Vol. 04: PALM—Practical Applications of Loss Mitigation

PALM—Practical Application of Loss

Mitigation

With: Mildred WilkinsForeclosure Intervention

Specialist

Brought to You By:Home Ownership Matters Training

Institute

Objectives:

1. Will have clarity on their revised role in helping defaulted borrowers

2. Be familiar with the processes behind the scenes which impact the ability to complete a workout whether for retention or disposition

3. Will have a starting place for getting additional information and/or training to help them be prepared to perform well in this arena

Copyright © 2008. Home Ownership Matter, LLC. All Rights Reserved. 2

What Exactly Is Loss Mitigation?

• Role

• Responsibilities

• Guidelines

• Accountability


Becoming Familiar with the Bank Departments

Retail:

Loan Generation

Customer Service

Loss Mitigation

Disposition


Inner Workings of the Bank

• Escrow Department

• Collections Department

• Customer Service Department

• Default (Loss Mitigation) Department

• Bankruptcy Department

• Real Estate Owned Department


Loan Moves from Customer Serviceto Loss Mitigation

When: Varies by loan type and servicerInfluenced by type of foreclosure in your state

Government and Government-Backed — 90 Days

Non-Conforming — As Soon As 31 Days


REALTOR’s Role

Understand the foreclosure intervention process well enough to know:

*What?

*When?

*Why?

*How?

*Who?


Foreclosure Specifics

Judicial

or

Non-Judicial

Resources: Realty Trac — www.RealtyTrac.com National Consumer Law Center —

“Foreclosure Prevention for Housing Counselors”

HOM’s Website — www.HomeOwnershipMatters.com

Foreclosure & Loss Mitigation Section


Mortgage Document Securing the Collateral

Mortgage

Mortgage with a “Power of Sale” Clause

Deed-in-Trust



Foreclosure Intervention is

a TEAM Sport

Juggling Your Hats as Today’s “New” Real Estate Professional

Education/Advisor

Budget Counselor

Social Worker

Valuation Expert (BPO)

Salesperson Extraordinaire

Loss Mitigation Go-BetweenCopyright © 2008. Home Ownership Matter, LLC. All Rights Reserved. 11

You Must Avoid...


Legal Counsel

Tax Accounting

Family Therapy

Recommendation

Strongly encourage the use of disclosure forms which refer

customers/clients to other service providers who are

outside your area of expertise

General Warnings

o Bankruptcy

o Abandonment

o Operating in Good Faith

o Deficiency Judgment

o Tax Implications


Workout Options


an O P P O R T U N I T Y

not a R I G H T

**Borrower must qualify AND cooperate in “good faith”

Does the Borrower Q U A L I F Y for a Workout?


Universal Hardship Test

1.Was the default caused by something beyond the borrower’s control?

2.Did the default lead to either “a reduction in income or an increase in expenses?” Documentation?

3.Is the borrower still in residency in a property mortgaged as ‘owner-occupied”?

4.Does the borrower have any money in a 401K or other retirement account?

5.Are there other resources available to cover or offset the loss?

6.Will consumer put together the required hardship package and provide any requested supporting documentation?

7.Is the borrower committed to remaining in the house and completing this workout?

Is the Borrower Willing to Follow Through?


• Completion of Hardship Package?

• Preparation of House if Short Sale is the Option?

• Commitment to Cooperate with the Leadership of the Agent?

• Refrain From: Abandonment, Bankruptcy or Deed-in-Lieu Without Notifying the Agent First?

T I M E is of the ESSENCE


Use of the QWR to Buy T I M E

Federal Law Provides Protection(Google QWR)

NCLC — www.ConsumerLaw.orgHOM’s Blog — HomeOwnershipMatters.blogspot.com HOM’s Site — www.HomeOwnershipMatters.com

(Foreclosure & Loss Mitigation Section)

Recommendation:

HOM INtro #28: Demand Your Note: a Foreclosure Intervention StrategyHOM INtro #29: QWR: A Powerful Consumer Foreclosure Intervention Tool

In order to determine if you are entitled to participate in certain loss mitigation options, the lender usually will require that you complete a hardship package. It is critical that you do this in a timely fashion and that you include all the items which they request. In order to give you a jump start on being prepared, We have compiled this list of items which are most commonly requested. It is recommended that you begin collecting these items immediately, especially since some of them may not currently be in your possession and may take you awhile to get your hands on. GOOD LUCK!

Documents/Paper

1.A hardship letter - provide a complete explanation of the hardship which led to your default, including a specific request for assistance.

2.Supporting Documentation - Any documentation to support hardship (i.e. letter from employer, medical records, notification of changes in disability or other income)

3.Federal Income Tax returns - Copy of the two most recent years' returns, COMPLETE WITH SCHEDULES and W-2’s.

4.Bank statements- Copy of 3 most recent months’ statements, checking, savings, mutual funds, etc.

5.Paycheck stubs - Copy of three most recent stubs for each borrower. Self-employed borrower three months Business Checking account statements and year-to-date Profit and Loss Statement required.

6.Disability, Unemployment, Retirement and/or Social Security - Copy of any benefits applied for or received. Include copy of check stubs for any and all that apply.

What’s a Hardship Package Anyway?


7. Junior lien holders - (may be a 2nd mortgage, tax lien or other obligation attached to the property). Either get a release and/or negotiate any junior lien balance outside the sales process, on your own.

8. Property taxes and insurance - Copy of either proof of PAID property taxes or property tax redemption calculation statement AND copy of the declaration page of the mortgaged property’s homeowners’ insurance policy.

9. Bankruptcy - If the borrower is in Chapter 7 or 13 bankruptcy proceedings, a letter from the Federal Bankruptcy Trustee allowing the sale or re-finance of the property is MANDATORY. If the borrower is discharged under Chapter 7 liquidation, a copy of the Discharge letter is MANDATORY. Borrower should also provide lender with the correct contact information for the attorney, including name, address and telephone number.

10. Other - Any other documentation which might be relevant to your current situation i.e.

a. Expenses associated with the care of an elderly parent whom you have had to assume some responsibility for would be an example. Any increase in expenses (beyond your control) is as important as changes in your income.

b. Asset and Income Information

*** The lender cannot complete due diligence without ALL the documentation which they have requested. After receipt of ALL they need from you (the borrower) as well as any other parties involved (i.e. the appraiser), the Loss Mitigation will complete the analysis necessary to render its decision regarding any acceptance of a repayment workout/short sale.


Determining Factors

•Details in the hardship package

•Acceptability of the ‘Trigger event”

•Household income has stabilized

•Current budget will support a housing payment

•Property condition is acceptable

But I Want to Keep my House...


No Lender Approval Required

What is It?

A mortgage which GIVES you money rather than expect it from you.

* available to seniors over 62, living in their homes* can provide funds as

a. One time lump sum b. Monthly Incomec. Line of credit (assessed as needed) d. Combination of

the above

Pros: • Is a great alternative to taking out a loan• Allows for gradual use of equity, as needed

• Can help someone to avoid foreclosure

Cons: • Interest rate and processing fees can be high• Must be repaid when the borrower is no longer residing in the home (heirs may have to deal with this

as part of an estate which can be emotional)

Reverse Mortgage


Short Term Workouts:

Customer Service Approves

•Forbearance

Long Term Workouts:

Require Lender Approval Through Loss Mitigation

•Special Forbearance

•Modification

•Partial Claim or Claim Advance

BANK APPROVAL REQUIRED


What Is It?

An option which allows the borrower to stop making payments—with permission—for a period of time

PROS: • This workout is handled by Customer Service• Does not require an extensive paperwork• Is verbal and can be instituted immediately

CONS: • It is verbal, less concrete • Increased chance of misunderstanding

between borrower and lender (because it is verbal) • May be rescinded or changed (because it is

verbal)

Forbearance


What Is It?

A long term, written agreement which allows the consumer who is in default to delay payments for a stated period of time.

PROS: • Can offer a better long term solution• May allow a time with NO payments,

based on circumstances• May extend for a year or more, based on

circumstances

CONS: • Can be problematic—IF the lender does not record the new, modified loan

Special Forbearance


What Is It?

Is a change to the mortgage which is designed to be permanent** Modification processed as part of the current administration plan include a 3 month trial period

The change may be :• A change in interest rate• A change in the term of the loan• A change to the principal balance

PROS: • Excellent way to get a mortgage payment which is affordable and hopefully sustainable

CONS: • Lenders have the responsibility of recording the new loan:

they frequently fail to do so • Problem can arise if your loan is transferred to

a new servicer AND it was never recorded

Modification


What Is It?

Payment made to the lender, by the insurer on the loan, which allows a borrower to become ‘current’ after they have been in

default.

PROS: • Can make all the difference in helping you to get back on track with your mortgage

• Removes the need to come up with a substantial past due amount in order to retain your home

• Usually carry an interest rate of 0%• Usually are repaid once the main mortgage

has been repaid

CONS: • Has to be repaid when the borrower leaves the home (even if there is a short sale approved)

• Are not used nearly as broadly as they might be• Not advertised as available from the Private Mortgage

Insurance companies nor government providers

Partial Claim


Options for Disposition

•Pre-foreclosure Sale

•Short Sale

•Assumption

•Deed-in-Lieu

When Staying is Not Feasible


What Is It?

Is an opportunity to list and sell a home when the borrower is in default BUT has equity in the home

Lender Approval NOT Required

PROS: • Does NOT require lender approval or participation • Needs an aggressive REALTOR and a client willing to list the home at an amount which will generate an offer—N O W

CONS: • Must be completed rather quickly

Pre-foreclosure Sale


What Is It?

Sale of the home when a borrower is in default AND upside down which must be approved by the lender since less than full mortgage payoff will be covered by the new buyer’s loan.

Lender Approval Required

PROS: • Positive option to avoid foreclosure • Requires lender approval AND a REALTOR competent in the process of short sales

CONS: • May leave borrow to face a deficiency judgment• Could require borrower to sign an unsecured note

for the amount of the deficiency • Could leave borrow to face tax consequences due to shortage being treated as ‘gift income”

Short Sale


What Is It?

Intervention option which allows a new borrower to take over your payments


PROS: • May be possible even when the mortgage is coded as “unassumable”

• Could be your last ditch effort to avoid foreclosure• Might work for a potential purchaser who does not

a sufficient down payment

CONS: • Will require approval of the new buyer by the lender• Does not relieve you of the obligation UNLESS

the lender signs a “release of liability” form

• Should be utilized only with the help of a competent attorney

Assumption


What Is It?An option for walking away from your home which means you work with

the lender to get them to voluntarily accept the property instead of foreclosing against you.


PROS: • Slightly better than being foreclosed upon• Avoid the ‘foreclosure’ tag being added to your credit• May allow an opportunity to reduce a possible

deficiency

CONS: • Requires lender approval• Cooperation from a 2nd lien holder is mandatory• Should be completed with the help of a competent

attorney because of deficiency and insurance issues

Deed-in-Lieu


When you are not the RIGHT professional

that means anything other than

PRE-FORECLOSURE SALE

or

SHORT SALE

When Should REALTORs Refer?


I will NOT operate outside of my area of expertise

In this session we have given you references to a substantial number of HOM Intros..

Intros are…

•Produced by HOM Training Institute•I am the instructor for all sessions•Available on the HOM website•Best of all—ALL are FREE

It is my pleasure to be your Foreclosure Intervention Resource

“Together, We CAN make a difference”

NAR Code of Ethics Commitment:


Resources

• HUD — www.HUD.gov

• Federal Trade Commission — www.FTC.gov

• Default Servicing News — www.DSNews.com

• Center for Responsible Lending — www.ResponsibleLending.org

• HOM’s Blog — HomeOwnershipMatters.blogspot.com

• HOM’s Site — www.HomeOwnershipMatters.com

• Inman News — www.inmannews.com


Mildred Wilkins, PresidentHome Ownership Matters, LLC7399 N Shadeland Ave. #164

Indianapolis, IN 46250Toll Free: (866) 507-5105

Fax: (877) 587-4507

For More Information About the Author:

[email protected]

http://www.HomeOwnershipMatters.comhttp://

HomeOwnershipMatters.blogspot.comFor a copy of HOM’s FREE Article Archives Service,

E-mail Heather at: [email protected]

THANK YOU!Copyright © 2008. Home Ownership Matter, LLC. All Rights Reserved. 35


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Vol. 04: PALM—Practical Applications of Loss Mitigation

Documents

Transcript of Vol. 04: PALM—Practical Applications of Loss Mitigation