment plans

Questions?