Forbearance on your mortgage

On April 27, 2020, the Federal Housing Finance Administration (FHFA) clarified misinformation that servicers and lending institutions have provided to homeowners. The FHFA clarification will only apply to mortgages that are owned by Fannie-Mae or Freddie-Mac. Specifically, you will not have to make a lump sum payment at the end of any forbearance for loans owned by Fannie-Mae or Freddie-Mac. Click here to learn if Fannie-Mae owns your mortgage, or click here to see if Freddie-Mac owns your mortgage. Check both sites.

If Freddie or Fannie owns your mortgage, then you are entitled to a six-month forbearance

If Freddie or Fannie owns your mortgage, then you are entitled to a six-month forbearance on your mortgage. To qualify, (1) you request a forbearance from your servicer, AND (2) certify that you are experiencing economic hardship resulting from the Covid-19 Pandemic. Sec. 4022. Foreclosure Moratorium And Consumer Right To Request Forbearance. At the end of the six months, the homeowner can request an additional six-months.

Sec. 4022(c) states:

(c) REQUIREMENTS FOR SERVICERS.—
(1) IN GENERAL.—Upon receiving a request for forbearance from a borrower under subsection (b), the servicer shall with no additional documentation required other than the borrower’s attestation to a financial hardship caused by the COVID–19 [H. R. 748—211] emergency and with no fees, penalties, or interest (beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full under the terms of the mortgage contract) charged to the borrower in connection with the forbearance, provide the forbearance for up to 180 days, which may be extended for an additional period of up to 180 days at the request of the borrower, provided that, the borrower’s request for an extension is made during the covered period, and, at the borrower’s request, either the initial or extended period of forbearance may be shortened.

At the end of the forbearance, the borrower has the following options:

• Set up a repayment plan;
• Modify the loan, so the borrower’s payments are added to the end of the mortgage; or
• Set up a modification that reduces the borrower’s monthly mortgage payment.

On April 20, 2020, I wrote a blog titled “Should I Agree to a Forbearance Agreement?” Click here for a link to that blog. The Should I Agree blog gave an example of a Select Portfolio Servicing (SPS) agreement. SPS sent the forbearance agreement to a customer. The forbearance agreement trapped the customer into agreeing to items to which the customer was entitled by law. In addition, the forbearance agreement attempted to have her waive safeguards guaranteed by law.

I do have one caveat

The FHFA explanation clarifies the misinformation given by servicers and banks. However, the modification option adding missed payments to the back of the loan will probably raise additional issues.

I do have one caveat. A friend searched their servicer’s website attempting to secure a forbearance as Freddie owned my friend’s loan. My friend showed me a form that he downloaded. The form required a significant amount of information similar to what is required for a modification as opposed to a link to request the Freddie forbearance or a two-line form that merely asked for the Freddie forbearance and an affidavit that states that the homeowner’s financial problems were Covid-19 related.

Stay safe,

Jerry

Servicers are offering forbearance agreement to protect against foreclosure from the Covid-19 Pandemic. The question is “should I sign a forbearance agreement?

Forbearance means “patient self-control; restraint and tolerance. The action of refraining from exercising a legal right, especially enforcing the payment of a debt.” Agreement is the “situation in which people have the same opinion, or in which they approve of or accept something . . .”

In considering a forbearance agreement, the first question that you should ask is “forbearance from what?” Is it forbearance from filing for foreclosure? Forbearance from taking steps to enforce the terms of the mortgage? Forbearance from filing a foreclosure is a part of forbearance from enforcing a debt. Under federal law a homeowner must be 120 days late before a lender can file for foreclosure:

The first question that you should ask is “forbearance from what?”

In essence, the lender is forbearing from _______ (fill in the blank – what are they forbearing from doing) in exchange for _________ (what are they asking you to do).

The most recent forbearance agreement was from SPS, Specialized Loan Servicing. Look at what the agreement said, and my comments:

lenders/servicers are gearing up for massive foreclosures this year

I have spoken with attorneys who represent lenders in foreclosure actions. They have universally told me that lenders/servicers are gearing up for massive foreclosures this year. Columnist Rachel Brat of the Boston Globe recently published an opinion titled Forecasting an economic tsunami as foreclosures rise and mortgages sink underwater. Ms. Brat’s article is very informative, but I respectfully disagree with one point that she made:

Since there will be a lag between the current financial crisis and the impending foreclosure crisis, likely about two years, there is time to craft policies that will respond to the challenges.

Under either a forbearance agreement or the FHA/Fannie/Freddie guidelines, there is a six-month [note a correction, this blog originally said three months] deferral for mortgages payments. See above. Under the SPS example, the forbearance agreement only provided for a three-month forbearance. At the beginning of month four there are four payments due, the three deferred and the fourth month. The SPS example that I gave states that if not paid and the end of month four you will have options, possible loan mod, etc. SPS did not say that they also would have options. On the second day of month five the mortgage is more than 120 days late and they can start foreclosure proceeding.

More to come,

Stay safe and be well,

Jerry Solomon

I wrote a blog on March 25, 2020 titled Maryland Stops Foreclosures and Evictions, due to Covid-19. The topic of that blog was, should you take any proactive steps if you fear that you will not be able to meet your mortgage payments? For many, the question of what to do if you Maryland mortgage was due and you were looking for options. My answer was to wait a week, and I would follow-up. My answer has now changed with regard to federally backed mortgages. See Should I Agree to a Forbearance Agreement, click here. See also, No Lump Sum at the End of Forbearance by clicking here.

Your Maryland mortgage was due and you can’t pay your mortgage.

Since the March blog, Congress passed, and the President signed, the CARES ACT. The CARES ACT is not a document that anyone can easily understand. Since the March blog there are options if your Maryland mortgage was due and you cannot pay mortgage because of the Covid-19 virus. You do have options if your loan is federally backed.

In March, I searched the following topic “are banks offering any help with Covid-19” Click here to search for yourself. Here are two articles that I originally found.

• Bankrate.com “List of banks offering help to customers impacted by the coronavirus”
• American Bankers Association America’s Banks Are Here to Help: The Industry Responds to the Coronavirus

The American Bankers Association article stated:

Bank actions to assist customers vary by institution and depend on a customer’s individual circumstances. They include but are not limited to fee waivers; deferred payments for credit cards, auto loans and mortgages; loan modifications; low-rate and zero-rate loans and other accommodations.

My take on this is:

• There are no guarantees, nor can there be;
• You will have to pay the bank back, but the question is when;
• The devil is in the details; and
• The banks have to mitigate their damages.

Here are my thoughts:

If you can pay your mortgage, then pay your mortgage. Do not play any games with the bank. The bank lent you money, and you promised to pay. Do not play a game with a bank, because you will lose every time..

If you play a game with a bank, then you lose

If you cannot pay your mortgage, because of a Covid-19 decline in income, then you must look at alternative ways to handle the crisis. I do not like the thoughts of deferred payments because the devil is in the details. Let’s say your monthly payment is $2,500. You may be able to defer payment, but deferring three payment but on month four, you will owe $10,000. If you cannot repay the forbearance, the banks say that there is the possibility of a loan modification.

Let’s look at some history of bank promises.

This is not the first time that Maryland mortgage was due and you were looking for options to save your home. At the beginning of the 2008 Great Recession, lenders were telling people facing the prospect of foreclosure not to pay the mortgage. However, the MHA (Making Home Affordable) test was not whether you were behind in your mortgage. The MHA test was whether the “mortgage loan is delinquent, or default is reasonably foreseeable.” The homeowner did not have to be in default, only if the default was reasonably foreseeable.

The servicers were giving false information. The homeowner did not have to be in default. The homeowner had to show that a default was reasonably foreseeable

I was against forbearance when I wrote this article. There were two reasons. First, in 2008 lenders and servicers were not giving truthful information to people looking for help. They were telling their clients to get the adjustable rate fancy loans, pay them for a year, and then apply for a refinance for a fixed rate loan. The homeowners said yes, got their adjustable-rate loan that changed rates in six months to a year. The homeowners lost their homes when the adjusted payment went through the roof. What about the refinance that the lenders promised? If it was not a contract, it meant nothing. Refi’s are not automatic, neither are loan modifications.

The second reason when I originally wrote the was that if banks truly wanted to help the homeowner, the banks would defer the mortgage payments for whatever period was agreed and put the deferred payments on the back end of the loan. That is now the case for federally owned mortgages.

Since the original writing of this blog, the Federal Housing Finance Agency (FHFA) clarified when the forbearance for federally backed loans was due. You could put the missed payments to the back of the loan. You do not have to sign a forbearance agreement. You simply have to ask for the six month forbearance and supply an affidavit that stating that you income fell as a result of the Covid-19 Pandemic.

Click here for the blog on putting missed payments to the back of the loan.

Best and be safe, Jerry Solomon

Should you be Proactive and Contact Your Servicer That you may be in Trouble?

I ran the following Google search: Should I contact my lender if I can’t keep up with my mortgage? Here are two articles that may be informative.

Contact your mortgage lender: Payments may be deferred as coronavirus pandemic causes worker hardships Mortgage lenders offer help to borrowers affected by coronavirus.

Mortgage lenders offer help to borrowers affected by coronavirus.

The mortgage lenders article makes the following points:

A mortgage forbearance is an agreement between you and your
mortgage servicer that lets you either stop making payments or lower your payments to an affordable level on a temporary basis during your hardship . . .

“Be aware, however, that you will need to repay the amount
that was reduced or suspended, either as a lump sum or by adding to your normal monthly payment,” says Leslie Tayne, founder and attorney at Tayne Law Group.

The takeaway from this is quite simple. You are signing a contract with legal significance and penalties if you breach the agreement. While Foreclosures are stopped in Maryland, the duty to pay your mortgage continues.

Other than the two articles mentioned, most of the articles were pre-coronavirus. This tells me that there is no clear direction on this issue, nor can there be since nobody knows the extent to which Americans will be affected. We do not know whether there will be creative solutions offered in the future. This does little to help you determine whether you should contact your servicer.

If we are to learn from history the let’s examine one article from 2011. The article stated:

Loan or Mortgage Modification. This is a good place to start when you feel the mortgage payment growing to a place you can no longer handle it. Whatever you do at this point, DON’T WAIT!! As soon as you know your mortgage is too much for you, contact your lender. Rest assured, the lender does not want your house. They are in the lending business, not the real estate business.

Before the Coronavirus epidemic hit there were homeowners who had recovered financially, able to pay their mortgage, but the lenders were foreclosing anyway because the lenders refused to put arrears at the back end of the loan. Do not believe everything that a lender tells you. Each homeowner should know their options. Regardless of whether the lender wants your home, they want your money and if it means taking your home to achieve that goal, they will take your home.

This brings us back to the original question: should you, the homeowner, take any proactive steps if you fear that you will not be able to meet your mortgage payments. My answer on this date, March 25, 2020, is a strategic no. I say this because:

• Things are changing on an hourly basis. Why would you want to contact your lender at
  this point, when you do not know what your options are?
• Recall the point made about forbearance agreements: You are signing a contract with legal significance and penalties if you breach the agreement. If you are not in foreclosure at this time, waiting a week will not hurt you;
• If you are currently in foreclosure, that is, a case has been filed, then contact a foreclosure defense attorney. Maryland may have suspended foreclosure actions, but does that suspension also suspend time limits?

Since we don’t know the answers to key questions, I suggest that you stay the course, meaning:

• Do not use the Coronavirus as an excuse not to pay your mortgage;
• If you are currently in foreclosure, you should get a foreclosure defense attorney – now; and
• Stay safe.

Remember this date, March 25, 2020. The above suggestions are good for only seven days. I will update this blog within the next few days.

My best, Jerry Solomon

Don’t fall into a trap by those who suggest that you do not have to pay your mortgage. You do. The issue is, if you cannot pay your mortgage, what you can do to prevent foreclosure.

On March 18, 2020, President Trump announced that he was implementing steps to halt foreclosures, sales and evictions until the end of April. Click here to read the article. The Federal Housing Finance Agency said that the halt on foreclosure would last at least sixty-days. Stopping foreclosures, sales or evictions does not allow you to stop paying your mortgage.

The real question is whether banks and servicers will stop filing foreclosures, selling properties or evicting people. Maryland has ordered that all sales and evictions are stopped.

In my blog Coronavirus and Foreclosure, I explained some of the differences and similarities between the 2008 Great Recession and the Coronavirus pandemic. The 2008 Great Recession is over, so there is a body of knowledge and attitude upon which to draw. However the Coronavirus Pandemic is evolving on an hourly basis, so understanding the impact on foreclosure is limited.

The main difference between 2008 and today is that neither the homeowner nor the lenders did anything to cause the pandemic. I say this because your good faith actions may count for a lot if you get into trouble. Accordingly, make whatever effort is necessary to keep current with your mortgage.

The second difference may lie in the attitude of the judges. In 2008, I constantly heard judges say “If I can pay my mortgage then you can pay yours.” That attitude started to change when judges’ family, friends, or the judge herself started to have problems. In 2020 everyone will be affected. I believe that a judge will be more inclined to favor the homeowner who acts in good faith, as opposed to the homeowner who ignores the problem.

My best, and more to come, Jerry Solomon

Covid-19 Pandemic and Foreclosure

The Great Recession of 2008 wreaked havoc on homeowners who could not afford to pay their mortgage. Maryland was among the top three states affected. Prior to the Covid-19 Pandemic, Maryland still ranks among the top three states in the amount of foreclosures per capita. Lessons from the Great Recession can teach us what servicer scams to avoid.

Before the Covid-19 Pandemic, Maryland ranked among the top three states in the amount of foreclosures per capita

Many people were eventually able to keep their homes as a result of the Making Home Affordable program. However, MHA reached its sunset and is no longer available. Private variations of mortgage modification programs do not come close to meeting the needs of homeowners in 2020. The issue now facing Maryland homeowners is what type of relief is available to Maryland homeowners.

Unlike the Great Recession where the underpinnings that caused the crash were years in the making, the Covid-19 Pandemic was only months and days in the making. The Families First Coronavirus Response Act (H.R. 6201) was introduced in the House of Representatives on March 11, 2020. The House passed the bill at 1:00 AM on Saturday, March 14, 2020. Click here for features of the bill. The House made no changes to the bill and members of the House did not have time to read and digest the bill.

While the Covid-19 Pandemis will affect all Americans, the fallout from efforts to stem the spread has affected the majority of Americans. The Covid-19 Pandemic will severly affect those who do not have either large amounts of equity in their property, or do not have liquid assets. Unlike 2008, the current problem is neither fueled by sub-prime mortgages or adjusting interest rates. Similar to 2008, banks will spend millions of dollars advertising their virtues as opposed to getting to know the people they serve. Regardless, lessons from the Great Recession can teach us what servicer scams to avoid

The best course of action right now is to protect yourself and seniors from getting the virus. Don’t panic regarding the mortgage issue. Read later blogs about options available for federally backed mortgages here. You should also read the latest option available to you here.

Be safe, Jerry Solomon

A bank is a source of money; it is not a source of comfort. If you are looking for an entity with a heart, look toward your church, synagogue, mosque or a rich uncle. A bank has no heart.

While lacking a heart, a bank has something that you do need – money. It can be your money, someone else’s money, the government’s money or the bank’s money When buying a house you need what the bank has, money. In Maryland, here is how it generally works:

A bank lends you money to purchase the house. You give the money to the seller in exchange for the seller giving you a deed to the property. You sign a note, a promise to pay, to the bank. The bank wants and deserves security for the note, and you pledge the house that you just bought to secure the note. You do this in the form of a deed of trust. That is, you hold title to your property for a precious second, and then give the title to someone else, a trustee, through the deed of trust. See Buying a Home. Specifically, you give the title to your home to some stranger to hold until you either pay off the loan, sell the loan (which is actually paying off the loan), default on the loan where the trustee can sell the property to pay off the note, or the bank releases the deed of trust. In legal terms, a deed of trust is a trust with the possibility of reverter based upon a condition subsequent. In English, if you pay your mortgage note on time until it is paid either through a sale or paid off (the condition subsequent) then the deed of trust is either canceled or satisfied, and title reverts back to you.

Think of the note as a check. You write a check to John Doe for $1,000.00. The check actually says, “pay to the order of” John Doe. That means that John Doe can cash the check. John Doe cannot say to his wife, Mary Doe, “go to the bank and cash this” because she is not John Doe. John must indorse it. John can simply sign “John Doe” with nothing else. That means that anyone who has possession of the check can cash it, even if it is stolen. I can say “for deposit only account 001”. John Doe can also sign “John Doe, pay to the order of Mary Doe.” In that case, only Mary Doe can cash the check. The same holds true with a mortgage note, not everyone can enforce the note.

Banks sell mortgage notes for profit. Banks are in the business of making money, and the sale of the note is legal. Just because a bank sells the note does not mean that you don’t owe the money. It means that someone else has the right to collect the money. The question is whether the new owner of the note has obtained the proper indorsements. In fact, there are many times when the new owner does not have the right to enforce the note without first proving ownership of the note.[/vc_column_text][/vc_column]

In the early 1980’s Congress passed legislation that helped first-time homeowners and disadvantaged minorities. In my opinion, this was good. In practice, as used by the banks and lenders, this hurt many of the families that Congress intended to help. In the early-two thousands, you could buy a home for no money down with bad credit. The banks wanted to make more money and did so for the bank’s benefit, not to benefit the homeowner.

For example, let’s say that John and Mary Doe qualified for a home that they could not afford. The mortgage broker would usually say “I know that you have bad credit. Just buy the home, and in six months of on-time payments you can refinance.” The banks pooled the loans and sold them to investors. The housing market was on fire and prices were rapidly increasing.

In addition, banks were making so much money selling the loans they started to encourage people to borrow against the equity in their home. Banks would encourage homeowners to dip into the equity in their home, life was good, enjoy life, values are going up.

Then the bubble burst. The Great Recession started. People lost their jobs. Banks started to fail. Homeowners were overextended and learned that it was not so easy to refinance. When the bubble broke not only could the homeowners not refinance, but they could no longer afford the mortgage payment, nor could they even sell their homes. There was a glut of people trying to sell their homes to avoid foreclosure, home prices fell, the banks stopped lending money, and the homeowners found themselves owing more than the property was worth.

Shortly after President Obama was sworn in as President, he announced his Making Home Affordable (“MHA”) program to help homeowners who were in danger of losing their homes. MHA had two subdivisions, Home Affordable Mortgage Program (“HAMP”) and Home Affordable Refinance Program (“HARP”).

The HAMP program was simple in concept. If the homeowner was either in foreclosure or in imminent danger of being foreclosed on, the homeowner could request a mortgage modification, but this was limited to servicers who participated in HAMP. Not all servicers participated.

The goal of the HAMP program was to reduce a homeowners’ monthly mortgage payment to thirty-one percent of the household gross monthly income. This was accomplished through a reduction of interest rate, length of the mortgage, forgiveness of a portion of the debt, or a combination of all three. The servicer was supposed to calculate the net present value (NPV) of modified payments over the course of the loan and compare that figure to the money that they would receive if the servicer went through with foreclosure. If the servicer could make more money through foreclosure, then they could foreclose, but if the servicer could make more money through a modification, they had to modify.

HAMP helped a lot of people save their homes. The program was modified over the course of its lifetime, but it no longer exists. Servicers are still offering mortgage relief, but it is a whole new ballgame. Today, homeowners must seek other ways to save their homes, but that is for another blog.

In 2007 the Maryland Legislature closed a loophole in the licensing statute. The original statute defined a debt collector as one “who engages directly or indirectly in the business of . . . collecting for, or soliciting from another, a consumer claim.” A debt collector in Maryland had to be licensed. A debt collector collects the debt of another. If you owed money to your doctor, the doctor did not have to be licensed to collect the bill. However, if the doctor turned the debt over to a collection agency, the collection agency had to be licensed as a debt collector.

Businesses started to purchase delinquent debt for discounted amounts, and collect the debt themselves. To accomplish this, businesses formed entities outside of Maryland. These entities were called a foreign statutory trust. Since the foreign statutory trusts were collecting their own debt, they were not required to be licensed in Maryland.

The legislature fixes the problem

The Maryland State Legislature closed the loophole in 2007. The 2007 amendment added the words “collecting a consumer claim the person owns, if the claim was in default when the person acquired it. . .” to the definition of debt collector

The Court of Special Appeals rules on the amendment

In June 2017, the Maryland Court of Special Appeals, in the case of Shanahan v. Marvastian, applied the 2007 amendment and held that a foreign statutory trust who purchased delinquent mortgage debt had to be licensed in Maryland as a debt collector in order to use Maryland Courts to collect the debts. The Shanahan Court built on prior case law which held that judgments obtained by unlicensed debt collectors were void. This was because an unlicensed debt collector could not invoke the jurisdiction of a Maryland Court.

The Maryland foreclosure bar (translation – the substitute trustees) went crazy, to say the least. If a homeowner was in the middle of a foreclosure case where the note owner bought the note while in default, and was not licensed in Maryland, the homeowner had strong grounds to get the case thrown out. The unlicensed debt collectors could not invoke the jurisdiction of the court.

The Court of Appeals Removes Protection for Maryland Homeowners

The lenders took the case to the Maryland Court of Appeals. In August 2018 the Court of Appeals reversed the Court of Special Appeals in Blackstone v. Sharma. I believe that Sharma is a pathetic attempt by an otherwise highly respected court to legislate from the bench by using twisted logic to save an industry. The Sharma Court reversed the Court of Special Appeals and held that the 2007 Amendment did not apply to the mortgage industry. How did the Court of Appeals accomplish this feat of magic? The Court of Appeals tried to reason that the phrase “collecting a consumer claim the person owns, if the claim was in default when the person acquired it” was ambiguous. That was exactly what the foreign statutory trusts did. They purchased mortgages where people had defaulted. However, the Court of Appeals told us not to believe our lying eyes or even use our brain. The 2007 Amendment did not mean what it said.

Two judges from the Court of Appeals filed a dissenting opinion:

The Majority labors over 64 pages to justify its conclusion that the statute does not mean what it says. Before detailing the problems with that analysis, it is worth noting that the Majority Opinion explicitly declines to endorse Petitioners’ argument that a foreclosure action is not collection of a debt under MCALA. . . .

Note how the dissent framed the issue:

The issue in this case is relatively simple. In 2007, the General Assembly amended the Maryland Collection Agency Licensing Act, known by the mellifluous acronym “MCALA,” to extend the licensing requirement of that law to a “person” — a term that includes entities — that collects consumer debt that the person owns as well as consumer debt owned by others. The obvious purpose, demonstrated both by the amendment’s language and by its legislative history, was to require those who buy, and attempt to collect, defaulted consumer debt to obtain the requisite license. The main question before us is whether the amended statute applies to those who buy, and attempt to collect, defaulted consumer mortgage debt.

The dissent framed the issue in one-hundred-thirteen words while the majority couldn’t reach a coherent explanation in sixty-five pages.

The Resulting Impact on Maryland Homeowners

The purpose of consumer protection laws is to protect the consumer from specific business practices. The Sharma line of cases involved companies that were established for the sole purpose of buying defaulted mortgages and foreclosing on the properties. These companies voluntarily chose not to obtain a Maryland license.

In 2018, Maryland ranked third among the fifty states in foreclosures. Baltimore City was the highest in the state for foreclosures. This will only get worse. Banks had been holding off filing foreclosures while they were waiting for the Sharma decision. Banks are now starting to foreclose.

The result will be a glut in the market with real estate values plummeting. Families who went through the Great Recession and have now recovered will lose their homes. Why? Because the Court of Appeals fudged the law and took away the consumers’ bargaining chip to negotiate a loan modification and save their home.