NACBA Issues Memo To Members Re New HAMP guidelines

I received this email today that will be of interest to anyone with mortgage troubles or concerns. Please contact us by email or mail for a free telephone consult if you are seeking help with your situation. Here’s the memo:

Dear NACBA Member:
The last two days have been eventful in the world of HAMP.

On Wednesday, March 24th, Treasury released “New HAMP Borrower Outreach and Communication Guidelines,” a title that did not hint at its contents. These guidelines contain new protections for borrowers facing foreclosure, as well as protections for bankruptcy debtors. No longer will HAMP servicers be able to discriminate against bankruptcy debtors. Among other improvements, servicers will be permitted to accept bankruptcy schedules in lieu of most other documentation requirements for non-bankruptcy debtors. Please take your time and read through this whole document carefully. There is much content here and we will provide more information about the details in the future.

Unfortunately, these new rules do not become effective until June 1. On a phone call with administration staff today, I expressed my disappointment with this delay and my comments seemed to be met with some sympathy. We will see if any changes are forthcoming regarding the effective date of at least some portion of these new rules. Meanwhile, you can log onto https://www.hmpadmin.com/portal/index.html to locate this document, as well as the documents referred to in the following paragraph.

On Friday, March 26th, Treasury released additional rules that will be helpful to financially distressed borrowers, including bankruptcy debtors:

1. a pre-HAMP 3-6 month forbearance program for unemployed borrowers;

2. FHA refinancing to reduce total principal (including junior mortgages) to 115% and first mortgages to 97.75% loan-to-value ratio (first mortgage – 10% minimum reduction);

3. voluntary principal reductions in HAMP modifications, based upon achieving the target income-to-mortgage ratio by reducing the principal to as little as 115% [the “waterfall” calculations are a little more complicated than can be explained in an email]; and

4. nominal short-sale and relocation assistance to certain debtors losing their homes in foreclosure. Again, the main problems with these new developments are that they are still largely discretionary on the part of HAMP participants and they will not be effective for several months, perhaps not until Fall 2010.

We welcome these important changes, and also welcome the increasing willingness of the Treasury Department, the White House, and HUD, to listen to the concerns and proposals of consumer groups that work with desperate homeowners on a daily basis. We look forward to working together in the future to further address the foreclosure problems that endanger our economy.

The needs of bankruptcy debtors came to the serious attention of Treasury in mid-November 2009, when I, as NACBA’s designated representative, met in Washington with Assistant Treasury Secretary Herbert Allison, about 10-15 other administration staff, and representatives of about 15 other consumer groups. At that meeting, I explained how prohibiting servicer discrimination against bankruptcy debtors would help improve the success of HAMP. Several administration staff told me later that they did not realize the problems that were faced by bankruptcy debtors in HAMP. After that meeting, a few working groups were set up, including the Bankruptcy Working Group, to propose changes to HAMP regulations. The BWG met in early December. At first I was the only consumer representative (John Rao was added at the last minute), Chapter 13 Trustees Brian Lynch, George Stevenson, Debra Miller & Hank Hildebrand were on the committee, along with six lender/servicer representatives. I was grateful for John Rao’s participation, since he could represent NCLC, as well as NACBA’s interests. Tensions developed, as might be expected, in the course of “laying out the issues.” However, some very good ideas came out of the meetings – which are reflected in the bankruptcy provisions just released. After the BWG was disbanded, consumer groups, including myself, continued to meet with Treasury representatives in the development of these changes to the program.

I want to take this moment to specially thank Hank, Brian, George, and Debra, for their very valuable assistance in this extended process. This is evidence of the fact that NACTT and NACBA have many common interests. Members of both of our groups know, intimately, the needs of homeowners in bankruptcy – and we should work together whenever possible in furtherance of the protection of these deserving debtors.

John Rao posted a summary of the March 24th changes on the BK listserv (pasted below), along with a Directive prepared by NCLC, which he is sharing with NACBA members. The NCLC Directive has been posted at:

http://www.nacba.org/files/email/Supp_Dir_10-02.pdf
NACBA anticipates putting out a press release early next week and we will forward that to you at that time.
Sincerely,
Norma Hammes
NACBA President Emeritus
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From John Rao to the BK listserv on 3/26/2010:

Supplemental Directive 10-02 marks a significant change in Treasury’s HAMP policy with respect to borrowers in bankruptcy. Treasury’s initial policy as stated in SD 09-01 was that a borrower actively involved in a bankruptcy proceeding was eligible for HAMP “at the servicer’s discretion.” Many of us urged Treasury to change this policy, noting that servicer discretion has meant that borrowers in bankruptcy are often not considered for HAMP. After SD 10-02 takes effect on June 1, 2010, servicers will no longer be able to contend that their refusal to consider a HAMP modification was a proper exercise of discretion. Borrowers in an active chapter 7 or chapter 13 bankruptcy case must be considered for HAMP if the borrower, borrower’s counsel or bankruptcy trustee submits a request to the servicer. In addition, borrowers who are in a trial period plan and subsequently file for bankruptcy may not be denied a permanent HAMP modification on the basis of the bankruptcy filing.

SD 10-02 also requires the servicer and its counsel to work with the borrower or borrower’s counsel to obtain any court or trustee approvals of the modification as required by local court rules and procedures. Some courts have required that a motion be filed seeking approval of a permanent modification, while others have permitted approval to come from the trustee followed by the submission of an agreed order. SD 10-02 provides that if additional time is needed to obtain the necessary approvals, the servicer should extend the trial period plan for up to an additional two months (resulting in a total five-month trial period).

SD 10-02 also addresses the problem of servicers filing motions for relief from the stay and plan objections while the borrower is being considered for a HAMP modification. We had urged Treasury to prohibit this practice even before a trial plan is approved, as long as the borrower has been paying an amount equal to a greater than the anticipated trial plan payment. Although the policy adopted in SD 10-02 does not extend to the pre-trial plan period, it should help reduce unnecessary litigation costs for borrowers. SD 10-02 provides that if a borrower in a chapter 13 case is in a trial period plan and making post-petition mortgage payments as required by the trial period plan, a servicer must not object to confirmation of a borrower’s plan, move for relief from the automatic stay, or move for dismissal of the chapter 13 case on the basis that the borrower paid only the trial period plan payments rather than the scheduled mortgage payments.

SD 10-02 also restates the policy contained in SD 09-01 that borrowers who have received a chapter 7 discharge and did not reaffirm the mortgage debt are eligible for HAMP. As under the prior SD, the following language must be added to the modification agreement: “I was discharged in a Chapter 7 bankruptcy proceeding subsequent to the execution of the Loan Documents. Based on this representation, Lender agrees that I will not have personal liability on the debt pursuant to this Agreement.”
Several other suggestions from consumer advocates and chapter 13 trustees were adopted in part by Treasury:
Substitution of Income Documents – For borrowers in bankruptcy, the servicer may accept copies of the bankruptcy schedules and tax returns filed in the case in lieu of the RMA and Form 4506T-EZ, and may use this information to determine eligibility. If the schedules are more than 90 days old, the borrower must provide updated evidence of income. Borrowers must still provide a Hardship Affidavit (or RMA).

Waiver of Trial Period Plan – Borrowers in a chapter 13 case who are determined eligible for HAMP may be converted to a permanent modification without completing a trial period plan if:

• The borrower makes all post-petition payments on the mortgage to be modified and at least three of those payments are equal to or greater than the proposed modified payment;

• The modification is approved by the bankruptcy court, if required; and

• The trial period plan waiver is permitted by the applicable investor guidelines.
Waivers under this policy will not begin until “system capability” and reporting issues have been worked out by Treasury. Moreover, the effectiveness of this policy change is uncertain because SD 10-02 gives servicers discretion to grant these waivers and servicers may also contend that investor guidelines prohibit such waivers.

John Rao
Staff Attorney
National Consumer Law Center®
7 Winthrop Square, 4th Floor
Boston, MA 02110
(617) 542-8010
www.nclc.org