HUD Housing Counselors Training

Transcription

1 Module 5.2 Study Guide HUD Housing Counselors Training U.S. Department of Housing and Urban Development

2 Table of Contents Module Introduction 3 Module Introduction 3 Lesson Objectives 3 Modifying or Refinancing Your Mortgage to Remain in the Home 4 MHA Program Options 4 Knowledge Check 1 7 Knowledge Check 2 8 Working with Servicers 8 Submitting a Loss Mitigation Package 8 Documentation for Loss Mitigation Requests 10 Knowledge Check 3 18 Knowledge Check 4 18 Hope Loan Port 18 Knowledge Check 5 24 Knowledge Check 6 25 Knowledge Check 7 25 FHA Loss Mitigation Options 25 FHA Loss Mitigation Options 25 Selecting a Loss Mitigation Program 29 Knowledge Check 8 32 Knowledge Check 9 32 National Loan Modification Scam Alert Campaign 32 Identifying Loan Modification Scams 32 Reporting Loan Modification Scams 35 Knowledge Check Knowledge Check Module Summary 37 Appendix 38 Knowledge Check Answer Key 38 Resources 42 FDIC Brochure on Foreclosure Rescue and Loan Modification 42 Home Affordable Modification Program 42 Hope Loan Portal 42 Loan Scam Alert 42 Making Home Affordable 42 Request for Mortgage Assistance Form 42 Sample Scammer Loan Modification Approval Form 43

3 HUD Housing Counselors Training Study Guide Module 5.2 Module 5.2 Avoiding Foreclosure/ Retention Options Module Introduction Module Introduction Recall that Module 5.1 provided an overview of foreclosure, regulatory measures to protect consumers, and where counselors can go to find more information on available loss mitigation/retention programs and resources. In this module, we move on to a discussion of retention options. To fully support clients who are struggling with mortgage payments, foreclosure counselors regularly review retention strategies and often request repayment plans, forbearance agreements, loan modifications, or other loss mitigation options. In order to determine which option is best suited for each client, counselors must be familiar with mortgage servicing processes and loss mitigation requests. In this module, you ll learn about various retention strategies for clients to remain in their homes, as well as mortgage default scams and how to report them. In Module 5.3, you ll learn about disposition strategies and how to help clients transition away from their home. Lesson Objectives By the end of this module, you ll be able to: 1. Apply knowledge of the Making Home Affordable program and options such as HAMP, HARP, and principal reduction programs, as well as state-funded and proprietary programs, when assessing a client s circumstances for foreclosure prevention options. 2. Demonstrate knowledge of the necessary forms and requirements for a mortgage lender s loss mitigation package. 3. Apply knowledge of HOPE LoanPort, including how to upload a client s loss mitigation packet and track its progress. 4. Evaluate a client s information to better discuss appropriate loss mitigation options for a client whose loan is insured by FHA. 5. Apply knowledge of mortgage default scams to describe ways to avoid these scams and where to report being a scam victim. Page 3 of 43

4 Modifying or Refinancing Your Mortgage to Remain in the Home MHA Program Options In this module, foreclosure counselors help clients seeking outside assistance to prevent foreclosure on their homes. To ensure they share accurate information, counselors must review programs available through the Making Home Affordable, or MHA, program, a federal government initiative to provide assistance to homeowners facing foreclosure. Counselors must be familiar with all of the MHA programs available because client needs and situations are diverse. As of May 2014, MHA is scheduled to expire on December 31, 2015, unless it is extended. Let s take a look at the main MHA programs and key features. Making Home Affordable Programs Home Affordable Modification Program (HAMP) Purpose: To assist homeowners who are struggling to make mortgage payments Benefit: Lowers mortgage payments to make them more affordable and sustainable in the long-term Key Eligibility: Restrictions based on: Date mortgage obtained Amount owed on property State of property (cannot be condemned) Borrower must: Demonstrate financial hardship Be delinquent on mortgage payments or in danger of falling behind Document sufficient income to support a modified payment Page 4 of 43

5 Home Affordable Refinance Program (HARP) Purpose: To assist homeowners who are current on mortgage payments but unable to secure traditional refinancing due to declining home value Benefit: Helps eligible homeowners secure a more affordable, more stable mortgage Key Eligibility: Restrictions based on: Current loan-to-value ratio (must be greater than 80%) Mortgage (must be owned by Fannie Mae or Freddie Mac by certain date) Borrower must: Be current on mortgage at time of refinance Demonstrate 12 months of good payment history Home Affordable Unemployment Program (UP) Purpose: To assist eligible unemployed homeowners Benefit: Reduces mortgage payments to 31% of income or suspends them altogether for 12 months or more Key Eligibility: Restrictions based on: Date mortgage obtained Amount owed on property Borrower must: Be unemployed and eligible for unemployment benefits Occupy home as primary residence Not have previously received a HAMP modification Page 5 of 43

6 Principle Reduction Alternative (PRA) Purpose: To assist homeowners whose home is currently worth significantly less than the amount owed Benefit: Encourages mortgage servicers and investors to reduce the amount the homeowner owes on the home Key Eligibility: Restrictions based on: Date mortgage obtained Amount owed on property Mortgage (must not be owned by Fannie Mae or Freddie Mac) Borrower must: Owe more than home is worth Occupy home as primary residence Demonstrate financial hardship Be delinquent on mortgage payments or in danger of falling behind Have a mortgage payment greater than 31% of gross monthly income Document sufficient income to support a modified payment Second Lien Modification Program (2MP) Purpose: To assist homeowners whose first mortgage was permanently modified under HAMP and who have a second mortgage on the same property Benefit: Works in tandem with HAMP to provide comprehensive solutions for homeowners with second mortgages to increase long-term affordability and sustainability Key Eligibility: Restrictions based on: First mortgage (must be modified under HAMP) Borrower must: Make timely payments on HAMP modification Page 6 of 43

7 Loss mitigation options are also available to borrowers with mortgages insured or guaranteed by FHA, VA, or USDA. Specific options for FHA mortgages will be discussed later in this module. Borrowers with these mortgages should reach out to their servicers to discuss their options. If borrowers need assistance in negotiating with their servicer or need to escalate an issue, they can contact FHA, VA, or USDA for further assistance. Knowledge Check 1 The following summaries describe clients seeking programs that will help them remain in their homes. Assuming that each client qualifies for at least one of the programs listed, match the client scenario to the most appropriate MHA program. A. Maureen is employed, but her income has recently been reduced. Her home is worth much less than what she owes on her mortgage, which is not owned by Fannie Mae or Freddie Mac. B. Tia has been making timely mortgage payments but is frustrated that her property value has declined. She has tried to refinance it but has been declined because she is under water. Fannie Mae owns her mortgage. C. Matt used to work ten hours of overtime a week, but his employer removed all overtime pay three months ago. He s been trying to stay current on his mortgage but is now three months behind. He would like to stay in the home but needs a lower mortgage payment based on his new income. D. Scott lost his job four months ago and is collecting unemployment. It is not enough to pay all of his bills, and he is falling behind on his mortgage. E. Charlotte had her first mortgage modified under HAMP and would like to modify her second mortgage. 1. Second Lien Modification Program (2MP) 2. Home Affordable Modification Program (HAMP) 3. Home Affordable Unemployment Program (UP) 4. Home Affordable Refinance Program (HARP) 5. Principal Reduction Alternative (PRA) Page 7 of 43

8 Knowledge Check 2 The following are objectives of different MHA programs. Match each goal to the appropriate program. A. Reduce mortgage payments to 31% of income or suspend them altogether for 12 months or more B. Encourage mortgage servicers and investors to reduce the amount the homeowner owes on the home C. Assist homeowners who are current on mortgage payments but unable to secure traditional refinancing due to declining home value D. Assist homeowners who are struggling to make mortgage payments, with the goal of making payments more affordable and sustainable for the long-term E. Work in tandem with HAMP to provide comprehensive solutions for homeowners with second mortgages to increase longterm affordability and sustainability 1. Home Affordable Modification Program (HAMP) 2. Home Affordable Refinance Program (HARP) 3. Second Lien Modification Program (2MP) 4. Home Affordable Unemployment Program (UP) 5. Principal Reduction Alternative (PRA) Working with Servicers Submitting a Loss Mitigation Package In Module 5.1, you met Craig, a client at risk of foreclosure. In this module, Craig returns to meet with his foreclosure counselor, Carmen. Recall the following circumstances about Craig s situation from the previous counseling session. A Client, Craig, and a Counselor, Carmen Page 8 of 43

9 Craig He was laid off and hasn t found a new fulltime job. He is behind on his mortgage payments and has received a Notice of Default. He doesn t want to lose his house. He has a conventional mortgage, and it is not owned by Fannie Mae or Freddie Mac. His monthly income from unemployment was $2,150, and his monthly expenses were $3,255. He created an emergency budget and now has some monthly surplus income. His wife and older children may work to help pay the bills, and the entire family will work to reduce expenses. He hopes his mortgage servicer will lower the payments until he finds a new job and then help him develop a payment schedule to catch up on his payments. Let s sit in on their second counseling session, which occurs two weeks after the first one. Carmen. It s good to see you again, Craig. Have you heard from the unemployment assistance programs to which you applied? Craig. No, not yet. I do have news, though. I got a job. It is one that I had interviewed for a month ago. It pays less than my old job, but it will still help with my request for assistance from my lender, right? Carmen. That s great news. Yes, it will. If you were unemployed, your servicer might have offered you another workout option. Because you are now employed, a forbearance or repayment plan doesn t seem to be the best option. Since you have a new job, but your new income will be lower, we should request a modification. It wasn t appropriate when you were unemployed, but it is now. We can show them what your budget will be with your new income and see if they will consider modifying the mortgage terms and adding the past due amount into the mortgage. Page 9 of 43

10 Recall from Module 5.1 the steps to submit a loss mitigation package. Loss Mitigation Submission Process 1. Determine reason client is behind on mortgage payments. 2. Determine if homeowner wants to remain in the home (retention) or transition out of the home (disposition). 3. Determine the type of mortgage (e.g., conventional, FHA, VA, or USDA; and if it is owned by Fannie Mae or Freddie Mac) to determine options and processes available through the servicer. 4. Gather required financial documentation and determine affordability. 5. Complete the necessary forms to request the loss mitigation option. 6. Submit the request to the servicer. 7. Respond to additional requests for information. 8. If request is approved, discuss if it is affordable. If it is denied, determine why. Escalate, if necessary. Carmen and Craig have now completed steps 1 5 of the process and will continue with the additional steps. Documentation for Loss Mitigation Requests Carmen. Let s start the process of applying for assistance. There s a government program called Making Home Affordable, or MHA, aimed at making the loss mitigation request process easier and more transparent. We need to check their website, www. makinghomeaffordable.gov, to see if your servicer, City Second Bank, is participating in the program. According to the website, they are participating. Craig. Oh, that s good. Carmen. Yes, this will simplify the process a lot. Now we have to gather the required financial documentation for MHA s Home Affordable Modification Program, or HAMP. I know you have some of this already. Page 10 of 43

11 Financial Documentation According to the HAMP section of the MHA website, clients need to submit the following financial documents with their application: Monthly mortgage statement Information about other mortgages on your home, if applicable Two most recent pay stubs for all household members contributing toward the mortgage payment Last two years of tax returns The most recent quarterly or year-to-date profit and loss statement, if selfemployed Documentation of income you receive from other sources, such as alimony, child support, social security, etc. Two most recent bank statements A utility bill showing homeowner name and property address Unemployment insurance letter, if applicable Account balances and minimum monthly payments due on all of your credit cards Information about your savings and other assets A letter describing any circumstances that caused your income to be reduced or expenses to be increased, such as job loss, divorce, illness, etc. (not required but often useful) Craig. Okay. I have most of it, but I ll make sure everything is current. Carmen. Even if your servicer was not participating in the MHA program, most of the same documents would be required to make a modification request directly through them. It s become standardized. Next, we have some forms to complete. Let s look at the first one, the Request for Mortgage Assistance, or RMA form. Page 11 of 43

12 Borrower Information Information about the borrower and co-borrower, including their name, social security number, contact information, and details about their property. Hardship Affidavit Reason why the applicant is requesting a modification. Page 12 of 43

13 Principal Residence Information Details about the applicant s principal residence, including the address, mortgages or liens on the property, annual homeowner s insurance on the property. Combined Income/Expenses for Borrower(s) Documentation of the borrower and coborrower s combined monthly income and expenses, as well as assets, etc. Page 13 of 43

14 Other Properties Owned Information on any other properties the applicant may own, including the properties address, current value, and mortgage value. Page 14 of 43

15 Dodd-Frank Certification Certification that the applicant hasn t been convicted of certain crimes during the past 10 years. Information for Government Monitoring Purposes Optional information about the applicant s race, ethnicity, and sex. Page 15 of 43

16 Acknowledgement and Agreement Signatures of the borrower and coborrower, certifying that everything in the application is true. Page 16 of 43

17 Craig. So this is the official application? It s very thorough. Carmen. Yes, and you re right, it is thorough. This form has all of the information in one place so that the process can t be delayed by lost documentation. Another requirement for the HAMP application is submitting the 4506-T form, which gives your servicer permission to look at your most recent tax returns. The 4506-T is a one-page form that asks for a few pieces of information and a signature. Craig. If I send them my tax returns though, why do they need to request them from the IRS? Carmen. Good question. It s mainly so servicers can verify that fraudulent returns aren t sent in with modification requests. Unfortunately, this has happened a lot in the past. Once these forms are complete and you have gathered all the financial documentation, we can submit the request to City Second Bank. Let s try to do this as soon as possible. Craig. Okay. Thank you for your help. I ll have it all for you by the end of next week. The next step in the process will be to submit the request to the servicer and escalate the case if necessary after a decision is made. Cases are typically escalated for one of two reasons: the workout request is denied or the workout offered is unaffordable. Denials occur when the client does not have enough income, the LTV ratio is too high, the application is missing information, or the servicer wants updated financial information. If the client is offered a workout that is unaffordable, the case should be escalated to ensure the servicer is using the correct calculations. Servicers have different guidelines for escalation processes, and ultimately clients and counselors have to communicate with the servicer and go through their process to try to fix the problem. Page 17 of 43

18 Knowledge Check 3 The following are components of the RMA form, which is required for most loss mitigation assistance requests. Match each component of the form to the section where it is located. A. Has the mortgage on your principal residence ever had a HAMP trial period plan or permanent modification? B. I/we certify under penalty of perjury that I/we have not been convicted within the last 10 years of any one of the following in connection with a mortgage or real estate transaction: (a) felony larceny, theft, fraud, or forgery, (b) money laundering, or (c) tax evasion. C. I/we am/are requesting review under MHA. I am having difficulty making my monthly payment because of financial difficulties created by... D. Taxable Social Security or retirement income Knowledge Check 4 Hope Loan Port 1. Hardship Affidavit 2. Borrower Information 3. Income/Expenses for Household 4. Dodd-Frank Certification A client needs to gather all of the financial documentation below to submit an MHA loan modification request, except: A. Two most recent bank statements B. Utility bill showing homeowner name and property address C. Last two years of tax returns D. Information on amounts paid for child care Hope LoanPort (HLP) was launched during the foreclosure crisis to facilitate transparency, accessibility, consistency of treatment, and a superior experience to consumers and their advocates in pursuit of foreclosure alternatives and affordable home loans in underserved markets. It has become a major vehicle for the submission of loan workout packages, and most servicers and counseling agencies utilize it. It is supported by government agencies, as well as financial institutions and the housing counseling industry. Because it is such a widely used tool in foreclosure avoidance, housing counselors should be aware of its key features, as well as how to upload a client s foreclosure alternative package and track its progress. Page 18 of 43

19 Carmen is training Rafi, a new foreclosure counselor, on how to use HLP and its key features. She will show him: 1. How to gain access to the site. 2. Key features. 3. How to submit a loan modification request or other foreclosure alternative application. 4. How to track an application through the process. 5. The HLP Learning Center. Let s listen in on their training session. Carmen. Hi, Rafi. The first thing we need to do is get you access to HLP, since it s not accessible to the public. Counseling agencies can only gain access if they are a 501(c)(3) and HUD-approved, or are Rafi, a New Foreclosure Counselor participating in the National Foreclosure Mitigation Counseling (NFMC) Program. In fact, only our supervisor can secure access for you. Each counseling agency using HLP has one person responsible for access for the entire agency and who manages access for its staff. Rafi. Yes, I have given her my information, and she said she has requested an account for me. She said I will have access in a few days. Carmen. Oh, good. Then let s go over HLP s key features. Carmen goes to HLP s website, www. hopeloanportal.org, and logs in with her information. Page 19 of 43

20 From there, she shows Rafi how to navigate the website via the navigation tabs. Carmen. On HLP you can upload a new case, search for an existing case, track where a case is in the process and receive messages from and send messages to servicer representatives. Rafi. That s great and most servicers are using it? Because I ve met with clients that all have different servicers. Carmen. They are all of the major servicers use it. Overall, the servicers using the platform own approximately 80% of the nation s mortgages. Rafi. It seems so efficient; I m ready to learn more. Page 20 of 43

21 Carmen. It really is. Let s go through the general steps for submitting a foreclosure alternative application. These aren t all steps in the process, just the key ones: 1. Create the case on the New Case tab. 2. Complete entry of basic homeowner data on the Financial, Q&A, and Documents navigation tabs. 3. Use the Review & Submit tab to identify if all required elements have been completed and submit the application. Page 21 of 43

22 Rafi. OK, that makes sense. Do you have to enter all the information at one time or can you save it and complete it later? Carmen. You can save it and then finish it later. You can find the case in the Dashboard tab or by searching for it on the Case Search tab. Page 22 of 43

23 Rafi. Great. And how do you track an application once it s been submitted? Carmen. Cases are tracked in HLP s Case Status system, which you can access from the top of every page when a case is open. A case s status is not just an indicator of where that particular case is in terms of processing; it also defines which party, the counselor or servicer, is currently in control of the case s processing. Rafi. I see. What if a case is just sitting there and the servicer is in control? Carmen. Servicers must update the case status every 10 days when they are in control of the case. If they haven t, there is an escalation process. Counselors are encouraged to update cases every 10 days as well, but this isn t required as it may take longer to receive documents from a client. Page 23 of 43

24 Rafi. That s good that they have to provide regular updates; I know this wasn t always the case. Do they have resources where I can get some training? Carmen. Yes. HLP also offers a training site for its users, where counselors can: Watch recorded training webinars. Read job aids on documentation and case management. Review the HLP User Manual. Register for upcoming classes and/or webinars to learn more about the platform. You can request access to this site directly, but it has to be approved by HLP after they verify that our agency is a partner agency. Rafi. I ll request an account now so I can start reading through the materials when it s approved. Knowledge Check 5 Which of the following statements is true about access to the HLP main platform where loss mitigation/retention option applications are submitted? A. Counselors can sign up for an account directly on the site. B. Homeowners can sign up for an account directly on the site. C. Only counselors with certain certifications can have an account on the site. D. The counseling agency s HLP account administrator must provide access for each counselor at the agency. Page 24 of 43

25 Knowledge Check 6 What is the correct order of the general steps to submit a foreclosure alternative application in HLP? Place the statements in correct sequence. A. Complete entry of basic homeowner data on the Financial, Q&A and Documents navigation tabs. B. Create the case on the New Case tab. C. Use the Review & Submit tab to identify if all required elements have been completed and submit the application. Knowledge Check 7 All of the following are true about HLP s Case Status system, except: A. When a case is open, it has its own tab at the top of every page. B. It shows when the last update was made to the case and how long the case remained in the previous status. C. It shows who is in control of the process the servicer or the counselor. D. Servicers must update the case status every 20 days when they are in control of the process. FHA Loss Mitigation Options FHA Loss Mitigation Options Several workout options are available for clients with FHA-insured mortgages who are facing foreclosure. All servicers that offer FHA-insured mortgages must review retention options and are required to consider these options in the following order: 1. Attempt to bring the mortgage current. 2. Determine eligibility for Informal and Formal Forbearance Plans. 3. Determine eligibility for Special Forbearance Unemployment. 4. Determine eligibility for Loan Modification. 5. Determine eligibility for FHA HAMP. 6. Consider a pre-foreclosure sale. 7. Consider a deed-in-lieu. Though similar, most FHA loan modifications and other retention options are not affiliated with the MHA program structure. Elizabeth, a foreclosure counselor, has a new client, Jose. Jose has not paid his FHA mortgage for the last two months. Page 25 of 43

26 Let s listen in on their session. Elizabeth. Hi, Jose. How can I help you today? Jose. Hi. I bought my home four years ago with an FHA loan, and I m two months behind on my mortgage payments. My income hasn t changed; however, my expenses increased temporarily because my son needed A Counselor, Elizabeth, and a Client, Jose surgery and then we had to replace the roof. Money just got tight. Now I m in a hole and need help figuring out what to do. Elizabeth. Okay, FHA has a number of loss mitigation options. Let s work together to see what s going on and look at the options available to you. Jose. Yes, I need some help. My family and I have cut down on our expenses as much as possible, but we cannot seem to catch up on the outstanding balance. With delinquent FHA loans where the borrower doesn t have the funds on hand to bring the mortgage current, servicers must first evaluate clients for forbearance plans, or arrangements that may allow for a period of reduced or suspended payments, and provide specific terms for repayment. FHA offers Informal Forbearance Plans, which consist of verbal arrangements lasting less than three months, and Formal Forbearance Plans, which are written agreements lasting three to six months. A client s options will depend on circumstances, including financial evaluation and surplus income. For example, Informal and Formal Forbearance Plans are the only options available for delinquent mortgagors without verifiable losses of income or increases in living expenses. Page 26 of 43

27 FHA Loss Mitigation Home Retention Options Informal/Formal Forbearance Plan Purpose: To assist borrowers who are temporarily struggling to make mortgage payments Benefit: Allows for a period of reduced or suspended payments and may provide specific terms for repayment, depending on the circumstances. Lenders must consider these steps before proceeding with other options. Key Eligibility Borrower must: Occupy home as primary residence Demonstrate financial hardship Demonstrate income Show surplus income over minimum limit Note: Informal or Formal Forbearance Plans are the only options available for delinquent mortgagors without verifiable losses of income or increases in living expenses. Special Forbearance Unemployment Purpose: To assist unemployed borrowers Benefit: Suspends mortgage payments or allows for partial payments while borrower is unemployed, for up to 12 months. At that time, borrower will be evaluated for applicable loss mitigation options. Key Eligibility Restrictions based on: Mortgage delinquency (at least three months delinquent) Maximum arrearage (not to exceed 12 months of PITI) Borrower must: Be unemployed and actively seeking employment Provide letter stating that borrower previously missed mortgage payments Page 27 of 43

28 FHA Loan Modification Purpose: To assist borrowers who are struggling to make mortgage payments because they are no longer affordable Benefit: Reduces mortgage payment by the greater of $100 or 10% of the original monthly payment amount Key Eligibility Restrictions based on: Mortgage delinquency (at least 61 days delinquent) State of property (cannot be in foreclosure) Loan origination date (at least 12 months elapsed) Previous receipt of Loan Modification (cannot be within 24 months) Borrower must: Demonstrate financial hardship Default due to verifiable loss of income or increase in living expenses Be currently employed (at least one borrower) Occupy home as primary residence Show surplus income over minimum limit Successfully complete three-month Trial Payment Plan Not have another FHA mortgage FHA-HAMP Purpose: To assist borrowers who are struggling to make mortgage payments because they are no longer affordable and do not qualify for other FHA options Benefit: May combine a loan modification and partial claim to bring the mortgage current Key Eligibility Restrictions based on: Only one FHA-HAMP within 24-month period Eligibility for other FHA workout options Partial Claim amount (cannot exceed 30% of unpaid principal balance) Borrower must: Default due to verifiable loss of income or increase in living expenses Be currently employed (at least one borrower) Show surplus income under certain limit Page 28 of 43

29 Selecting a Loss Mitigation Program In the first step to determine Jose s options, Elizabeth helps Jose calculate his income and expenses, which helps to determine his surplus income, a major factor in qualification for certain FHA options. Let s take a look at the financial information Elizabeth needs and then we ll review the financial calculations used. Basic Information Net monthly income = $3,000 PITI = $900 Expenses = $1,500 Surplus income Page 29 of 43

30 Surplus Income Percentage Arrearages Page 30 of 43

31 Forbearance Qualification Criteria Forbearance Qualifications Criteria Using 85% of monthly surplus income (.85 $600 = $510), Jose would be able to cure his arrearages within four months ($1,800 $510 = 3.5). Because his surplus income exceeds 15% of net monthly income and 85% of surplus income is sufficient to cure their default within six months, Jose is therefore eligible only for a six-month formal forbearance. Elizabeth. Well, Jose, with your monthly surplus income, you would be able to catch up on your mortgage within four months. Jose. I am glad to know what I should expect. What about the other programs, like the Special Forbearance and FHA-HAMP? Elizabeth. Lenders would not be able to consider other FHA options for homeowners without a verifiable income reduction or expense increase. Also, because you can cure the default within six months, you meet the criteria for the first available option, so your lender would not continue with the process. Your priority now is to work with your servicer to come to an agreement on a Forbearance Plan. Jose. Oh, ok. I don t want to waste my time applying for options when I do not meet the criteria. What if I have issues communicating with my servicer? I have not had much success so far. Elizabeth. In that case, we can contact the FHA National Servicing Center, which works with FHA homeowners and their lenders to find creative solutions to avoid foreclosure. Elizabeth and Jose then begin to work on what s needed before contacting his servicer. Page 31 of 43

32 Knowledge Check 8 All of the following are eligibility requirements of the FHA Loan Modification, except: A. The loan must be at least 61 days delinquent. B. At least one borrower has continuous income. C. Borrower does not need to demonstrate surplus income. D. The property must be and must remain the borrower s primary residence. Knowledge Check 9 The following are benefits of different FHA loss mitigation programs. Match the program benefit with the corresponding program. A. Reduces mortgage payment by the greater of $100 or 10% of the original monthly payment amount B. Suspends mortgage payments or allows for partial payments while borrower is unemployed, for up to 12 months. At that time, borrower will be evaluated for applicable loss mitigation options. C. Can combine a loan modification and partial claim to bring the mortgage current 1. Special Forbearance Unemployment 2. FHA Loan Modification 3. FHA-HAMP National Loan Modification Scam Alert Campaign Identifying Loan Modification Scams Often, homeowners facing foreclosure are approached by companies that claim they will get the homeowner s loan modified for them for a fee. These companies often disappear with a homeowner s money without ever contacting the servicer. Loan modification scams were rampant during the foreclosure crisis, and many homeowners fell victim to them, putting them in an even worse financial situation. Because scammers will always be around, counselors can help clients be aware of what to look out for and where they can report suspicious activity. When Elizabeth and Jose meet for their second appointment, Jose brings some documents that had been mailed to him that appeared to modify his mortgage with excellent new terms. Let s listen in on their session. Jose. A few days ago I received this loan modification approval notice in the mail. It seems too good to be true, but I really like the monthly payment that it shows. Elizabeth. It probably is too good to be true. Let s look at it together. Page 32 of 43

33 Franklin, Peavy and Associates P.O. Box 2349 Dover, DE ATTN: Jose Smith 123 Main Street Glendale, CA *** LOAN MODIFICATION APPROVAL NOTICE *** Dear Mr. Smith: Congratulations! This letter serves to notify you that your eligibility is guaranteed for a loan modification that will lower your monthly payments significantly. We look forward to discussing this generous offer with you. Current mortgage records show: Current Principal Amount: Current Interest Rate: Current Monthly Principal and Interest Payment: Current Monthly Mortgage Insurance: Current Monthly Payment: $189, % $ $68.95 $1, Call today to modify your loan into these terms: Modified Principal Amount: Modified Interest Rate: New Monthly Principal and Interest Payment: New Monthly Mortgage Insurance: Monthly Savings $189, % $ $0.00 $ Unfortunately this offer won t be available for long, as interest rates change daily. I strongly encourage you to call today to get locked-in for this modification. Then think about how you ll spend that extra $ every month! *** CALL NOW!! LOAN MODIFICATION DEPARTMENT *** Sincerely, Franklin, Peavy and Associates Page 33 of 43

34 Elizabeth. Those are some great mortgage terms! But I ve never heard of that company. Did you call them? Jose. I did. I was curious. But I didn t do anything else. They said they would negotiate with my lender, and there would be some fees that I had to pay up front. They said a modification was guaranteed and that I should make all my mortgage payments to them until it is finalized. Elizabeth. It is good that you didn t sign up with them, because this sounds like a common scam. They would have pocketed your money and never talked to your servicer. HUD approved Housing Counseling Agencies will never charge a fee for mortgage default counseling. Homeowners facing foreclosure do not have to pay for counseling, so this is certainly a sign of a scam. There s a national Loan Modification Scam Alert Campaign, and they suggest being wary of the following situations that could be signs of scams. Signs of Scams A company/person: Asks for a fee in advance to work with your lender to modify, refinance, or reinstate your mortgage. Guarantees they can stop a foreclosure or get your loan modified. Advises you to stop paying your mortgage company and pay them instead. Pressures you to sign over the deed to your home or sign any paperwork that you haven t had a chance to read and you don t fully understand. Claims to offer government-approved or official government loan modifications. Asks you to release personal financial information online or over the phone, but you do not know the company/person. Offers to help modify your mortgage either directly, through advertising, or by other means such as a flyer. Asks you to surrender the title to your home in the belief you will be able to remain in the home as renters and buy your home back over the next few years. Page 34 of 43

35 Jose s letter shows one example of a scam. Let s take a look at another example. Betty, a homeowner in default on her mortgage, received a call from a company representative claiming to provide mortgage relief. The representative informed Betty that he could stop the foreclosure process by contacting her servicer to make a payment arrangement. He instructed her to stop any mortgage payments and make payments to his company instead, explaining that these funds would help with the payment negotiation. Betty agreed and was immediately relieved to see that the foreclosure process did not continue. However, when the process later began again, she learned that the representative filed bankruptcy in her name to delay foreclosure before disappearing with her money. By this point, Betty s servicer had already started the foreclosure process, and it was too late to negotiate a retention option. In addition to losing her home, the bankruptcy and foreclosure remained on her credit report for years. Jose. I didn t realize people were out there doing this. Elizabeth. It s unfortunate, and they re making money, because they target people in financial trouble and prey on them. If it s ok with you, we ll report this to a couple of federal agencies that track activities like this and take action when possible. Jose. Absolutely. Reporting Loan Modification Scams Elizabeth and Jose report the scammer by: 1. Calling the Homeowner s Hope Hotline at HOPE (4673). 2. Visiting 3. Calling the Federal Trade Commission (FTC) at FTC-HELP ( ). 4. Calling the state s Attorney General office. 5. Calling the HUD Office of the Inspector General Hotline at since Jose has a FHA mortgage. When they do this, they also find out the company that sent Jose the letter is already in some databases. It is good practice for counselors to help clients report scams so that action can be taken against the scammers. Page 35 of 43

36 Knowledge Check 10 Anthony received a letter regarding modifying his mortgage in the mail, and he knew it was from a scammer. To which of the following entities should he report this activity? A. Federal Trade Commission B. Homeowners Hope Hotline C. Loan Modification Scam Alert Campaign D. All of the above Knowledge Check 11 Which of the attributes below are loan modification scams and which are not? Designate answers as A if they are aspects of a scam, or B if they are not aspects of a scam. 1. Borrower receives a letter from his servicer discussing possible workout options 2. Borrower receives a call from a lending company that says they will get her a modification for $1, Loan modification company guarantees they can get a borrower a modification 4. Borrower receives letter from MHA program informing him he may qualify for refinancing 5. Borrower receives a call from a company she s never heard of about a loan modification and is asked for her Social Security number over the phone Page 36 of 43

37 Module Summary In this module, you learned to: 1. Apply knowledge of the Making Home Affordable program and options such as HAMP, HARP, and principal reduction programs, as well as state-funded and proprietary programs, when assessing a client s circumstances for foreclosure prevention options. 2. Demonstrate knowledge of the necessary forms and requirements for a mortgage lender loss mitigation package. 3. Apply knowledge of HOPE LoanPort, including how to upload a client s loss mitigation packet and track its progress. 4. Evaluate a client s information to better discuss appropriate loss mitigation options for a client whose loan is insured by FHA. 5. Apply knowledge of mortgage default scams to describe ways to avoid these scams and where to report being a scam victim. Page 37 of 43

38 Appendix Knowledge Check Answer Key 1. Correct matched items: (E) Charlotte had her first mortgage modified under HAMP and would like to modify her second mortgage: 1. Second Lien Modification Program (2MP) (C) Matt used to work ten hours of overtime a week, but his employer removed all overtime pay three months ago. He s been trying to stay current on his mortgage but is now three months behind. He would like to stay in the home but needs a lower mortgage payment based on his new income: 2. Home Affordable Modification Program (HAMP) (D) Scott lost his job four months ago and is collecting unemployment. It is not enough to pay all of his bills, and he is falling behind on his mortgage: 3. Home Affordable Unemployment Program (UP) (B) Tia has been making timely mortgage payments but is frustrated that her property value has declined. She has tried to refinance it but has been declined because she is under water. Fannie Mae owns her mortgage: 4. Home Affordable Refinance Program (HARP) (A) Maureen is employed, but her income has recently been reduced. Her home is worth much less than what she owes on her mortgage, which is not owned by Fannie Mae or Freddie Mac: 5. Principal Reduction Alternative (PRA) 2. Correct matched items: (D) Assist homeowners who are struggling to make mortgage payments, with the goal of making payments more affordable and sustainable for the long-term: 1. Home Affordable Modification Program (HAMP) (C) Assist homeowners who are current on mortgage payments but unable to secure traditional refinancing due to declining home value: 2. Home Affordable Refinance Program (HARP) (E) Work in tandem with HAMP to provide comprehensive solutions for homeowners with second mortgages to increase long-term affordability and sustainability : 3. Second Lien Modification Program (2MP) (A) Reduce mortgage payments to 31% of income or suspend them altogether for 12 months or more : 4. Home Affordable Unemployment Program (UP) (B) Encourage mortgage servicers and investors to reduce the amount the homeowner owes on the home : 5. Principal Reduction Alternative (PRA) Page 38 of 43

39 3. Correct matched items: (C) I/we am/are requesting review under MHA. I am having difficulty making my monthly payment because of financial difficulties created by: 1. Hardship Affadavit (A) Has the mortgage on your principal residence ever had a HAMP trial period plan or permanent modification?: 2. Borrower Information (D) Taxable Social Security or retirement income: 3. Income/Expenses for Household. (B) I/we certify under penalty of perjury that I/we have not been convicted within the last 10 years of any one of the following in connection with a mortgage or real estate transaction: (a) felony larceny, theft, fraud, or forgery, (b) money laundering, or (c) tax evasion: 4. Dodd-Frank Certification 4. (D) Information on amounts paid for child care This is not a required piece of financial information. Incorrect answers: (A) Two most recent bank statements, (B) Utility bill showing homeowner name and property address, and (C) Last two years of tax returns 5. (D) The counseling agency s HLP account administrator must provide access for each counselor at the agency. One person from each agency serves as its administrator and creates accounts for each counselor that should access the site. Incorrect answers: (A) Counselors can sign up for an account directly on the site Counselors cannot sign up for an account directly on the site; (B) Homeowners can sign up for an account directly on the site The site is only for authorized third parties with accounts on the site; and (C) Only counselors with certain certifications can have an account on the site There is no counselor certification requirement to gain access to the site. However, there are agency requirements for access. 6. Correct order: (B) Create the case on the New Case tab. (A) Complete entry of basic homeowner data on the Financial, Q&A and Documents navigation tabs. (C) Use the Review & Submit tab to identify if all required elements have been completed and submit the application. Page 39 of 43

40 7. (D) Servicers must update the case status every 20 days when they are in control of the process. Servicers must update the case status every 10 days. Incorrect answers: (A) When a case is open, it has its own tab at the top of every page The Case Status tab is located at the top of every page when a case is open; (B) It shows when the last update was made to the case and how long the case remained in the previous status The system does show this information; and (C) It shows who is in control of the process the servicer or the counselor The system does show this information. 8. (C) Borrower does not need to demonstrate surplus income. Borrower must show surplus income over minimum limit. Incorrect answers: (A) The loan must be at least 61 days delinquent, (B) At least one borrower has continuos income, and (D) The property must be and must remain the borrower s primary residence These are eligibility requirements. 9. Correct matched items: (B) Suspends mortgage payments or allows for partial payments while borrower is unemployed, for up to 12 months. At that time, borrower will be evaluated for applicable loss mitigation options: 1. Special Forbearance Unemployment (A) Reduces mortgage payment by the greater of $100 or 10% of the original monthly payment amount: 2. FHA Loan Modification (C) Can combine a loan modification and partial claim to bring the mortgage current: 3. FHA-HAMP 10. (D) All of the above Scams should be reported to each of these entities to ensure documentation is thorough. Incorrect answers: (A) Federal Trade Commission, (B) Homeowners Hope Hotline, (C) Loan Modification Scam Alert Campaign Scams should be reported here and other places as well. Page 40 of 43

41 11. Correct matched items: (A) Aspects of a scam Borrower receives a call from a lending company that says they will get her a modification for $1,000 Loan modification company guarantees they can get a borrower a modification (B) Not aspects of a scam Borrower receives a letter from his servicer discussing possible workout options Borrower receives letter from MHA program informing him he may qualify for refinancing Borrower receives a call from a company she s never heard of about a loan modification and is asked for her Social Security number over the phone Page 41 of 43

42 Resources FDIC Brochure on Foreclosure Rescue and Loan Modification Document Link: Home Affordable Modification Program Website Link: Hope Loan Portal Website Link: Loan Scam Alert Website Link: Making Home Affordable Website Link: Request for Mortgage Assistance Form Document Link: RMAFormRev0412.pdf Page 42 of 43

43 Sample Scammer Loan Modification Approval Form Franklin, Peavy and Associates P.O. Box 2349 Dover, DE ATTN: Jose Smith 123 Main Street Glendale, CA *** LOAN MODIFICATION APPROVAL NOTICE *** Dear Mr. Smith: Congratulations! This letter serves to notify you that your eligibility is guaranteed for a loan modification that will lower your monthly payments significantly. We look forward to discussing this generous offer with you. Current mortgage records show: Current Principal Amount: Current Interest Rate: Current Monthly Principal and Interest Payment: Current Monthly Mortgage Insurance: Current Monthly Payment: $189, % $ $68.95 $1, Call today to modify your loan into these terms: Modified Principal Amount: Modified Interest Rate: New Monthly Principal and Interest Payment: New Monthly Mortgage Insurance: Monthly Savings $189, % $ $0.00 $ Unfortunately this offer won t be available for long, as interest rates change daily. I strongly encourage you to call today to get locked-in for this modification. Then think about how you ll spend that extra $ every month! *** CALL NOW!! LOAN MODIFICATION DEPARTMENT *** Sincerely, Franklin, Peavy and Associates Page 43 of 43