News
- Freddie, Fannie Force Borrowers to Waive Legal Rights to Qualify for Loan Modifications
(Washington Independent) 01/15/2009
"The waiver of legal rights is buried among a long list of requirements in loan modification agreements
for delinquent borrowers seeking more affordable loans under the new loan program, which began on
Dec. 15. Some experts say the waivers are problematic, because they could require a homeowner to
give up all legal claims related to their mortgage, not just to the loan modification. And some consumer
advocates were unaware of its inclusion until notified by TWI. They plan to bring the waivers to the attention
of House Financial Services Chairman Barney Frank (D-Mass.), who has been trying to stop private lenders
from using such waivers". (entire article)
Massachusetts and Connecticut Loan Modification Process
In exploring options to prevent foreclosure, modifying the terms of your exisitng mortgage may provide the best option for you depending on your situation. The process, and the procedure that has to be followed may depend on the "type" of loan you have, as well as who the lender who currently owns your mortgage.
Generally you as the homeowner try to negotiate your ARM (adjustable rate mortgage) to a fixed rate mortgage, or negotiate your current interest rate downward, and ideally (although at this time very rare), try to negotiate elimination of some of the principle of the mortgage loan.
Additionally, you may qualify for the FHA Hope for Homeowners Program, and this program should be looked into first before exploring other types of loan modification. Please visit the Government Foreclosure Programs page of this website for more information. If you fail to me the current stringent guidelines of the Hope for Homeowners Program, there are still options you can pursue to modify your loan.
Types of Loans
- Fannie Mae
The great majority of residential home mortgages in America are held by Fannie Mae and Freddie Mac.
Fannie Mae introduced its "early workout program" on December 8, 2008. The early workout program will now allow mortgage servicers to negotiate a loan modification if a borrower is still making payments, but a default is foreseen. Foreclosure prevention efforts were previously only available after a delinquency had occurred.
Mortgage servicing companies now also have the right to remove loans from mortgage-backed securities (MBS) after just one month of delinquency for the purpose of a modification. Servicers in general have had to wait for at least four months of delinquent payments to strip loans from MBS, which must be done before a modification can be completed.
Fannie Mae and Freddie Mac, under guidance from their regulator, have recently stepped up efforts to modify, or permanently change, mortgage contracts to easier terms as a way to halt record foreclosures that have put housing in a downward spiral.
Lawmakers have also increased pressure on modifications by servicers, who must answer to bond investors that could sometimes make out better if a foreclosure is completed.
Fannie Mae now allows the doubling of maximum forbearance and repayment plan periods for most loans. Typical modifications may include lowering interest rates and reductions to principal.
- HUD
The HUD website has a list of Frequently Asked Questions about its loan modification requirements on its website
If you decide to pursue a loan modification of your mortgage, whether your loan is held by Fannie, Mae, Freddie Mac, HUD, or any other lender; you will have to work with a "mortgage servicer".
Mortgage Servicer
A mortgage servicer collects the monthly payments and interacts with the homeowner on the owner of the mortgage's behalf. The
servicer holds monies in escrow to pay the property taxes and homeowner's insurance. The servicer also negotiates any repayment
or loss mitigation plan with a defaulting homeowner, or hires a foreclosure attorney if necessary.
When a mortgage is assigned upon sale in the secondary market, the mortgages are generally serviced by a bank or servicing
company. The servicer may be the original lender if it retained servicing rights when it sold the loan.
There are typically three types of mortgage servicers:
- The master servicer - oversees the servicing operations, but the homeowner is unlikely to have much contact with the
master servicer
- The subservicer - generally the entity that collects payments and maintains the borrower's escrow accounts.
- The special servicer - entities that are generally authorized to engage in loss mitigation and if that fails, foreclose on the loan.
Subservicers and special servicers may in turn contract with tax service providers, insurance providers, foreclosure and bankruptcy attorneys, inspection services, and other similar parties to perform different functions in the loan servicing process.
When a Mortgage Servicer is Unresponsive to a Workout Plan
When a mortgage servicer is unresponsive to a workout proposal, it is appropriate to go over the servicer's head and complain directly to the actual mortgage holder.
Fannie Mae, Freddie Mac, and some insitutional investors have loss mitigation departments which will intervene, if pushed, to address a proposed workout.
The scope of a servicer's authority to arrange workout terms may be less than clear. Although most servicers have substantial delegated authority, complicated or unusual workout terms generally have to be cleared with the mortgage holder itself. It may be necessary to "push" the servicer to take a proposal to the mortgage holder rather than simply refuse the proposal, as refusal is the path of least resisitance for the mortgage servicer.
Needing an Advocate to Present Your Case.
Beware of the many "loan modification companies" who charge an exorbitant fee up front, , and are not an attorney, or the loan modification company states that it is "attorney backed". In this situation a loan modification company contracts with attorneys to take cases for a very reduced referral fee, and susequently the attorney is only superficially involved in reviewing the mortgage loan modification process to comply with state law.
In all cases whether attorney or "mortgage loan modification company", the agreement should provide a partial or total return of fees paid if they are not successful obtaining a satisfactory modification for you.
I am a licensed attorney in the Commonwealth of Massachusetts, and the state of Connecticut, who will provide you with a package of documents that will help you quickly gather the necessary financial information in order for a mortgage servicer or mortgage lender to decide whether they will accept your modification proposal. I personally am involved in every step of the loan modification process, not just superficially involved.
I guarantee a 100% return of all fees paid, if I am not successful negotiating a satisfactory mortgage loan modification for you.
The key thing as a mortgage loan modification advocate is to "sell" the servicer or lender on the idea that: after reviewing your financial information, and more importantly the appraisal of your home and comparing this to your outstanding loan balance; the costs to the actual mortgage holder of foreclosing on your home is more expensive and time consuming than allowing the modification of your loan.
Trying to obtain a loan modification is extremely time consuming, and can be frustrating, as mortgage servicers generally seek the path of least resisitance and deny a modification proposal out of hand.
Perisitence is required, to get past the "gate keeper", and present your proposal to someone in the mortgage servicer organization who has the authority to review your situation Having a third person in the negotiation proces is more effective, as it can get very emotional as understandably you as a homeowner have a lot to lose.
This is why you need an experienced legal professional to advocate on your behalf and present a compelling case to the mortgage servicer that you are a perfect candidate for a mortgage loan modification.
If the mortgage servicer steadfastly refuses to modify your loan, you then must take your proposal directly to the actual holder of your mortgage. Again, having a trained legal advocate present the loan modification proposal on your behalf, is usally more effective, and better received by the mortgage holder.
If you are considering a mortgage modification and have questions, please contact me for a no cost assessment of your situation to determine whether a mortgage loan modification is the best avenue for you to pursue in light of your current circumstances.
Some of the information obove is taken from the NCLC manual Foreclosures, Defenses, Workouts, and Mortgage Servicing 2nd Ed. (2007)
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