FHA's Loss Mitigation Program - Presented by: Santa Ana HOC/Las Vegas Office Lorraine Griscavage-Frisbee

FHA’s Loss Mitigation
         Program
         Presented by:
  Lorraine Griscavage-Frisbee
Santa Ana HOC/Las Vegas Office

TOPICS
   Lender Responsibilities
   Borrower Eligibility
   Overview of FHA Loss Mitigation
    Options
   Resources
   Training opportunities

Mandatory Mortgagee
           Participation
   Lender delegated authority by FHA for
    determining borrower eligibility for LM
    program and selecting LM option
   Lenders compensated by FHA
   FHA conducts reviews of lender servicing
    and also ranks lender performances yearly
   Penalties for failure to service according to
    FHA guidelines include civil money penalties
    and loss of FHA servicing approval

Mandatory Mortgagee
          Participation
Lenders must:
  Inform/Review mortgagors on all Loss Mitigation
    options.
  Provide housing counseling information and
    HUD Pamphlet H-426, How to Avoid
    Foreclosure
  Evaluate each delinquent loan no later than 90
    days of delinquency to determine cause of
    default and eligibility for loss mitigation
    options

Mandatory Mortgagee
        Participation
Foreclosure cannot be initiated until all
 loss mitigation options have been
 evaluated
Initiate foreclosure within 6 months of
  the default date unless pursuing a loss
  mitigation option
Foreclosure can be terminated if
 borrower circumstances change and
 borrower now eligible for loss
 mitigation

Borrower Eligibility
   Documented loss of income or increase in
    living expenses that caused the default
   For owner-occupants (limited exceptions for
    rentals not to exceed 18 months)
   What are borrower’s intentions – do they
    plan to stay or sell property in immediate
    future?
   Evaluate Property Conditions – are there
    repairs needed that affect borrower’s ability
    to pay mortgage?

Borrower Financial Analysis
Basis for determining which loss
  mitigation option a borrower will qualify
  for
Lender must:
 Analyze borrower’s current income and
  expenses for at least next three months
  to determine surplus income
 Anticipate future income/expenses

 Use net income for all options except
  FHA -HAMP (gross income and ratios)

Bankruptcy

For borrowers in bankruptcy, lenders are to:
•Provide sufficient instruction to facilitate
     workout discussions
•Offer Loss Mitigation Options through
     Mortgagor’s Attorney, prior to discharge
     or dismissal
•Mortgagor without an Attorney, offer Loss
     Mitigation Options, and provide a copy to
     the Bankruptcy Trustee
                                     Mortgagee Letter 2008-32

Imminent Default

Imminent Default is defined as:
FHA Borrower is:
 Either current or less than 30 days
  past due on their mortgage, and
 Experiencing a significant reduction
  in income or some other hardship
  that will prevent them from making
  their next mortgage payment.
                           Mortgagee Letter 2010-04, page 1

Loss Mitigation Options for
        Imminent Default
Forbearance Agreement:
 Informal Agreement

 Formal Agreement

FHA- HAMP:
   Mortgagor must successfully complete a
    4 month trial modification period.
All other Loss Mitigation Options are NOT
   available for imminent default cases.

                                Mortgagee Letter 2010-04, page 2

General Program Requirements

Option Priority
    •Special Forbearance
    •Loan Modification
    •Partial Claim
    •FHA’s Home Affordable Modification
    •Preforeclosure Sale
    •Deed-In-Lieu of Foreclosure
                              Mortgagee Letters 2000-05, page 10
                              and 2009-23, page 3

FHA Loss Mitigation Stats
FY 12 national stats through July 2012
Total active loans – 7,663,329
Default Rate – 9.3%
Conveyance Rate – 1.4%
Special Forb – 22,978
Loan Modification – 62,866*
Partial Claim – 14,080*
Preforeclosure -32,731
DIL – 1609
F/C after loss mit 0.702%
*includes FHA HAMP

SPECIAL
FORBEARANCE
   OPTION

Two Types of Special
          Forbearance
   Type I – stand alone plan that may
    include suspended or reduced, and
    increased payments to bring the loan
    current
   Type II – used in combination with
    other retention options for a minimum
    3 month trial period -Trial payment
    plan

Special Forbearance
             Agreement
•   Written agreement
   Reinstates a loan that is at least 3 months
    unpaid but not more than 12 months
    delinquent PITI
   Does not change loan terms
   Provides failure options, and
   No maximum term.

                                   Mortgagee Letter 2002-17, page 5

Special Forbearance
   SF may include suspended or reduced
    payments and will have increased payments to
    bring the loan current
   Plan allows time for financial recovery
    including property repairs then increased
    payments to fully reinstate the loan
   Lender financial analysis determines borrower
    can make increased payments in the future
    sufficient to cure delinquency

Special Forbearance

 May allow reasonable foreclosure
  costs and late fees to be included in
  the plan
 Repayment period of at least 6 months
  with minimum duration of 4 months for
  increased payments
 No maximum time limit for plan set by
  FHA
 No late fees assessed during SFB

Special Forbearance
              Unemployment
The mortgagor whose cause of default is
unemployment and who has no prospects of
employment may be offered a special forbearnce
that includes provisions:
Make partial payments, if financially able
Agree to actively seek employment
Immediately notify mortgagee when
      employment status changes

                               Mortgagee Letter 2002-17, page.3

Special Forbearance
       Unemployment
 Minimum time for Special Provision
  Type I is 12 months per Mortgagee
  Letter 2011-13; this 12 month
  timeframe expires August 2, 2013
  and will return to 4 months minimum
 Maximum 12 month PITI delinquency
  still applies

LOAN
MODIFICATION
  OPTION

Loan Modification

A permanent change in the terms of a
Mortgagor’s loan
Interest Rate shall be reduced to market rate
Loan Term extended to 360 months
Capitalization of delinquent PITI
Legal fees and related foreclosure costs may
     be capitalized
Allows a loan to be reinstated and results in a
     payment the mortgagor can afford

Loan Modification Requirements

   Three (3) payments due and unpaid (61
        days delinquent)
   Minimum of 12 months elapsed since loan
        origination date
   If an Adjustable Rate Mortgage, the loan
        must be converted to fixed interest rate
   Loan may not be in foreclosure when
        modification executed
   No appraisal or broker price opinion
        required                   Mortgagee Letter 2000-05, page 19-20

Loan Modification
       Mortgagor Qualifications

Stabilized surplus income sufficient to
    support the modified mortgage
Owner-occupant, committed to
   occupying property as primary
   residence
Does not have another FHA-insured
    mortgage

                             Mortgagee Letter 2000-05, page 20

Trial Payment Plan Guidelines
         (ML 2011-28)
   Trial Payment Plan period is 3 months
   Three full consecutive monthly payments
    must be made
   The rate for the trial payment plan and the
    permanent modified mortgage must be in
    compliance with Mortgagee Letter 2009-35
   Final payment must be the same or less
    than the Trial Payment Plan amount
   Escrow Analysis must be completed to
    avoid another payment
                     FHA - Serving
                       American
                                   increase
                  Homebuyers Since
                       1934

PARTIAL CLAIM
   OPTION

Partial Claim
 Lender advances funds on behalf of a
     mortgagor in the amount necessary to
     reinstate the delinquent loan
 A promissory note and subordinate
     mortgage to cover the advance is
     issued in the name of the Secretary of
     HUD
 Partial claim bears no interest; due and
     payable when FHA first paid off or
     property title transferred
                                  Mortgagee Letter 2003-19, page 1

Partial Claim Requirements
   Mortgagor has the long-term financial
    stability to support the current mortgage
    payment
   Financial analysis indicates surplus net
    income
   Mortgagor does not have the ability to
    repay the arrearage through a Special
    Forbearance and Loan Modification will
    not result in a lower payment
                                   Mortgagee Letter 2003-19, page 2

Partial Claim
            Requirements
Loan must be 4 monthly payments due and
    unpaid
Total delinquency may not exceed 12
    months PITI for the life of the FHA loan
Loan may not be in foreclosure at time
    Partial Claim note is executed

                                 Mortgagee Letter 2003-19, page 2

Partial Claim

   Legal fees and related foreclosure costs
       may be included in partial claim
   Cannot include late charges in the
       partial claim
   Lien Status - There is no lien priority
    requirement. The mortgagee must
    ensure that recordation of the
    subordinate mortgage does not
    jeopardize the first lien status of the FHA
    insured mortgage

Trial Payment Plan Guidelines
         (ML 2011-28)
   Trial Payment Plan period is 3 months
   Three full consecutive monthly payments
    must be made
   Monthly payment is to be the same as
    the regularly scheduled payment
   Escrow Analysis must be completed to
    avoid another payment increase

                    FHA - Serving
                     American
                  Homebuyers Since
                       1934

Making Home Affordable
   Program: FHA’s Home
Affordable Modification Loss
      Mitigation Option

FHA-HAMP
   Program utilizes combination of a partial claim
    and loan modification to create a mortgage
    payment of no more than 31% of the borrower’s
    gross income.
   Eligible FHA Mortgagors are those that are:
          Facing Imminent Default (requires 4 month
           trial period)
          Currently in Default and not eligible for any
           other FHA loss mitigation option (requires 3
           month trial period)        Mortgagee Letter 2009-23 pages 1 and 2,
                                                   and 2010-04

FHA-HAMP Debt to Income Ratios

Front-End Ratio – The modified total
 first mortgage payment (PITI) divided
 by the Mortgagor’s gross monthly
 income, shall be 31%.

Back-End Ratio – The modified total
 first mortgage payment plus all
 recurring monthly debt divided by the
 Mortgagor’s gross monthly income,
 shall not exceed 55%.     Mortgagee Letter 2009-23, page 2

FHA-HAMP
FHA-HAMP loan modification follows
  similar guidelines to regular FHA
  modification including:
 30 year amortization

 Fixed interest rate at current market
  rate
 Difference – reduction in unpaid
  principal balance through partial claim

FHA-HAMP
Partial Claim includes:
 Arrearages of up to 12 months Principal,
  Interest, Taxes, and Insurance (PITI)*
 Legal fees and costs related to a canceled
  foreclosure action
 Deferred principal

Total of all three cannot exceed 30 percent of
  the unpaid principal balance as of the
  default date. Deferred principal amount
  also limited only to what is necessary to
  reach 31% of gross income.

Borrower Qualifications
   Mortgagor(s) must be an owner
    occupant and have sufficient income to
    make the modified mortgage payment.
   No minimum credit score is required.
   Mortgage must be in danger of imminent
    default OR in default and not more than
    12 full mortgage payments past due.
   Mortgagor(s) must not have intentionally
    defaulted on mortgage - submits
    hardship affidavit.      Mortgagee Letter 2009-23, Attachment Page 1,

OTHER REQUIREMENTS
   There are no LTV requirements.
   FHA-HAMP mortgages are made without an
    appraisal and are required to have a lower
    monthly principal and interest payment than
    borrower’s current payment.
   No NPV test or requirement under FHA-HAMP.
   All existing subordinate financing must be
    subordinated to maintain the first lien priority
    of the HAMP mortgage.

                                 Mortgagee Letter 2009-23, Attachment,
                                 page 1 and 2009-35, page 2

OTHER REQUIREMENTS
   The first payment due date must be at least 12
    months in the past, and at least 4 full mortgage
    payments must have been made.
   Mortgagor must be under a trial modification
    payment plan (3 or 4 months payments) at the
    modified payment prior to completing the FHA-
    HAMP and must make timely payments before
    the Partial Claim is filed.

                                     Mortgagee Letter 2009-23, Attachment
                                     page 2 and 2010-04 page 2

Borrower Financial Analysis
   The Mortgagor’s Monthly Gross Income is the
    amount before any payroll deductions.
   Unemployment can be used only if borrower
    will receive 12 months unemployment benefits.
   Front-End Ratio must be 31%.
   The Back-End Ratio is must not exceed 55%.
   Lender will obtain credit report at no charge
    to borrower to verify debts.
   Lender may request any additional information
    necessary to verify income and expenses.
                               Mortgagee Letter 2009-23, Attachment, pages 3 and 4

Calculation of Maximum
       Partial Claim - Example
   Unpaid Principal Balance = $150,000
   Current Monthly Payment (PITI) = $1,220 (P&I =
    $920 + TI and MIP= $300)
   Current Other Recurring Debt = $800
   Gross Monthly Income = $3,500
   Number of Payments Past Due = 3
   Total Arrearage = $3,660
   Prior Partial Claim of 4 months = $4,880

                                        Mortgagee Letter 2009-23, page 2

Calculation of Maximum
 Partial Claim – Example - Continued
1. New Maximum Monthly PITI = $3,500 x 31%
   = $1,085 (Front Ratio)
2. New P&I = $1,085 (Max PITI) - $300 (T&I) =
   $785
 New Mortgage Term = 360 months

 New Interest Rate = 6% (fixed rate)

3. Calculated New Principal Balance =
   $130,931 based on PI of $785, 360 months
   and 6% fixed interest
                                 Mortgagee Letter 2009-23, page 2

Principal Reduction and
              Total Partial Claim
4.   Principal Reduction = $150,000 - $130,931=
     $19,069
5.   Total Partial Claim = $19,069 principal deferment
     + $3,660 arrearage + $4,880 previous partial
     claim= $27,609
6.   Maximum Partial Claim = $150,000 x 30% =
     $45,000 so $27,609 ok
7.   Mortgagor’s New Back End Ratio is 53.9% [Sum
     of PITI + Other Recurring Monthly Debt ($1,085 +
     $800) divided by $3,500 Gross Monthly Income]

                                        Mortgagee Letter 2009-23, page 2

OPTION FAILURE
   Borrowers that fail to make their trial payments
    in a timely manner are no longer eligible for
    future FHA-HAMP consideration.
   Mortgages previously modified under HAMP are
    ineligible for any future HAMP modifications.
   Borrowers may be evaluated for other loss
    mitigation options for future defaults.

Preforeclosure Sale
     Program

Preforeclosure Sale Program
 Allows Mortgagor in default to sell
 the property and use the sale
 proceeds to satisfy the mortgage
 debt, even if the proceeds are less
 than the amount owed
 Borrower must verify loss of income
 or increase in living expenses
 Borrower compensated $750 -$1000
                          Mortgagee Letter 2008-43, page 5

Preforeclosure Sale
            Program
PFS is unavailable if a property has been
     abandoned or Mortgagor has ability to pay
     the debt
The PFS must be an outright sale of the
     property; 3rd party transaction; must use
     real estate professional
Lender approval to participate required
No deficiency judgment

                                Mortgagee Letter 2008-43, page 5

DEED-IN-LIEU
OF FORECLOSURE

Deed-in-Lieu of Foreclosure
 The mortgagor voluntarily deeds collateral
  property to HUD in exchange for a release
  from all obligations under the mortgage

 FHA first mortgage must be only lien on
  property or junior lien holder release their
  liens

 Borrower compensated up to $2000
                                 Mortgagee Letter 2000-05, page 35

Summary

   Borrowers more than 12 months
    delinquent will only be eligible for loan
    modification retention option unless
    they offer funds to reduce the
    outstanding delinquency
   All borrowers must demonstrate
    increase in living expenses or
    decrease in income to qualify for any
    option

Resources
National Servicing Center
1-877-622-8525
National Servicing Center link –
http://portal.hud.gov/hudportal/HUD?src
=/program_offices/housing/sfh/nsc/nsch
ome

Free FHA Loss Mit Training
Free FHA loss mitigation class on line – go
  to https://eclass.hud-nsctraining.com
Classroom training:
August 29, 2012 - York, PA
September 10-11, 2012 Fresno, CA
September 13, 2012 - Las Vegas, NV
September 20, 2012 - Phoenix, AZ
Register through eclass

HUD Contact Information

    Lorraine Griscavage-Frisbee
            702-366-2160
lorraine.griscavagefrisbee@hud.gov