Frequently Asked Questions

BACKGROUND

Forclosure Prevention / Mortgage Modification Mediation Program - Phase II

The frequently asked questions below are intended to provide general information about the Forclosure Prevention / Mortgage Modification Mediation Program and the process of using this program. They are not intended to provide legal advise in any way. All information should be verified with your own legal council before taking any action.

How does a homeowner know they want to mediate?

    The ideal situation is for the homeowner and the mortgage servicer to communicate and work out payment problems on their own, but we all know that talking to a mortgage servicer can be intimidating, overwhelming, or confusing. Foreclosure is a hard time that people are going through so they feel unsure of the process.
   In many ways, the loss of a home is like a loss in the family and people go through denial and don’t know how to deal with the situation. Or, perhaps, the homeowner does not feel like they are getting timely and accurate responses from the servicer. These are times when the homeowner should take advantage of this free program and set a mediation.

When is the best time to call a mediator?

    If you are on a rocky road because of a loss of a job, health issue, divorce, or other change in circumstances, the sooner the better.
    As a result of the housing crisis, the federal government passed Making Home Affordable legislation which includes various homeowner assistance programs for the purpose of loss mitigation. These programs like HAMP (Home Affordable Modification Program) will expire at the end of 2015 so now is the time to see if your mortgage is eligible to be modified under one of these government programs or internal programs with your servicer. The sooner you act the more available options are available to you.

What if a homeowner’s house is already set for foreclosure?

    The sooner you act the better.
    Mediation can occur any time really: Pre-foreclosure or in the middle of a court proceeding whether in the circuit court, appellate court or bankruptcy.
    On January 14, 2014, new servicing guidelines came out as a result of the major problems that were going on across the country with respect to foreclosures. An important part of these new guidelines is setting forth time lines in which both the homeowner/borrower and the servicer must act.
    So, if the foreclosure sale is more than 37 days away, then the servicers must look at your application for a mortgage modification. However, if it is less than 37 days and more than 15 days, then the rules say the servicer may review your application, but don’t have to. And, if the sale is less than 15 days away then they do not have to review it. At this point, the homeowner should have consulted with an attorney.

What if the homeowner is not in foreclosure, yet?

    This is a great window of opportunity to set a mediation.
    Between 31-48 days of your first missed payment, the homeowner should receive a First Loss Mitigation Letter. The homeowner should not ignore phone calls to let the servicer know what is going on. And, most importantly after about a month after that missed payment, the borrower should open the mail and read this Borrower Assistance package to see what is available to him.
   This is a time for mediation.
   Another big milestone is 45 days after the first missed payment. The servicer will send an Acceleration Letter. Again, another great time to ask for mediation. The big number to watch is 120 days from the first missed payment because after this, the matter can be referred to foreclosure.
   This is important. Under the new rules, if you miss a payment then your case cannot be sent to foreclosure, but on the 121st day it can. And, homeowners must also be careful about paying part of the mortgage payment. They need to check to see if that counts for stopping the time from running because for most servicers it does not.

What does a homeowner need to do to get started?

    The most important thing, and this is where the mediators are helpful, is to make sure all your paperwork/documentation has been provided to the servicers. The mediator is another set of eyes to make sure the parties are exchanging the right information to make informed decisions.
   Under the new rules, you get one shot at being considered for all the options out there so you want to make sure all your paperwork is turned in.
   Within three days of submitting your borrower assistance package, the service has to confirm receipt of it. Then within 5 days the servicer has to let the borrower know if there is any missing information. Then the borrower has 30 days to provide the missing information. It is real important to meet those deadlines.
   Then the servicer has 30 days to review your application, make a decision and notify the borrower. The borrower has 14 days to accept or reject the offer to modify if the borrower is approved. If the borrower is denied, then the borrower has 14 days to appeal if he chooses or he may have some legal remedies that a lawyer could tell him about.

Does the mediator represent the Homeowner during the mediation?

    I am so glad that you asked that.
    Remember, mediation uses a mediator that is a third party neutral. In other words, the mediator is neutral—he or she does not represent the homeowner or the servicer.
   In fact, the mediator is not allowed to give legal or financial advice at all. The mediator works with the parties to encourage discussion and help them communicate about outstanding issues, paperwork and options.

What type of options are available to the homeowner?

   What’s available depends on the individual’s situation.
   If an agreement is reached at mediation, then the homeowner gets to keep the house through refinancing, restatement/repayment (catching up) or a modification.
   For a modification, generally speaking, what the servicers are required to do is do what is referred to as a “Waterfall Analysis” to look at the options, which include the following:

1. Capitalizing arrearages
2. Reducing the interest rate, but there is a floor.
3. Extending the amortization term to 40 years
4. Principal Forbearance
5. Payments reduced to 31% of the gross income.
6. Principal reduction may also be considered.

Why would a servicer want to participate in a mortgage modification?

    That is a good question and one we get asked a lot. Several reasons, under the National Mortgage Settlement, the top servicers get credit for their participation (note: small banks with less than 5,000 loans are not required to follow the new servicing guidelines). The government is also offering incentives to servicers. And, it is the right thing to do when the borrower qualifies.    
   People staying in their homes help families, neighborhoods, counties and our overall state economy. Overall, servicers want to reduce risks/lawsuits and protect the investor’s assets (i.e. preserving property values), plus it promotes community good will.