Loss Mitigation Leads Q and A

by

darewin ocampo

Loss mitigation leads indeed serve as the heart of any loss mitigation business. But before steps are to be taken to familiarize oneself with loss mitigation leads one must first obtain knowledge of the basics. Given below are questions and answers the Federal Government specifically determined as the most commonly asked questions about loss mitigation and its counterpart loan modification.

Loss Mitigation

Loss Mitigation works to negotiate mortgage terms for the homeowner that will prevent foreclosure. These new terms are typically obtained through loan modification, short sale negotiation, and short refinance negotiation, deed in lieu of foreclosure, cash-for-keys negotiation, or a partial claim loan or other loan work-out. All of the options serve the same purpose, to stabilize the risk of loss the lender is in danger of realizing.

Question 1 – When a mortgagor has been determined ineligible for HUD’s Loss Mitigation Program and the information utilized to make this determination was acquired by telephone, is the mortgagee required to send written notification of the denial to the mortgagor?

Answer – Mortgagee Letter 2000-05, page 11, paragraph H. “Evaluation of the Borrower’s Financial Condition” in part states, mortgagees must advise the mortgagor, in writing, the reason for denial and allow the mortgagor at least seven calendar days to submit additional information which may impact upon the mortgagee’s evaluation.

Question 2 – What types of documentation is considered to be third party verification of a mortgagor’s financial income?

Answer – Mortgagee Letter 00-05, page 10, paragraph H, “Evaluation of the Borrower’s Financial Condition” states in part ” .Regardless of how the mortgagor’s financial information was secured, the mortgagee must independently verify the financial information by obtaining a credit report, and any other forms of verification the lender deems appropriate.”

Question 3 – What date does HUD acknowledge as the “execution date” for home retention option documents?

Answer – HUD does not have a definition for “execution date.” HUD does recommend mortgagees not execute any home retention option document until after the mortgagor has signed it. Thereby, the mortgagee’s timeline for submitting the incentive claim is not affected.

Question 4 – Can an exception be made on the occupancy requirement for loss mitigation retention options?

Answer – A variance request must be submitted on company letterhead to the NSC Oklahoma City Office, providing justification for the exception request for consideration.

Loan Modification

A Loan Modification is a permanent change in one or more of the terms of a mortgagor’s loan, allows the loan to be reinstated, and results in a payment the mortgagor can afford.

Question 1: In utilizing the Loan Modification option to bring an asset current, can the mortgagee include all fees and corporate advances?

Answer: Mortgagee Letter 2008-21 states in part: Legal fees and related foreclosure costs for work actually completed and applicable to the current default episode may be capitalized into the modified principal balance.

Question 2: May a mortgagee perform an interior inspection of the property if they have concerns about property condition?

Answer: Yes, the mortgagee may conduct any review it deems necessary to verify that the property has no physical conditions which adversely impact the mortgagor’s continued ability to support the modified mortgage payment.

Question 3: Can a mortgagee include late charges in the Loan Modification?

Answer: Mortgagee Letter 2008-21 states that accrued late charges should be waived by the mortgagee at the time of the Loan Modification.

Question 4: When utilizing a Loan Modification option, can a mortgagee capitalize an escrow advance for Homeowner’s Association fees?

Answer: HUD Handbook 4330.1 REV-5, Paragraph 2-1, Section B, Escrow Obligations states: Mortgagees must also escrow funds for those items which, if not paid, would create liens on the property positioned ahead of the FHA-insured mortgage.

Question 5: Is there a new basis interest rate which mortgagees may assess when completing a Loan Modification?

Answer: Yes, Mortgagee Letter 2008-21 states that the new basis interest rate is 200 points above the monthly average yield on U.S. Treasury Securities, adjusted to a constant maturity of 10 years.

Question 6: Will HUD subordinate a Partial Claim; should a mortgagor subsequently default and qualify for a Loan Modification?

Answer: If a mortgagor subsequently defaults and qualifies for a Loan Modification, HUD will subordinate the Partial Claim.

Question 7: Are mortgagees required to perform an escrow analysis when completing a Loan Modification?

Answer: Yes, mortgagees are to perform a retroactive escrow analysis at the time the Loan Modification to ensure that the delinquent payments being capitalized reflect the actual escrow requirements required for those months capitalized.

Question 8: Is the mortgagor eligible for the upfront premium refund at payoff of a modified loan?

Answer: It depends upon when the closing date occurred. For assets closed:

After July 1, 1991 but before January 1, 2001, the 7-year unearned premium refund schedule shown in Mortgagee Letter 1994-1 remains in effect,

On or after January 1, 2001 that are subsequently refinanced, the 5-year refund schedule shown in the attachment of Mortgagee Letter 2000-46 applies, or

On or after December 8, 2004, refunds of upfront MIP are eliminated except, when the mortgagor refinances to another FHA insured mortgage. The refund schedule attached to Mortgagee Letter 2005-03 has been modified to a 3-year period.

Question 9: Can a mortgagee qualify an asset for the Loan Modification option when the mortgagor is unemployed, the spouse is employed, but the spouse name is not on the mortgage?

Answer: Based upon this scenario, the mortgagee should conduct a financial review of the household income and expenses to determine if surplus income is sufficient to meet the new modified mortgage payment, but insufficient to pay back the arrearage. Once this process has been completed the mortgagee should then consult with their legal counsel to determine if the asset is eligible for a Loan Modification since the spouse is not on the original mortgage.

For more information regarding the fundamentals of Loss Mitigation and loan modification or for the best loss mitigation leads please contact CallComLeads

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Loss Mitigation Leads Q and A