Module 5 Flashcards
negative amortization
an increase in the principal balance of a loan caused by monthly payments that do not cover the interest due
the unpaid interest is added to the unpaid principal balance, causing the loan to grow over time
can occur when an ARM has a payment cap that results in monthly payments that are not high enough to cover the interest due
subprime lending
loans to borrowers with poor credit
typically charge higher interest rates to insure against losses
teaser rates
an initial temporary interest rate on an adjustable-rate mortgage that results in lower mortgage payments
to attract borrowers, the rate is typically lower than the market rate, but only remains in effect for a short period of time before increasing, which in turn increases mortgage payments
can be a sign of predatory lending
Consumer Finance Protection Bureau
- est by Congress as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act
- protects consumers by carrying out federal consumer financial laws
- supervises companies and restricts unfair, deceptive, or abusive acts or practices
- takes consumer complaints
- promotes financial education
- monitors financial markets for new risks to consumers
dual tracking
a process that occurs when the servicer moves forward with foreclosure while simultaneously working with the borrower to avoid foreclosure
restricted by the CFPB mortgage servicing regulations
Hardest Hit Fund (HHF)
- est by the Department of Treasury in Feb. 2010
- provides $7.6 billion to District of Columbia and 18 states hardest hit by the foreclosure crisis to develop locally-tailored programs to assist struggling homeowners in their communities
- designed and administered by each state’s Housing Finance Agency (HFA). Most aimed at helping unemployed homeowners remain in their homes while they search for new employment and those who owe more on their mortgages than their homes are worth
- have until the end of 2020 to utilize funds allocated under HHF
Making Home Affordable Program (MHA)
- created in 2009 by Treasury and HUD to help homeowners avoid foreclosure, stabilize the country’s housing market, and improve the nation’s economy
- standardized process for requesting mortgage assistance for the unemployed, and financial assistance to transition out of the home when necessary
- most programs under MHA expired in 2016; however, counselors may have clients with modifications whose payment amounts will increase after five years
robo-signing
the process in which important documents that require careful review are signed automatically, like a robot, by someone who does not follow appropriate procedures or verify information
a common practice in the foreclosure crisis
Servicemembers Civil Relief Act
an act that protects military personnel and their dependents in issues related to housing, including certain protections against default judgments, foreclosure, and eviction
delinquent in mortgage payments
the failure of a borrower to make timely mortgage payments under a loan agreement
most mortgages allow for a grace period, generally 10-15 days, before a late fee may be assessed
default in mortgage payments
the inability to make timely payments or fulfill legal obligations of loan terms
mortgage loans are typically considered in default when a payment has not been made after 60-90 days
foreclosure timeline restrictions
servicers cannot make a first notice or filing for foreclosure until the borrower is more than 120 days delinquent
after 120 days, servicers cannot begin the foreclosure process while a borrower is being evaluated for a loss mitigation plan - for completed loss mitigation applications, additional restrictions and timelines apply for required evaluation and appeal periods
servicer evaluations and explanations
servicers must be able to tell homeowners the circumstances under which the servicer may make a referral to foreclosure
servicers are required to evaluate the borrower for all the foreclosure avoidance options for which the borrower may qualify, though they are not required to offer any specific loss mitigation options
servicers must give specific reasons for denying a loan modification option
court involvement in judicial foreclosure vs non judicial foreclosure
in a judicial foreclosure: it is a lawsuit, so the process is formalized. To obtain permission to foreclose, the servicer files a lawsuit in state court. Many servicers will issue homeowners a notice of intent to foreclose prior to filing.
In a non-judicial foreclosure: courts are not involved; communication occurs between the homeowner and the servicer or the servicer’s appointed representative in the foreclosure process
notice in judicial foreclosure vs non-judicial foreclosure
judicial: the servicer issues the homeowners a notice of the lawsuit via a summons or complaint - the time frame for response varies, but homeowner can choose to contest the foreclosure or let it proceed
non-judicial: in most states, servicer issues a Notice of Default (NOD) - though the timeline on this notice previously varied among states, CFPB guidelines specify that this notice can only take place after 120 days of delinquency
resolving the issue in judicial foreclosure vs non-judicial foreclosure
judicial: a court date is set to present arguments - judge may order a trial, and the servicer cannot take action regarding the foreclosure until the judge rules
non-judicial: if delinquency is not cured, the homeowner gives Notice of Sale (NOS) typically 90 days after the NOD. NOS typically gives homeowner a certain number of days before house will be sold, which varies by state. Homeowner typically has 5-10 days before the sale date to cure the delinquency (i.e., pay all past due amounts, including arrearages, fees, and interest accrued)
how to cure at the last minute in judicial vs non-judicial foreclosure
judicial: if the judge issues a judgment allowing the foreclosure to go forward, the homeowner may still have 30 days to cure the delinquency in many states
non-judicial: once the period for reinstatement has ended, the servicer can schedule the sale. Very rarely will a servicer stop a foreclosure sale at this point
result of no cure in judicial and non-judicial foreclosure
if not cured, an auction sale is scheduled
the ownership transfers to the servicer by lack of sale if the house is not sold at auction
at that point, the homeowner can be evicted following state regulations
loan acceleration
the process of accelerating the payment of the full loan balance
once a homeowner is in default for a certain period of time, a clause in many promissory notes allows the lenders to demand immediate payment of the remaining loan balance
conventional mortgage
a private sector loan typically issued to borrowers with high credit ratings
excludes subprime loans or mortgages insured by the US government
GSE loan or mortgage
a government-sponsored enterprise, or GSE, is a financial services entity created by Congress
a GSE loan or mortgage refers to a mortgage owned by Fannie Mae or Freddie Mac
loss mitigation submission process (8 steps)
- determine reason client is behind on mortgage payments
- determine if homeowner wants to remain in the home (retention) or transition out of the home
- determine the type of mortgage (e.g., conventional, FHA, VA, or USDA; if it is owned by Fannie Mae or Freddie Mac) to determine options and processes available through the servicer
- gather required financial documentation and determine affordability
- complete the necessary forms to request the loss mitigation option
- submit the request to the servicer
- respond to additional requests for information
- if request is approved, discuss if it is affordable - if it is denied, determine why - escalate, if necessary
imminent default
when default is reasonably foreseeable
typically applies to borrowers who are either current or less than 60 days delinquent
with FHA mortgages, borrowers facing imminent default are defined as those who are current or less than 30 days past due on the mortgage obligation and are experiencing a hardship that prevents them from making the next payment
surplus income
the amount of income left over after all financial obligations are met
calculated by subtracting expenses from net income
emergency budget
a household budget created to increase savings, reduce expenses, and/or pay down debt in financial emergency situations
possible indicators a client will not be able to remain in their home after foreclosure
- temporary or permanent disability of the homeowner, which prevents them from working
- illness or disability of a family member, which requires the homeowner to stop working to care for him/her
- drastic reduction in income, which will not be overcome
- job transfer at a time when the homeowner cannot sell the home because they owe more than it is worth
- death of an income-earning borrower
- divorce or separation
Home Affordable Modification Program (HAMP) - purpose
to assist homeowners who are struggling to make mortgage payments
