The Role of Mortgage Servicers in Foreclosure Mediations and the Modification Underwriting Process

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1 Title: Presenter: The Role of Mortgage Servicers in Foreclosure Mediations and the Modification Underwriting Process Joseph Ward McIntosh Associate Attorney McCarthy & Holthus, LLP th Ave NE, Ste N 200 Poulsbo, WA jmcintosh@mccarthyholthus.com Bio: Joe is an associate attorney with the law firm of McCarthy & Holthus, LLP in Washington. Joe s practice area is creditor s rights, which he has done exclusively since becoming a lawyer in Joe and his firm are active in representing beneficiaries in Washington State Foreclosure Mediations. Joe represents both big and small mortgage servicers in foreclosure mediations, and is knowledgeable about the industry and the mortgage modification process. Joe is a native of Mercer Island, WA. He is a graduate of Washington State University, and Willamette Law School. He lives in Seattle, and works out of the firm s downtown Seattle office. Prior to joining McCarthy & Holthus, Joe worked for a Seattle creditor s rights firm focusing on collection and creditor litigation.

2 Who is the Beneficiary? What Interests are Involved? Borrower Servicer Investor Insurer -Investors -Fannie Mae 1 -Freddie Mac 2 -FHLB 3 -Private Investors -Servicers -Banks -Servicing Companies -Insurers -FHA / HUD 4 -VA 5 -USDA 6 -private mortgage insurance

3 What Shapes the Options on a Loan? -Investors -Fannie Regs 7 -Freddie Regs 8 -Private investor guidelines -Private mortgage backed securities (MBS) -HAMP 9 -National Mortgage Settlement (NMS) 10 -Insurance -FHA / HUD guidelines -VA guidelines -USDA guidelines -private mortgage insurance -Servicers -internal programs -internal underwriting requirements 7 Policy making loan guidelines can be both financial and political; for a discussion of principal reductions See

4 -internal policy How Do Mortgage Modifications Work? -Affordable Mortgage Payment -Re-Amortizing Loan (waterfall) -extension of term -reduction of rate -principal forbearance -principal forgiveness How Does a Mortgage Modification Get Approved? Intake Underwriting Due Diligence Trial Mod Permanent Mod -Intake -modification application -proof of income / hardship -Underwriting -verification of income and expenses -Due Diligence -credit report -title report -escrow analysis (taxes and insurance) -property appraisal -Modification

5 -inputs -> new monthly payment -> re-amortization -> NPV 11 -trial plan -permanent modification How Does a Short Sale Get Approved -Intake -application -proof of income / hardship -offer + proof of funds -Due Diligence -property appraisal -Approval & Closing 11 For HAMP loan reviews, an NPV test is the very last step of the approval process. NPV values the discounted reamortized loan against a foreclosure. If a HAMP loan doesn t re-amortize, it fails for affordability, and no NPV test is run. For many non-hamp programs, an NPV test is not utilized at any stage of the review. For example, if a loan has mortgage insurance, it s the insurer that assumes risk of loss. WA s foreclosure mediation law includes an NPV requirement. It s not yet clear to practitioners or those within the industry what this law requires, or what was intended. There seems to be a disconnect between what WA lawmakers understand about NPV, and how it actually works within the industry. There are other examples of this disconnect between WA s law and the industry, but NPV is the most common encountered by practitioners.