New Mortgage Rules Are On the Way

New Mortgage Servicing Guidelines Will Affect Everyone

One of the biggest changes to the financial landscape in our country was the recent creation of the Consumer Financial Protection Bureau (CFPB – online at www.consumerfinance.gov). New CFPB regulations will take effect in January 2014 that will affect how mortgage servicing companies interact with you, the property owner with a mortgage. In advance of those regulations taking effect, Fannie Mae and Freddie Mac, the two semi-government agencies that underwrite most of the mortgage market, have updated their loan servicing guidelines. Those guidelines are followed by all mortgage servicing agents, and if you have a government-insured mortgage, you are affected by these changes. Here are some of the more important provisions:

·  Continuity of Contact. In our firm we see dozens of cases where borrowers who could benefit from a loan workout are given an endless runaround by the servicer. It is common to get a new representative on every phone call, and of course each rep is never able to locate documents sent to the last one. Now there will be a requirement that the servicer develop systems that allow a borrower to have one constant point of contact, and that point of contact must be able to provide accurate information to the borrower.

·   Initiating Foreclosure. The new rules will prohibit a servicer from even mentioning foreclosure until a borrower is at least 121 days delinquent. At the 121-day point the servicer has five business days to refer a loan to its attorneys for foreclosure action.

·     Borrower Response Package. A borrower must be given an opportunity to submit a complete “Borrower Response Package”, and must give the borrower written confirmation of its receipt. Verbal confirmation will no longer be sufficient. The Borrower Response Package will be a set of official forms used all across the country. If the borrower provides this package early enough, and if it is complete, the servicer must delay taking foreclosure action.

·   Loan Modification Denial. Nothing can guarantee that your servicer will grant you a loan modification, but there are Federal and State laws that require your servicer to consider your request in good faith. If your modification request is denied, the servicer must tell you why, in writing. You then have the right to appeal the denial within 14 days. If you appeal, the servicer has 30 days to respond. In addition, no one who was involved in the original decision to deny your loan modification can be involved in the appeal.

If you would like to read about the changes on your own, you can download Fannie Mae’s Servicing Guide Announcement SVC-2013-20.

Bankruptcy Basics

Bankruptcy Can Give You a Fresh Start. Some basic facts:

·     You can choose which type of bankruptcy is best for you. The three main types:

o   Chapter 7: A trustee is appointed to take over your property, which can be sold to pay creditors. You can keep some personal items and maybe some real estate. You must pass a “means test” to verify that you really cannot afford to pay your creditors.

o   Chapter 13: You can usually keep all you rproperty, but you must have wages or other regular income, and you must agree to pay part of your income to creditors over time. The court must approve your repayment plan. A court-appointed trustee will collect the payments and monitor your plan.

o   Chapter 11: Mostly used by businesses (small or large), this option lets you continue to run your business. There is no trustee unless the court decides that one is necessary.

·     Your bankruptcy can appear on your credit report as long as ten years. This can affect your ability to get mortgages or other credit.

·     A bankruptcy discharge officially states that you do not have to pay most of your debts. Some debts generally cannot be discharged, such as many taxes, child support, alimony, student loans and court fines.

·     A bankruptcy discharge only covers debts from before you filed your petition, and only includes debts you included in your petition.

·     A judge can deny your discharge if your petition is incomplete, contains false information, or if you hide property.

·     You can receive a Chapter 7 discharge once every eight years.

·     Some debts are secured by property, such a mortgage or a car loan. You do not have to repay a secured debt after discharge, but the creditor can still take the property from you.

·     Even if you can discharge a debt, you may want to promise to pay it even after discharge. An example might be a car loan you agree to keep paying because you want to keep your car. You do this with a “Reaffirmation Agreement”, which must follow special rules.

·     If your bankruptcy petition and supporting schedules are true, accurate and complete, and you have all necessary backup documentation, you generally are only required to appear at a trustee’s meeting once in a Chapter 7 case, and you usually will never even see the judge.