Tag Archives: national mortgage settlement

The National Mortgage Settlement and Lien Strip Poker

poker chipsASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon, 

I am in Chapter 13 bankruptcy with a confirmed plan, and I did a lien strip to remove my second mortgage (it is a second deed of trust with Bank of America). I just got a letter from BofA saying they are forgiving my second mortgage, they will send documents showing the loan is forgiven, and there is more nothing I need to do. My bankruptcy lawyer says that I’m not supposed to get the lien strip until I complete my five year Chapter 13 plan and get a discharge, and that therefore I must finish my Chapter 13 case in order to gain the benefit of the lien strip.  Is the bank writing this off now rather than waiting the five years? 

I just want to get a second opinion because it’s confusing.  

Thanks, 

Molly

Why BofA Forgave Your Loan

Good Golly Miss Molly!

You’ve lucked out. And I get to answer a fun question.

Of course, I have not seen the actual letter you received. However, it sounds exactly like letters many of my own clients have received. If it is, your second mortgage lender has indeed decided to give up now, instead of waiting the five years. Assuming I’m right, I’ll explain why this happened. I’ll also explain where it puts you. (But you should still take all the paperwork to a lawyer who is familiar with this.)

The National Mortgage Settlement: Banks Must Pay Owe $10 Billion for Mortgage Reduction

The Bank of America, along with Ally, Wells Fargo and several other banks are parties to the National Mortgage Settlement (NMS), a legal settlement requiring them to forgive a certain amount of home mortgage debt, including second mortgages. The settlement allows the banks to decide which loans to forgive, but the loans must total $10 billion. (You can learn more about the NMS at http://nationalmortgagesettlement.com/.)

Think about this settlement as if it were a debt that the banks owe to the public. They pay the debt by forgiving loans totaling $10 billion. After they do that, the debt is paid. Sounds like a good deal for consumers, doesn’t it?

Did Government Lawyers Get a Good Deal for Homeowners?

In agreeing to this settlement, the banks (but maybe not the government) realized that they could get full credit towards paying the $10 billion they owed by forgiving loans that were uncollectable anyway. Think about your loan. You’re not making payments on your loan. Throughyour bankruptcy, you are on track to discharge your personal liability for the loan. And your loan is already subject to a lien strip order. From the bank’s point of view, their chances of collecting money on your loan are slim to none.

Forgiving an uncollectable loan, just like yours is, makes good sense for the banks. It is similar to you giving a bag of old clothes to charity and getting a tax deduction for worthless stuff you were about to put in the trash.

If You Were a Bank, Which Loans Would You Forgive?

You would certainly keep loans that customers pay on time. That improves your balance sheet and keeps the bank healthy.

Because you must forgive some loans, you would probably choose loans that are in default. Even better, you would look for defaulted loans that are already involved in bankruptcy with a lien strip.

Small wonder why the bank picked your loan to forgive. For them, using your loan to pay off a bet was like drawing four aces in poker. Forgiving your loan (and the loans of others) makes the public think they are swell guys, but in your case (and many others), it doesn’t really cost them anything. They weren’t going to get paid on that bag of old loans anyway. But forgiving uncollectable loans pays off the settlement.

All in all, your bank is likely very happy with this deal. It gets to pay the settlement with a big bag of trash, instead of paying with real money. It also gets a tax deduction, just like you do for donating a bag of old clothes.

Here’s Where This Leaves You

Do you still need your Chapter 13 bankruptcy?  If the only reason you filed for Chapter 13 bankruptcy was to strip off your second mortgage, then perhaps you can dismiss the case and get out of bankruptcy right now. (But don’t do that until the lender records a full reconveyance of the deed of trust and a bankruptcy lawyer gives you the OK to dismiss.)

If you still have other debts to discharge, you may be able to convert your Chapter 13 to a Chapter 7 case.

A good reason to stay in your Chapter 13 is to cure arrearages that you might owe on your first mortgage. The forgiveness of your second mortgage does not alter what you owe on your first mortgage. Your Chapter 13 bankruptcy might also be managing debts that are nondischargeable, like taxes.

A knowledgeable bankruptcy expert can guide you on making the best choices.

– Leon

Leon Bayer is a Los Angeles bankruptcy attorney.  He is a partner at Bayer, Wishman & Leotta, a California law firm specializing in bankruptcy.  The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo.  By answering a question on this blog, Mr. Bayer does not become your lawyer.

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Big Banks Find a Way Around the National Mortgage Settlement

Bank SignThe National Mortgage Settlement was supposed to hold five major banks (Ally, Bank of America, Citi, JPMorgan Chase, and Wells Fargo) accountable for the servicing violations that contributed to the foreclosure crisis in this county. (Learn more in Nolo’s article National Mortgage Settlement: Can You Benefit?)

However, not only has servicing misconduct continued to occur (see Nolo’s article Making Sure Banks Comply With the National Mortgage Settlement), but the banks have found a way to avoid complying with the settlement altogether –- by selling off their servicing rights.

What is a Mortgage Servicer?

Mortgage servicers collect and process payments, as well as handle foreclosures when borrowers can’t make their payments. The five banks that are part of the National Mortgage Settlement are the country’s five largest mortgage servicers.

Servicing Reforms Under the National Mortgage Settlement

The National Mortgage Settlement mandated specific standards for mortgage servicers to follow, like prohibiting dual tracking (when a mortgage holder continues to foreclose on a homeowner’s home while simultaneously considering the homeowner’s application for a loan modification) and providing a single point of contact for borrowers in the loss mitigation process. (Learn more about the servicing requirements that the banks must follow when servicing loans and dealing with homeowners in foreclosure in Nolo’s article National Mortgage Settlement: New Rules Help Protect Homeowners in Foreclosure.)

Banks Selling Off Servicing Rights to Avoid Settlement Obligations

It seems that these banks have come up a way to avoid the obligations imposed by the settlement: by selling the mortgage-servicing rights to servicing firms like Green Tree, Nationstar, and Ocwen. By selling the servicing rights, the banks can bypass the settlement standards, along with the costs and efforts associated with ensuring compliance with them.

What This Means for You

This means that if you were counting on the National Mortgage Settlement to ensure you receive fair, honest treatment from your bank during the foreclosure or loss mitigation process, instead you may have to deal with a company that is not bound by the terms of that settlement.

The good news is the new servicing rules imposed by the Consumer Financial Protection Bureau (which are similar to the rules mandated by the National Mortgage Settlement) apply to all servicers, not just big banks. Those rules go into effect on January 10, 2014. And a few states, like California, have enacted legislation with reforms similar to those in the National Mortgage Settlement that apply to all mortgage servicers as well. (Learn more in Nolo’s articles New Federal Rules Protecting Homeowners With Mortgages and New Laws Prohibiting Dual Tracking in the Foreclosure Context.)

by Guest Blogger & Nolo Contributing Editor Amy Loftsgordon

National Mortgage Settlement Payments Begin Today

Bank checkBorrowers who lost their homes to foreclosure at the height of the mortgage crisis and submitted a valid payment claim form through the National Mortgage Settlement will receive a check this month for approximately $1,480. This exceeds the minimum payment of $840 that was indicated on the claim form.

Checks go out beginning today, June 10, 2013, and will be completed by June 17, 2013.

Who Will Get Checks?

Eligible borrowers had their mortgage serviced by one of the settlement’s five participating mortgage servicers (Ally/GMAC, Bank of America, Citi, JPMorgan Chase, and Wells Fargo), lost their home to foreclosure between January 1, 2008 and December 31, 2011, and submitted a valid claim. (To learn more, see National Mortgage Settlement: Can You Benefit.)

How Much Will You Get?

The payment amount is uniform for all eligible claimants throughout the country, however a few borrowers will not receive a check in the initial mailing or will receive a split payment in the following circumstances:

  • If you are divorced or separated from a co-borrower and no longer live at the same address, you will receive a check for less than $1,480. The payment will be split evenly between the borrowers.
  • If you submitted a claim form, but do not have a valid Social Security number on file, payment will be delayed while tax-related issues are addressed.
  • Two mortgage servicers recently provided information on an additional 31,000 borrowers, and as a result, they were unable to be included in this distribution. These consumers will receive a notice and have the opportunity to submit a payment application later this summer.

Every borrower who filed a claim will receive a letter regarding their outcome. If you have a question about your claim or payment, call the settlement administrator, Rust Consulting, at 866-430-8358. The deadline to file a claim was January 18, 2013.

Keep in mind that the National Mortgage Settlement and Independent Foreclosure Review (IFR) settlement are different, though Rust Consulting is the administrator for both settlements. IFR payments began in mid-April of 2013 and the final payments will be sent in mid-July. For more information on the IFR settlement, go to www.OCC.gov and click on “Independent Foreclosure Review.”

by Guest Blogger Amy Loftsgordon

States Use Mortgage Settlement Money to Make Up Budget Shortfalls

Remember that $25 billion settlement between 49 states and the five largest mortgage servicers that federal and state governments crowed about as a historic success? According to a New York Times article, about 15 of these states have quietly announced that they plan to use the cash they’re receiving from the mortgage servicers–$2.5 billion intended to fund programs to prevent foreclosure, investigate allegations of financial fraud, and help homeowners in financial distress–to pay their debts and make up budget shortfalls. States intending to divert settlement funds for their general budget include California, Texas, Missouri, Indiana, Virginia, and Georgia. Meanwhile, 27 states have vowed to devote all of their share of the settlement payout to fund housing programs.

To find out what your state intends to do with its portion of the $2.5 billion cash settlement, read the report by Enterprise Community Partners, an affordable housing advocacy group.

Don’t Fall Prey to Mortgage Settlement Scams

As soon as the historic $25 billion National Mortgage Settlement was announced, scammers came out of the woodwork to prey on desperate homeowners.

Attorneys general in a number of states, including California, Virginia, and Maryland, have issued warnings to homeowners to avoid mortgage settlement scammers. The warnings advise homeowners to be wary of the following:

  • Websites containing the words “mortgage settlement.” To get trustworthy information on the mortgage settlement, go to the National Mortgage Settlement website created by the attorneys general who negotiated the settlement.
  • Requests for an up-front fee in return for a quick settlement payout. Homeowners are not required to pay any sort of fee to receive aid through the National Mortgage Settlement.
  • Third-party phone calls. If you are eligible for help through the settlement, your bank will contact you. If you’re afraid your bank won’t be able to find you, contact your bank directly.
  • Requests for personal financial information. Some scams involve phone calls or emails, where the scammer asks the homeowner for bank account numbers and promises to deposit the settlement money directly into those accounts. You should never give your bank account number or or other personal financial information to anyone over the telephone or email. If you’re unsure whether the call or email is from your loan servicer, contact your servicer directly.

If you believe you were contacted by a mortgage settlement scammer, contact your state attorney general’s office. Contact information for the attorneys general who signed off on the settlement can be found on the National Mortgage Settlement website.

Mortgage Servicers, States, and Fed Agree to Historic $25 Billion Settlement

Federal agencies and state attorneys general recently announced that the five largest mortgage servicers have agreed to pay up to $25 billion to settle legal claims related to wrongdoing during the foreclosure crisis. The participating mortgage servicers include Bank of America, JPMorgan Chase, Wells Fargo, Citigroup, and Ally Financial. If additional mortgage servicers join in the settlement, the total amount of the settlement could reach $30 billion or even $45 billion.

Where will the settlement money go?

It’s estimated that up to two million former and current homeowners will receive some form of help under the terms of the settlement. The settlement money will be allocated as follows:

  • $10 billion to principal reduction
  • $3 billion to underwater mortgage refinancing
  • $7 billion for other mortgage relief, such as forbearance
  • $1.5 billion for cash payments of $2,000 to an estimated 750,000 borrowers who lost their homes to foreclosure from January 2008 through the end of 2011, and
  • $5 billion to participating states and the federal government.

The money will be distributed over the next three years, but incentives are in place to encourage the banks to distribute the money in the next 12 months and to help those homeowners who are in most need of relief.

Who gets the money?

It’s still unclear who exactly will be eligible for help under the terms of the settlement. But some classes of borrowers will clearly not benefit, including the following:

  • Borrowers whose loans are not serviced by the participating mortgage servicers
  • Homeowners in Oklahoma (Oklahoma is the only state that has not agreed to sign off on the settlement), and
  • Borrowers whose loans are owned by Fannie Mae or Freddie Mac. (To find out whether your loan is owned by Fannie Mae or Freddie Mac, use the loan look-up tools on their websites at www.fanniemae.com/loanlookup and www.freddiemac.com/mymortgage.)

The mortgage servicers participating in the settlement will determine which borrowers are eligible for relief over the next six to nine months. If you think you might be eligible, you may want to contact your servicer directly.

What do the mortgage servicers get in return?

In exchange for their settlement payment, the mortgage servicers will no longer be subject to state and federal civil lawsuits for wrongdoing related to the foreclosure crisis, including robo-signing, the charging of excessive late fees, and the wrongful denial of loan modification applications. However, banks may still be subject to criminal prosecutions and private lawsuits.

For more information on the mortgage settlement, visit www.nationalmortgagesettlement.com.