BILL ANALYSIS
AB 1639
Page 1
Date of Hearing: April 19, 2010
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Mike Eng, Chair
AB 1639 (Nava, Lieu, Bass) - As Amended: April 12, 2010
SUBJECT : Mediated Mortgage Workout Program
SUMMARY : Establishes a Meditated Mortgage Workout Program
(MMWP) for borrowers facing foreclosure whereby a borrower could
request to participate in a mediation sessions with their lender
to examine mortgage loan modification options or foreclosure
alternatives. Specifically, this bill :
1)Provides that a mortgagee, trustee, beneficiary, or authorized
agent shall inform a borrower via certified mail accompanying
a notice of delinquency that the borrower may request to
participate in the MMWP. The notice shall include the
telephone number, email address, and Internet Web site for the
administrator.
2)Provides that the provisions of the MMWP apply to primary
residences only.
3)Allows a borrower 30 days from the receipt of the delinquency
notice to request participation in the MMWP.
4)Provides that if a borrower chooses to participate in the
program prior to the filing of a notice of default (NOD) then
the mortgagee, trustee, beneficiary, or authorized agent is
not required to exercise other due diligence contact
requirements as currently mandated under the law (See Civil
Code 2923.5).
5)Specifies that when a NOD is filed, a separate notice shall be
sent to the borrower informing them of their right to request
participation in the MMWP printed in large bold type and
printed in English, Spanish, Chinese, Tagalog and Korean.
6)Provides that if a borrower elects to participate in the MMW
Program they must complete an election form either via
internet website, email, telephone, or via mail service.
7)Requires within 10 days of requesting to participate in the
MMWP, the borrower shall submit all of the following to the
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administrator:
a) Tax returns filed for the prior tax year, if the
borrower was required to file a tax return for that year;
b) Payroll or other income verification for the previous
two months; and,
c) If in the case of a borrower requesting to
participate after a NOD has been filed, the first deposit
of 50 percent of their current monthly mortgage payment as
a good faith demonstration of readiness to participate in
the program.
8)Requires that within 10 days of receiving notice that the
borrower has elected to participate in the MMWP, the
mortgagee, trustee, beneficiary, or authorized agent shall
submit all of the following documents to the program
administrator:
a) The applicable Pooling and Servicing Agreement, if any;
b) The loan application, loan origination documents,
appraisal, and payment history;
c) The original note and assignments or certificate
regarding a lost document;
d) Documentary evidence of current ownership of chain of
custody of the mortgage note; and,
e) The net present value formula that the mortgage,
trustee, beneficiary or authorized agent uses.
9)Provides that the foreclosure process is suspended during the
time the borrower is participating in the program.
10)Requires the administrator to notify the mortgagee, trustee,
beneficiary or authorized agent within 15 days of the
borrower's election to participate in the program.
11)Provides that the mortgagee, trustee, beneficiary or
authorized agent shall deposit an administrative fee of $500
and a deposit of mediator's fees of $600, as well as, all
required documentation within 10 days of notification from the
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administrator of the borrower's request to participate in the
program.
12)Specifies that a failure to deposit the require fees within
10 days, the foreclosure proceedings shall be delayed until
such time as the fees are paid.
13)Prohibits continuance of the MMW program session(s) unless
certain conditions are met.
14)The borrower and mortgagee, trustee, beneficiary, or
authorized agent may agree on the terms of a loan modification
which may include any or all of the following features:
a) An interest rate reduction for a fixed term of at least
five years;
b) An extension of the mortgage term, not to exceed 40
years from the original date of the loan;
c) Deferral of a portion of the principal amount of the
unpaid principal balance until maturity of the loan;
d) Reduction of the principal balance;
e) Compliance with a federally mandated loan modification
program;
f) Other alternatives that may reduce the borrower's
monthly payment to 31 percent or less of the borrower's
debt-to-income ratio and that are designed to meet
long-term sustainability for the borrower.
15)Provides that nothing shall be construed to prevent a
creditor from offering or accepting alternatives in writing to
foreclosure, such as a short sale or deed-in-lieu of
foreclosure, but only if the borrower requests these
alternatives, rejects a loan modification offered pursuant to
this section, or does not qualify for a loan modification
pursuant to this section.
16)Specifies that if a borrower fails to meaningfully
participate in the MMWP, the program shall be suspended,
unless the borrower cures noncompliance within 10 days.
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17)Specifies that the mortgagee, trustee, beneficiary or
authorized agent fails to meaningfully participate,
foreclosure actions shall be suspended until such time that
the mortgagee, trustee, beneficiary or authorized agent cures
noncompliance.
18)Defines "meaningful participation" as the following:
a) Attendance at all mediation sessions; and,
b) Presentation of all required documents and payment of
all required fees.
19)Provides that the mortgagee, trustee, beneficiary or
authorized agent shall not report negative credit information
about the borrower to a credit reporting agency if the
borrower successfully completes the MMWP and that during the
MMWP the borrower shall not be assessed late fees or other
charges.
20)Requires the administrator to report quarterly to the
Legislature regarding the performance of the MMWP, including
all of the following information:
a) The number of homeowners who attend mediation prior to
NOD;
b) The number of homeowners who attend mediation after
receiving a NOD;
c) The number of mediations suspended because of lack of
meaningful participation by the borrower;
d) The number of mediations suspended because of lack of
meaningful participation on the part of the mortgagee,
trustee, beneficiary, or authorized agent;
e) The number of mediations that result in a loan
modification; and,
f) The number of mediations that result in a solution other
than a loan modification.
21)Each mortgagee, trustee, beneficiary, or authorized agent
participating in the MMWP shall post public data reports on a
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quarterly basis on its Internet Web site detailing the
following:
a) The number of loans that have been modified through the
MMWP and the type of modification;
b) The final disposition of loans that were in the MMWP but
not modified;
c) The final disposition of loans that did not go through
in the MMWP;
d) The type of loans in a portfolio serviced by others,
delineated by prime, subprime, and nontraditional;
e) The loans in a portfolio or serviced by others that are
securitized;
f) The number of home retention actions;
g) Re-default rates for portfolio loans and loans serviced
for others;
h) The default rates for portfolio loans and loans serviced
for others;
i) The default rates of loans modified in 2008 by changes
in payment;
j) Newly initiated home retention actions compared with
foreclosure actions;
aa) Completed foreclosures and other home forfeiture
actions;
bb) The overall portfolio performance by percentage;
cc) The performance of government guaranteed loans, by
percentage;
dd) The performance of government sponsored enterprise
loans, by percentage;
ee) Seriously delinquent mortgages, by percentage;
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ff) HAMP actions by investor and risk category;
gg) Changes in loan terms made by modifications during 2009;
hh) Changes in monthly principal and interest payments owing
to modification, by the number of modifications;
ii) The number of modified loans, 30 or more days
delinquent;
jj) The number of modified loans, 60 or more days
delinquent; and,
aaa) The number of modified loans, 90 or more days
delinquent.
22)Provides that the administrator shall:
a) Implement rules and standards for choosing qualified
mediators;
b) Implement rules and standards for removal of mediators;
c) Develop standards and rules for forms and reports;
d) Require additional training for mediators to meet the
goals of the MMWP; and,
e) Collect all fees as required.
23)Provides that an Administrator of the MMWP shall be appointed
by the Governor and confirmed by the Senate.
24)Requires that a mediator shall use all reasonable efforts to
ensure that each MMWP session is completed within 60 calendar
days of the mediator's appointment.
25)Requires the mediator to issue a report to the Administrator
upon completion of the mediation that shall state whether the
parties reached a mutually acceptable resolution.
EXISTING LAW
1)Regulates the non-judicial foreclosure process pursuant to the
power of sale contained within a mortgage contract, and
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provides that in order to commence the process, a trustee,
mortgagee, or beneficiary must record a NOD and allow three
months to lapse before setting a notice of sale for the
property. [Civil Code Section 2924, all further references are
to the Civil Code].
2)Provides that the mortgagee, trustee or other person
authorized to make the sale must give notice of sale, and
requires notice of the sale to be made, as specified, at least
20 days prior to the date of sale. [Section 2924f].
3)Provides that a mortgage, trustee, beneficiary, or authorized
agent may not file a NOD until 30 days after contact has been
made with the borrower who is in default. [Section 2923.5a1].
4)Requires the mortgagee, trustee, beneficiary or authorized
agent to contact a borrower in default in person or by
telephone and inform them of their right to a subsequent
meeting, and telephone number of the United States Department
of Housing and Urban Development (HUD) to find a HUD certified
housing counselor. [Section 2923.5a2].
5)Allows a borrower to assign a HUD-certified counselor,
attorney or other advisor to discuss with the entities options
for the borrower to avoid foreclosure. [Section 2923f].
6)Provides that a NOD may be filed when the mortgagee, trustee,
beneficiary or authorized agent has not contacted the borrower
provided that the failure to contact the borrower occurred
despite reasonable due diligence on the part of the entity and
that "due diligence" means and requires the following:
a) The mortgagee, trustee, beneficiary or authorized agent
sends a first class letter that includes the toll-free
number available for the borrower to find a HUD-certified
housing counseling agency; and,
b) Subsequent to the sending of the letter the mortgagee,
trustee, beneficiary or authorized agent attempts to
contact the borrower by telephone at least three times at
different hours and on different days. [Section 2923g].
7)Requires the mortgagee, trustee, beneficiary or authorized
agent to maintain a toll-free number for borrowers that will
provide access to a live representative during business hours
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and requires the mortgagee, trustee, beneficiary or authorized
agent to maintain a link on the main page of its Internet Web
site containing the following information:
a) Options that may be available to borrowers who are
unable to afford their mortgage payments and who wish to
avoid foreclose, and instructions to borrowers advising
them on steps to take to explore these options; and,
b) A list of documents borrowers should collect and be
prepared to submit when discussing options to avoid
foreclosure. [Section 2923g (5)].
8)Specifies that the notice and contact requirements do not
apply in the following circumstances:
a) The borrower has surrendered the property as evidenced
via a letter or delivery of keys to the property to the
mortgagee, trustee, beneficiary or authorized agent ;
b) The borrower has contacted a person or organization
whose primary business is advising people who have decided
to leave their homes on how to extend the foreclosure
process and avoid the contractual obligations; or,
c) The borrower has filed for bankruptcy. [Section 2923h].
9)Makes a legislative findings and declarations that a loan
servicer acts in the best interest of all parties if it agrees
to, or implements a loan modification or workout plan in one
of the following circumstances:
a) The loan is in payment default, or payment default is
reasonably foreseeable; or,
b) Anticipated recovery under the loan modification or
workout plan exceeds the anticipated recovery through
foreclosure on a net present value basis. [Section 2923.6].
10)Provides that a notice of sale may not be given for 90 days
in order for parties to pursue a loan modification. [Section
2923.52].
11)Specifies that a servicer can get an exemption from the
90-day foreclosure moratorium if they demonstrate proof of a
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comprehensive modification program. [Section 2923.53]
12)Requires that upon posting of a notice of sale, the
mortgagee, trustee, beneficiary or authorized agent shall mail
to the borrower a notice in English and Spanish, Chinese,
Tagalog, Vietnamese, or Korean that states:
"Foreclosure process has begun on this property, which
may affect your right to continue to live in this
property. Twenty days or more after the date of this
notice, this property may be sold at foreclosure. If you
are renting this property, the new property owner may
either give you a new lease or rental agreement or
provide you with a 60-day eviction notice. However,
other laws may prohibit an eviction in this circumstance
or provide you with a longer notice before eviction. You
may wish to contact a lawyer or your local legal aid or
housing counseling agency to discuss any rights you may
have." [Section 2924.8].
13)Provides that a notice of sale postponement may occur at any
time prior to the completion of a sale for any period of time
not to exceed a total of 365 days from the date set in the
notice of sale. [Section 2924g]
14)Specifies that if sale proceedings are postponed for a period
totaling more than 365 days, the scheduling of any further
proceedings shall be preceded by giving a new notice of sale.
[Section 2924g]
FISCAL EFFECT : Unknown
COMMENTS :
How would the MMWP operate? A borrower would have two separate
opportunities (amendments are needed to clarify this) to request
mediation under the program. First, when the servicer notifies
the borrower that they are delinquent on their mortgage the
letter would include notification that the borrower has a right
to request mediation, as well as, the contact information for
the Administrator of the program. From the point of receiving
the letter the borrower would have 30 days to request to
participate in the program. In the event a borrower has not yet
requested mediation and becomes in default, the notice of
default would include an additional opportunity to request
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mediation. After requesting mediation, the borrower would have
10 days to submit the required documentation to the
administrator and in the event of a request occurring after an
NOD has been filed; the borrower would also have to deposit 50
percent of his monthly mortgage payment with the administrator
as a sign of good faith. Once mediation is requested, the
foreclosure process stops until the mediation sessions are
either, concluded, or the borrower fails to meaningfully
participate in the program. After a servicer receives notice
that the borrower has elected to participate in the program, the
servicer has 10 days to submit the following documentation, as
well as, required fees to the administrator such as,
1)The applicable Pooling and Service Agreement, if any;
2)The loan application, loan origination documents, appraisal,
and payment history;
3)The original note and assignments or certificate regarding a
lost document;
4)Documentary evidence of current ownership or chain of custody
of the mortgage note; and,
5)The net present value formula that the mortgagee, trustee,
beneficiary, or authorized agent uses.
If the servicer does not submit the required documentation or
fees, the mediation program is suspended until such items are in
compliance. Additionally, neither the foreclosure process, nor
the mediation session shall continue until the servicer provides
the required documents.
Once the case is officially in mediation, the first mediation
must be scheduled within 15 days. The mediator is required to
ensure that the MMWP will be completed within 60 days. Once the
mediation session(s) are finished the mediator is required to
issue a report to the Administrator stating whether the parties
reached a mutually acceptable solution. A key concept present
in this process is that the mediator can't compel the parties to
any specific result. Additionally, the bill requires that the
Administrator must report to the legislature on the progress of
the mediation program.
Assembly Banking and Finance conducted two oversight hearings
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specific to loan modifications and mediation on October 13, 2009
and November 12, 2009 (documents from those hearings may be
found at http://asm.ca.gov/acs/newcomframeset.asp?committee=3 ).
Those hearings examined the potential use of mediation as a
solution to foreclosures.
Testimony provided at these hearings provided numerous insight
into the foreclosure issue from the perspective of servicers,
housing counselors, community groups and individual borrowers.
The common thread of complaints among community groups and
individual borrowers has been a lack of response from servicers
regarding loan modification requests. While, the numbers have
slightly improved since the committee conducted those hearings,
borrowers and community groups continue to raise these issues.
Based on the information gathered at those hearings the authors
of AB 1639 decided to move forward with a foreclosure mediation
bill. Additionally, in preparation for the aforementioned
hearings, Committee staff was contacted by several borrowers
with stories of delay, lost paperwork, frustration with servicer
call centers and other obstacles to receiving help. In one
particular case a borrower submitted documentation that they had
received three different modification offers each one different
and in conflict with the other, and the servicer's contact
person changed four times. Finally, even while receiving
numerous modification offers, the foreclosure process continued.
The authors of this bill contend that a foreclosure mediation
process would provide an avenue for borrowers to reach some type
of mutual agreement with their servicers. AB 1639 does not
mandate loan modifications, but encourages both parties to reach
a resolution. Additionally, the authors find that a mediation
process can help distinguish between those borrowers who really
need and can be assisted versus those borrowers that can not be
helped by modification but are perhaps given false hope through
the continuing contention that federal programs will offer
assistance.
Nevada, Connecticut, New Jersey, Florida, Maine and Illinois
have all instituted some form of foreclosure mediation programs
over the last year. On April 13, 2010 the Maryland legislature
approved a bill that established a foreclosure mediation
program. Additionally, local jurisdictions are also engaging in
mandatory mediation programs such as the cities of Philadelphia
and Milwaukee. The majority of these foreclosure mediation
programs are less than one year old so data regarding their
performance is limited. At this point, Nevada has data for the
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first six months of their program:
Notices of Default filed: 29,242 (July through October)
Requests for mediation: 3,446
Mediations conducted: 372
Mediations scheduled: 805
Cases scheduled 1,402
On April 14, 2010, the Congressional Oversight Panel (COP) for
the Troubled Asset Relief Program (TARP) issued its April report
"Evaluating Progress of TARP Foreclosure Mitigation Programs."
The COP report reveals that "Treasury's response continues to
lag well behind the pace of the crisis." Overall, the report
points out that Treasury did not establish performance standards
for servicers, and that no remedies exist when services do not
fulfill the requirements of programs such as HAMP. Other
findings and conclusions from the report include:
"The Panel adopted this report with a 3-1 vote on April 13,
2010. Treasury's response continues to lag well behind the
pace of the crisis. As of February 2010, only 168,708
homeowners have received final, five-year loan
modifications - a small fraction of the 6 million borrowers
who are presently 60+ days delinquent on their loans. For
every borrower who avoided foreclosure through HAMP last
year, another 10 families lost their homes. It now seems
clear that Treasury's programs, even when they are fully
operational, will not reach the overwhelming majority of
homeowners in trouble. Treasury's stated goal is for HAMP
to offer loan modifications to 3 to 4 million borrowers,
but only some of these offers will result in temporary
modifications, and only some of those modifications will
convert to final, five-year status. Even among borrowers
who receive five-year modifications, some will eventually
fall behind on their payments and once again face
foreclosure. In the final
reckoning, the goal itself seems small in comparison to the
magnitude of the problem?
?The long delay in dealing effectively with foreclosures
underscores the need for Treasury
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to get its new initiatives up and running quickly, but it also
underscores the need
for Treasury to get these programs right. Even if Treasury's
recently announced programs
succeed, their impact will not be felt until early 2011 - almost
two years after the
foreclosure mitigation program was first launched - and more
than three years
after the first foreclosure mitigation program was undertaken."
Where have we been, where are we now, where are we going?
According to the latest report from the Office of the Inspector
General for the Troubled Asset Relief Program (SIGTARP) issued
March 25, 2010, 2.8 million Americans received a foreclosure
filing in 2009 and millions more are expected to receive a
filing in 2010.
The first major legislative effort in California to tackle the
growing foreclosure crisis was the introduction of Senate Bill
1137 (Perata, Corbett, Machado) Chapter 69, Statutes of 2009.
The intent of SB 1137 was to ensure that servicers contact
borrowers prior to the first filing of the foreclosure process,
at least 30 days prior to filing a notice of default NOD,
servicers must either make contact to borrowers or satisfy due
diligence requirements. Contact with the borrower must be in
person or by telephone "in order to assess the borrower's
financial situation and explore options for the borrower to
avoid foreclosure." The borrower must be advised that he or she
has the right to request a subsequent meeting, and if requested,
the meeting must be scheduled to occur within 14 days. The
borrower must be provided with the toll-free telephone number
made available by the United States Department of Housing and
Urban Development to find a HUD-certified housing counseling
agency. Servicers could then file a NOD if, with the filing,
they certify that they have made efforts to contact the
borrower. Early, after the passage of SB 1137 the filing of
NODs dropped significantly for a few months, but eventually
climbed back up as servicers started to understand the steps
needed for compliance.
On February 20, 2009 the Governor signed the California
Foreclosure Prevention Act (CFPA) as an urgency statute.
Implementation of the CFPA occurred 90 days after the signing of
the bill and subsequent to California's three mortgage
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regulators (DFI, DOC and DRE) drafting emergency regulations,
culminating on June 1, 2009. The CFPA modified the foreclosure
process by providing for a delay of 90-days to give borrowers an
opportunity to work with their servicers on a loan modification.
However, a 90-day delay in foreclosure proceedings does not
apply in those cases where a mortgage loan servicer has received
an exemption based on the existence of a comprehensive loan
modification program. In addition to the specific
characteristics a comprehensive program as outlined in the
legislation, participation in the Home Affordable Modification
Program (HAMP) was deemed sufficient to receive an exemption
from the moratorium. The majority of mortgage loan servicers
operating in the state have received an exemption from the
90-day foreclosure moratorium (More information on those who
have received exemptions can be found at
http://www.corp.ca.gov/FSD/CFP/default.asp ). The CFPA does not
require an individual to receive a modification, only that a
servicer has a program in place.
On February 18th, 2009, President Obama announced a
multi-pronged approach to deal with the foreclosure crisis
through the use of mortgage refinancing and mortgage
modification.
The Making Home Affordable Program (MHAP) is part of the Obama
Administration's broad, comprehensive strategy to get the
economy and the housing market back on track. MHAP offers two
different potential solutions for borrowers: (1) refinancing
mortgage loans, through the Home Affordable Refinance Program
(HARP), and (2) modifying mortgage loans, through HAMP. HAMP
is the tip of the spear in the government's attempt to mitigate
foreclosures.
How does HAMP work? In order to be eligible for HAMP, the
borrower must be in default (60 or more days late) or be at risk
of imminent default. The property must be owner-occupied and
have a maximum unpaid principal balance of $729,750 and the
mortgage must have been originated by January 1, 2009. Once the
mortgage meets the criteria the servicer undertakes a net
present value test (NPV) to determine whether modification,
foreclosure, or foreclosure alternatives are in the best
interest of the mortgage holder. If the model generates a
positive value for modification, meaning that loss to the owner
of the mortgage would be less than foreclosure then HAMP
participating servicers are required to offer a modification so
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long as modification is not prohibited by investors. Once the
aforementioned criteria are met the servicer follows HAMP's
"waterfall" formula in order to design a modification that will
result in a front end (meaning costs of housing, property taxes,
property insurance and HOA dues) debt to income (DTI) ration of
31 percent. The "waterfall" is a series of steps that go in
order until the DTI is close to 31 percent as possible. The
following are the "waterfall" steps:
1)Capitalize all outstanding interest, escrow advances and third
party fees, and waive late fees for borrowers who meet trial
modification guidelines.
2)Reduce mortgage interest rate in increments of .125 percent
with a floor of two percent.
3)Extend term of mortgage up to 480 months (40 years) from the
modification date.
4)Provide non-interest bearing and non-amortizing principal
forbearance.
In order to encourage participation in the program, Treasury
pays incentives using Troubled Asset Relief Program (TARP)
funds. If a servicer makes modification to the get the
homeowner down to a 38 percent DTI, Treasury will provide 50
percent of the costs of the modification to get the loan
modified to the target 31 percent DTI. Payments are made only
after the modification becomes permanent and last for up to five
years, or until the loan is paid off, whichever is earlier.
HAMP also includes the following incentive programs:
1)Servicers will receive an up-front incentive payment of $1000
for each permanent modification. They will also receive pay
for success payments as the borrower stays in the program, of
up to $1000 each year for up to three years.
2)Borrowers are eligible to receive a pay-for-performance
success payment that goes straight toward reducing the
principle balance on the mortgage loan of up to $1000 per
monthly payment for up to five years.
3)One-time bonus incentive payments of $1,500 to investors and
$500 to servicers will be provided for modifications made
while the borrower is still current on mortgage payments, but
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in danger of imminent default.
Principle forgiveness is not required under HAMP, however recent
changes to HAMP address this issue and will be discussed later
in this analysis.
Over a year after its implementation the reviews are mixed as
over a million trial modifications have been offered, yet only
169,000 have been made permanent. Several factors have
contributed to this performance such as program guidelines that
have changed many times. A major change just recently announced
is the requirement of income verification at the time of
starting the trial modification, which is set to begin mid-April
of 2010. Prior to this change, servicers were allowed to use
undocumented income declarations from the borrower to make a
determination for a trial modification. During the three month
trial period servicers attempt to verify income through proper
documentation. This process may have been a contributing factor
to the low permanent loan modification numbers thus far.
A report, "Factors Affecting Implementation of the Home
Affordable Modification Program", issued March 25, 2010 by
SIGTARP reveals several obstacles and difficulties that plague
HAMP even a year after its inception. Since HAMP started, it
has undergone 11 program changes and updated directives and an
additional 9 changes to its NPV model. The following are a
few of the issues identified by SIGTARP:
1)Five of the HAMP servicers visited by SIGTARP for the audit
covered in the report, mentioned that they lacked guidance on
identifying and determining eligibility for borrowers at
imminent risk of default on privately owned mortgages
(Non-GSE).
2)Some servicers have told borrowers that they must be in
default to be considered for a modification even though HAMP
provides help for those facing default.
3)Servicers are still undergoing challenges in maintaining and
training staff to handle modifications.
4)Marketing of the availability of HAMP as an option has been
limited by a lack of guidance from Treasury and servicer
specific delays.
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5)Treasury informed SIGTARP that potentially only 50-66 percent
of estimated three million trial modifications will convert to
permanent status.
In testimony before the U.S. House Committee on Oversight and
Government Reform (March 25, 2010), the Acting Comptroller
General of the United States, Gene L. Dodaro testified to the
difficulties faced by the HAMP program based on findings from
the Government Accountability Office (GAO). The following are
some of the HAMP issues highlighted by the GAO:
1)Treasury has not yet finalized remedies or penalties for
servicers who are not in compliance with HAMP guidelines.
2)Each major program change has required servicers to update
computer systems, adjust business practices and retrain
servicing staff.
3)Ten servicers contacted by GAO had 7 different sets of
criteria for determining whether borrowers who were not yet 60
days delinquent qualified for HAMP.
4)Although Treasury guidelines state that servicers must provide
borrowers with information designed to help them understand
the modification process and must respond to HAMP inquires in
a timely manner, the HAMP servicers contacted by GAO varied
widely in the timeliness and content of their initial
communications with borrows about HAMP. Some servicers
contacted borrowers about HAMP as soon as payment was 30 day
delinquent, and other servicers did not inform borrowers until
they were at least 60 days delinquent.
5)Treasury has not developed standards to evaluate servicers'
performance in communicating with borrowers or penalties for
servicers that do not meet Treasury's requirements.
6)Servicers do not have a systematic process for tracking HAMP
complaints.
The GAO also reported that the numerous program changes to HAMP
and often, a lack of clarity on certain provisions have made the
program less effective than it could be.
Servicer guidance on the implementation of HAMP is governed by
Supplemental Directives issued by the Treasury Department.
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These directives can be found at
https://www.hmpadmin.com/portal/programs/directives.html .
The most recent change to HAMP, announced on March 26th, 2010
involves program changes intended to address unemployed
borrowers, negative equity and the concurrent pursuant of a
foreclosure while a loan is being reviewed for modification.
According the limited details released, the new enhancements
will require servicers to provide 3-6 months of temporary
forbearance for eligible unemployed borrowers, after which they
will be evaluated for a HAMP modification. Second, servicers
will be encouraged through various incentives to consider
principle reductions for loans that are over 115 percent of
current value of the property. Finally, guidance will be
forthcoming on the issue of borrowers who continue to face the
foreclosure process while under evaluation for a HAMP
modification. These guidelines will provide clarification on
protections for borrowers from foreclosure actions who are under
consideration for a modification.
The contention among some industry groups is that the federal
response to foreclosures could be complicated or otherwise
frustrated by implementing a statewide foreclosure mediation
program. At this point, nothing in AB 1639 directly conflicts
with ongoing loan modification efforts. Actually, getting
borrows and sevicers in the same room with a neutral third party
could expedite modifications under the HAMP program by ensuring
that both parties communicate and possess all the necessary
documentation to evaluate a need for modification. On the other
hand, a mediation session would reveal very clearly to a lender
whether a borrower has a realistic ability to pay their
mortgage. Additionally, the design of the mediation program
proposed in this bill follows current California law on
mediation in that the result of the mediation cannot be
compelled upon the parties. For example, a mediator can only
assist the discussion and offer advice, but that assistance is
non-binding.
Finally, an additional issue that has been raised are concerns
"strategic default." Strategic default is when a borrower, who
can otherwise afford their mortgage payment, is in a negative
equity position and decides to go into default, either to walk
away from the mortgage or compel the servicer to negotiate a
loan modification. Studies on the issue of strategic default
tend to examine previous down turns, or engage in surveys to
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gauge general attitudes about mortgage default and its
interaction with negative equity positions. In a study from
July of 2009, "Moral and Social Constraints to Strategic Default
on Mortgages" the authors, while finding that when negative
equity reaches the 50 percent mark, borrowers are 17 percent
more likely to default, still found that, "It is difficult to
study the strategic default decision, because it is de facto an
unobservable event. While we do observe defaults, we cannot
observe whether a default is strategic." This study attempted
to reach correlations on strategic default even though by the
authors own admission strategic defaults are not observable for
the purposes of study. At this point, the additional evidence
is mostly anecdotal as found in newspapers and other media
outlets. Certainly, strategic default occurs, but to what
extent, it is difficult to determine. Would AB 1639 provide
more motivation for strategic default? It doesn't seem likely,
as the borrower would have to produce for the mediator evidence
of their financial situation.
Can face-to-face meetings work?
In research conducted thus far, it appears that face-to-face
meetings between borrower and servicer can, and do work. For
example, while credit unions have foreclosure rates below 1
percent, they have demonstrated success with assisting their
borrowers on a case by case basis to assess their chances at
modification. Additionally, many of the large banks/servicers
conduct town hall meetings that encourage borrowers to show up
with necessary documentation and conduct modification
assessments on the spot. The benefit of a face-to-face
interaction seems to be so beneficial that 27 of these types of
events are officially scheduled over the next year in
California.
Amendments and other issues.
If the committee wishes to see any amendments to this bill, they
will have to be adopted after the bill leaves this committee due
to the timing constraints policy committee hearings (Judiciary
is schedule to hear this bill the following day).
The committee recommends that going forward the following
questions and/or amendment suggestions are addressed:
1)Create language that provides that if a servicer has already
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met face-to-face with a borrower, or has documented evidence
of a loan modification offer, then the servicer would be
exempt from the requirement to participate.
2)Establish a sunset of January 1, 2014.
3)Clarify that borrowers who request mediation prior to the
filing of a NOD may not request mediation subsequent to the
filing.
4)Change a technical issue regarding fee reimbursement so that
the borrower reimburses the servicer for 50 percent of the
cost of the mediation sessions.
5)If necessary, adjust the timelines in the bill to ensure that
resolution of the mediation sessions occur faster than
currently proscribed. For example, the current timeframe
requires that the mediation session(s) should be completed
within 60 days. The authors may want to consider decreasing
this time to 30 or 45 days.
6)Should servicers be allowed to request mediation with an
unresponsive borrower? Under this approach, either party
involved in the foreclosure can request mediation.
Related State Legislation .
AB 2024 (Blumenfield), Provides that any lender or servicer that
rejects a loan modification request shall respond to the
borrower making the request within 7 days via certified
mail with the specific reasons why the request was rejected.
Additionally requires that the response must comply with certain
language translation requirements.
Status: In Assembly Banking & Finance Committee
AB 2236 (Monning), requires a mortgagee, trustee, or
beneficiary, or an authorized agent of
that person, to include on all notices informing a borrower that
he or she has either failed to make a required minimum payment
or failed to make a payment when due, the name and the contact
information, including the address and telephone number, of the
mortgagee, trustee, beneficiary, or authorized agent who has the
authority pursuant to state and federal law to modify the terms
and conditions of the borrower's loan.
Status: In Assembly Banking & Finance Committee.
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AB 2189 (Ma), requires a loan modification agreement to be
translated into one of five non-English languages if the
original mortgage was negotiated in that language.
Status: In Assembly Banking & Finance Committee
AB 2678 (Fuentes), prohibits a notice of sale from being issued,
if the mortgagee, trustee, beneficiary or authorized agent is
currently in negotiations with a borrower on a
loan modification.
Status: In Assembly Banking & Finance Committee.
SB 1275 (Leno, Steinberg), requires a mortgagee, trustee,
beneficiary, or authorized agent, prior to the filing of a
notice of default, to provide the borrower with an application
for a loan modification and other foreclosure avoidance options
and a specified notice regarding the borrower's rights during
the foreclosure process. Prohibits the
mortgagee, beneficiary, or authorized agent from combining
collections activity with communication with the borrower about
foreclosure avoidance options. Deletes the requirement that the
notices of default contain a specified declaration, and would
instead require the mortgagee, beneficiary, or authorized agent
to, concurrently with the filing of a notice of default,
record a declaration of compliance that attests to specified
facts, and mail the borrower a notice stating that these
requirements have been met. Provides that failure to record a
declaration of compliance, or recordation of a declaration of
compliance that fails to meet the specified requirements, would
constitute grounds for the borrower to bring an action to void
the foreclosure, or to recover either treble damages or
statutory damages in the amount of $10,000, whichever is
greater, from the mortgagee, trustee, beneficiary, or authorized
agent.
Status: In Senate Banking, Finance & Insurance Committee.
SB 1427 (Price), requires a notice of default to include a
statement that identifies the name, address, telephone, and
e-mail address of any person or entity that is designated to be
responsible for the maintenance of the property for which the
deed of trust is recorded. Existing law requires a legal owner
to maintain vacant residential property purchased at a
foreclosure sale, or acquired by that owner
through foreclosure under a mortgage or deed of trust;
authorizes a governmental entity to impose civil fines and
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penalties for failure to maintain that property of up to $1,000
per day for a violation; and provides that these statutory
provisions do not preempt any local ordinances and prohibits a
governmental entity from imposing fines on a legal owner under
both these provisions and a local ordinance. This bill would
provide that these statutory provisions preempt any local
ordinance and provides that any fines or penalties imposed for
failure to maintain a property are the obligation of the
legal owner and that these fines would be treated as a lien
against the property in a foreclosure sale.
Status: In Senate Judiciary Committee
Related Federal Legislation .
Both H.R. 4635 (Fudge et al.) and S. 2912 (Nelson) provides that
prior to beginning the foreclosure process the foreclosing
entity must participate in a mediation session consistent with
any state or local foreclosure mediation programs.
REGISTERED SUPPORT / OPPOSITION :
Support
The City of Los Angeles , Mayor Antonio Villaraigosa (Sponsor)
California Dispute Resolution Council
Consumers Union
Opposition
California Bankers Association
California Building Industry Association
California Chamber of Commerce
California Credit Union League (CCUL)
California Financial Services Association
California Independent Bankers
California Land Title Association
California Mortgage Bankers Association
Securities Industry and Financial Markets Association
The Civil Justice Association of California (CJAC)
United Trust Association
Analysis Prepared by : Mark Farouk / B. & F. / (916) 319-3081