Foreclosure Litigation Issues:
Authority to Foreclose
Geoff Walsh
National Consumer Law Center
September 24, 2014
©National Consumer Law Center 2013
The Mortgage Loan
•  Two key documents:
•  The Note: represents the enforceable
obligation to pay
•  The Mortgage: the instrument giving
interest in property to secure payment of
note
Authority to Foreclose
– the Mortgage
•  Is foreclosing party current holder of valid
assignment of mortgage?
•  Did foreclosing party have valid assignment
of mortgage when key foreclosure actions
taken?
–  Notices
–  Advertisements
–  Foreclosure sale
–  Must assignments be in writing, recorded?
–  See U.S. Bank v. Ibanez, 941 N.E. 2d (Mass.
2011)
Authority to Foreclose – the Note
•  Must foreclosing party have authority to
enforce promissory note?
•  How do Mass. statutes and common law
define party authorized to conduct
foreclosure sale?
•  Eaton v. Federal National Mortg. Ass’n,
462 Mass. 569 (2012)
The Note as a Negotiable
Instrument
•  Defined in § U.C.C. 3-104
•  Unconditional promise to pay a fixed amount
of money, with or without interest
•  Must be payable to bearer or order
•  Payable on demand or at a definite time
•  Does not state any other undertaking or
instruction by the person promising or
ordering payment to do any act in addition to
the payment of money
Key U.C.C. Concept: the PETE
•  Person Entitled To Enforce the instrument
•  § 3-602(a) ([A] [negotiable] instrument is
paid to the extent payment is made by or
on behalf of a party obligated to pay the
instrument, and to a person entitled to
enforce the instrument.”)
•  § 3-301 defines under what circumstances
a person is entitled to enforce an
instrument
Who Can Be a Person Entitled To
Enforce the Instrument?
•  U.C.C. § 3-301 defines PETE as:
•  (1) the holder of the instrument
•  (2) a nonholder in possession of the
instrument who has the rights of a holder,
•  (3) a person not in possession of the
instrument who is entitled to enforce the
instrument pursuant to § 3-309 [lost note]
or § 3-418 [mistake in payment]
PETE Option # 1: Holder
•  Revised § 1-201(a)(21): “Holder” means:
•  (A) the person in possession of a
negotiable instrument
•  AND the instrument “is payable either to
bearer or to an identified person that is the
person in possession.”
“Negotiation” of a Promissory
Note
•  U.C.C. § 3-201 defines negotiation of a negotiable
instrument as:
–  Transfer of possession of instrument by person
other than issuer to person who becomes holder
–  If payable to identified person, negotiation requires
transfer of possession of note and its indorsement
by holder
–  If payable to bearer, negotiated by transfer of
possession alone
Indorsement and Allonges
•  “Indorsement” means a signature made on instrument for
the purposes of indorsing it. U.C.C. § 3-204
•  Indorsements are required to transfer loan notes that are
payable to an identified person until the payee (lender)
or a subsequently identified person indorses in blank or
to bearer. § 3-201(b), § 3-109; § 3-205.
•  Indorsements must appear on the note but can appear
on a paper (allonge) “affixed to the instrument.” §
3-204(a).
Who Can Enforce Note?
•  U.C.C. § 3-301 “Person entitled to enforce”
an instrument:
•  (1) the holder of the instrument
•  (2) a nonholder in possession of the
instrument who has the rights of a holder,
or
•  (3) a person not in possession of the
instrument who is entitled to enforce the
instrument pursuant to § 3-309 [lost note] or
§ 3-418 [mistake in payment]
PETE Option # 2: Non Holder
Transferee
•  Person in possession with the rights of a
holder
•  Party must be in possession of the
instrument
•  Party [transferee] must have obtained the
rights of a holder from the transferor
Proof of Rights of Transferor
•  When the transferee is not a “holder,” the
transferor must have been a holder at the time of
transfer. § 3-203, Comment 2.
•  When the note is not payable to the transferee,
the transferee must account for possession of
the unindorsed note by proving the transaction
through which the transferee acquired it. §
3-203, Comment 2.
Who Can Enforce Note?
•  U.C.C. § 3-301 “Person entitled to enforce”
an instrument:
•  (1) the holder of the instrument
•  (2) a nonholder in possession of the
instrument who has the rights of a holder, or
•  (3) a person not in possession of the
instrument who is entitled to enforce the
instrument pursuant to § 3-309 [lost note]
or § 3-418 [mistake in payment]
PETE Option # 3: Lost Note
•  U.C.C. 3-309
–  Person cannot reasonably obtain possession of the
instrument because it is destroyed, lost, or in wrongful
possession of an unknown person
–  Person was PETE when instrument lost
–  Party seeking to enforce lost note must prove the
terms of instrument and its right to enforce it.
–  Court may require bond, other protection to debtor
–  Otherwise, person to whom demand for payment
made may require that the holder “exhibit the
instrument.” U.C.C. § 3-501(b)(2)(I)
The Mortgage
•  Foreclosing party must be current
assignee of the mortgage when:
–  Notice of cure given
–  Notice of foreclosure sale published
–  Foreclosure sale takes place
MERS
•  Mortgage Electronic Registration Systems, Inc.
•  Established early 1990s by GSEs, large lenders
to save money on recording fees
•  MERS sells two basic services:
–  Loan IDs (MIN Numbers) for members to use
–  Signing authority - 20,000 individuals (employees of
servicers & foreclosure mills) can sign documents as
secretaries or vice presidents of MERS
MERS
• 
• 
• 
• 
• 
What can be done in MERS’ name?
Conduct a foreclosure sale?
Provide a foreclosure notice?
Assign a mortgage?
Transfer a note?
MERS as Super-Agent
•  Are there legal limits on MERS’ agency
claims?
•  Self-proclaimed agent for an undisclosed
principal
MERS and Foreclosures
•  Foreclosures are no longer conducted in
MERS’ name.
•  Policy Bulletin #2011-5 effective as of July
22, 2011, MERS barred members from
initiating actions and filing proofs of claim
in the name of MERS.
•  Fannie Mae and Freddie Mac prohibited
MERS foreclosures earlier.
MERS and Notes
•  MERS is never the owner of a mortgage
note
•  MERS never has possession of a
mortgage note
•  MERS cannot transfer or assign an
interest in a mortgage note
Authority to Foreclose
•  Focus issues:
•  What are “void” assignments/transfers?
•  What are “voidable” assignments/transfers?
•  What do state statutes/common law require?
–  Shifting burden of proof to show authority to
foreclose
–  What must borrower show?
•  Extrinsic evidence of lack of authority
•  How find it?
Lender
$$
Borrower
RMBS Securitization Map
Various Classes
Investors/Certificate Holders
Purchase mortgage-backed securities as defined in certificates
PSA
$$$ offering
proceeds
Certificates
$$$ less
Trustee’s fee
$$$ less servicing fee
PSA
Underwriter
Trust
Sells certificates to investors,
collects proceeds
PSA
Master Servicer
Prepares reports for Trustee; remits
monies; ensures Primary performs
$$$ offering
proceeds
Certificates
Holds pool of loans; issues
certificates
Note &
Mortgage
Depositor
Certificates
Creates issuing entity
$$$
Pool revenue less
servicing fee
MLPA
or PSA
Note &
Mortgage
$$$ purchase price
Trustee
Oversees servicers
Purchases loans from
originator; forms pool
Services individual loans, collects
payments, performs duties under PSA
MLPA
$$$ fees
PSA
Seller
Primary Servicer
Note &
Mortgage
$$$ purchase price
Originator
Processes and funds
individual loans
Note &
Mortgage
$$$
Services loans until
securitized
Mortgage Broker
Received broker’s fee, YSP
and processing fees
Borrower
$$$
Other parties not shown may include Credit Risk Manager,
Securities Administrator, Swap Counterparty, and Rating
Agencies
$$$
Mortgage
Payments
$$$
Interim Servicer
Collateral
File
Document
Custodian
Stores and maintains
mortgage loan collateral files
Understanding the Players in the
Secondary Market
•  What is the secondary market?
•  The Lineup:
– Mortgage Originator
– Mortgage Holder
– Mortgage Servicer
Who’s Who in Securitization
• 
• 
• 
• 
• 
• 
• 
• 
• 
• 
Lender/Originator
Sponsor/Seller
Depositor
Underwriter
Trust/Trustee
Servicer
Custodian
Rating Agencies
Insurers
Investors
RMBS Securitization Map
Various Classes
Investors/Certificate Holders
Purchase mortgage-backed securities as defined in certificates
PSA
$$$ offering
proceeds
Certificates
$$$ less
Trustee’s fee
$$$ less servicing fee
PSA
Underwriter
Trust
Sells certificates to investors,
collects proceeds
PSA
Master Servicer
Prepares reports for Trustee; remits
monies; ensures Primary performs
$$$ offering
proceeds
Certificates
Holds pool of loans; issues
certificates
Note &
Mortgage
Depositor
Certificates
Creates issuing entity
$$$
Pool revenue less
servicing fee
MLPA
or PSA
Note &
Mortgage
$$$ purchase price
Trustee
Oversees servicers
Purchases loans from
originator; forms pool
Services individual loans, collects
payments, performs duties under PSA
MLPA
$$$ fees
PSA
Seller
Primary Servicer
Note &
Mortgage
$$$ purchase price
Originator
Processes and funds
individual loans
Note &
Mortgage
$$$
Services loans until
securitized
Mortgage Broker
Received broker’s fee, YSP
and processing fees
Borrower
$$$
Other parties not shown may include Credit Risk Manager,
Securities Administrator, Swap Counterparty, and Rating
Agencies
$$$
Mortgage
Payments
$$$
Interim Servicer
Collateral
File
Document
Custodian
Stores and maintains
mortgage loan collateral files
RMBS Securitization Map
Various Classes
Investors/Certificate Holders
Purchase mortgage-backed securities as defined in certificates
PSA
$$$ offering
proceeds
Certificates
$$$ less
Trustee’s fee
$$$ less servicing fee
PSA
Underwriter
Trust
Sells certificates to investors,
collects proceeds
PSA
Master Servicer
Prepares reports for Trustee; remits
monies; ensures Primary performs
$$$ offering
proceeds
Certificates
Holds pool of loans; issues
certificates
Note &
Mortgage
Depositor
Certificates
Creates issuing entity
$$$
Pool revenue less
servicing fee
MLPA
or PSA
Note &
Mortgage
$$$ purchase price
Trustee
Oversees servicers
Purchases loans from
originator; forms pool
Services individual loans, collects
payments, performs duties under PSA
MLPA
$$$ fees
PSA
Seller
Primary Servicer
Note &
Mortgage
$$$ purchase price
Originator
Processes and funds
individual loans
Note &
Mortgage
$$$
Services loans until
securitized
Mortgage Broker
Received broker’s fee, YSP
and processing fees
Borrower
$$$
Other parties not shown may include Credit Risk Manager,
Securities Administrator, Swap Counterparty, and Rating
Agencies
$$$
Mortgage
Payments
$$$
Interim Servicer
Collateral
File
Document
Custodian
Stores and maintains
mortgage loan collateral files
RMBS Securitization Map
Various Classes
Investors/Certificate Holders
Purchase mortgage-backed securities as defined in certificates
PSA
$$$ offering
proceeds
Certificates
$$$ less
Trustee’s fee
$$$ less servicing fee
PSA
Underwriter
Trust
Sells certificates to investors,
collects proceeds
PSA
Master Servicer
Prepares reports for Trustee; remits
monies; ensures Primary performs
$$$ offering
proceeds
Certificates
Holds pool of loans; issues
certificates
Note &
Mortgage
Depositor
Certificates
Creates issuing entity
$$$
Pool revenue less
servicing fee
MLPA
or PSA
Note &
Mortgage
$$$ purchase price
Trustee
Oversees servicers
Purchases loans from
originator; forms pool
Services individual loans, collects
payments, performs duties under PSA
MLPA
$$$ fees
PSA
Seller
Primary Servicer
Note &
Mortgage
$$$ purchase price
Originator
Processes and funds
individual loans
Note &
Mortgage
$$$
Services loans until
securitized
Mortgage Broker
Received broker’s fee, YSP
and processing fees
Borrower
$$$
Other parties not shown may include Credit Risk Manager,
Securities Administrator, Swap Counterparty, and Rating
Agencies
$$$
Mortgage
Payments
$$$
Interim Servicer
Collateral
File
Document
Custodian
Stores and maintains
mortgage loan collateral files
RMBS Securitization Map
Various Classes
Investors/Certificate Holders
Purchase mortgage-backed securities as defined in certificates
PSA
$$$ offering
proceeds
Certificates
$$$ less
Trustee’s fee
$$$ less servicing fee
PSA
Underwriter
Trust
Sells certificates to investors,
collects proceeds
PSA
Master Servicer
Prepares reports for Trustee; remits
monies; ensures Primary performs
$$$ offering
proceeds
Certificates
Holds pool of loans; issues
certificates
Note &
Mortgage
Depositor
Certificates
Creates issuing entity
$$$
Pool revenue less
servicing fee
MLPA
or PSA
Note &
Mortgage
$$$ purchase price
Trustee
Oversees servicers
Purchases loans from
originator; forms pool
Services individual loans, collects
payments, performs duties under PSA
MLPA
$$$ fees
PSA
Seller
Primary Servicer
Note &
Mortgage
$$$ purchase price
Originator
Processes and funds
individual loans
Note &
Mortgage
$$$
Services loans until
securitized
Mortgage Broker
Received broker’s fee, YSP
and processing fees
Borrower
$$$
Other parties not shown may include Credit Risk Manager,
Securities Administrator, Swap Counterparty, and Rating
Agencies
$$$
Mortgage
Payments
$$$
Interim Servicer
Collateral
File
Document
Custodian
Stores and maintains
mortgage loan collateral files
Who Owns the Loan?
•  Why this is important
–  Authority to conduct valid foreclosure
–  Authority to approve modification, other option
•  How do I find out who owners a given
mortgage loan?
CFPB Servicing Rules
•  Two borrower tools:
–  Error resolution notice. 12 C.F.R. § 1024.35
–  Request for information. 12 C.F.R. § 1024.36
Request for Information
•  Servicer is required to respond to any written
request for information “with respect to the
borrower’s mortgage loan”
•  A RFI is not limited to information “related to
the servicing” of the loan
•  RFI may seek:
–  information about a loan modification application
–  “servicing file” vs. “mortgage file”
CFPB: Error Resolution
Procedures
•  Apply to loss mitigation notices, dual
tracking restrictions, and
•  “Any other error relating to the servicing of
a borrower’s mortgage loan.”
Servicer Obligations
•  5 business days (20 days before Jan. 10, 2014)
–  acknowledge error notice or information request, or
–  take requested action
•  30 business days (60 days before Jan. 10, 2014)
–  correct borrower’s account, or
–  after conducting a reasonable investigation, provide
borrower written explanation as to why servicer
believes account is correct, or
–  provide borrower with requested information or
explanation why information is unavailable.
Servicer Obligations
•  Exceptions to 30-day response period (effective
Jan. 10, 2014)
–  7 business days for notice of error asserting failure to
provide accurate payoff statement
–  prior to foreclosure sale or 30 business days after
receipt of notice of error, whichever is earlier, for notice
of error based on 120-day pre-foreclosure waiting
period or dual-track requirements
–  10 business days for request for information seeking
identity of owner of mortgage
Identity of Mortgage Loan Owner
RESPA/TILA
–  RESPA Request for Information: Servicer must
respond within 10 business days to request for
identity, address, and other contact information
about owner or assignee of loan. Reg. X §
1024.36(d)(2)
–  Supplements TILA § 1641(f), but provides time
deadline
Getting Information
•  www.mersinc.org
•  freddiemac.com/mymortgage/
•  fanniemae.com/loanlookup/
•  TILA § 1641(f)(2)
•  CFPB/RESPA Rule, 24 C.F.R. §
1024.36(d)
AG Settlement 14-day notice
Complying with Mass.
Foreclosure Laws
•  In order to conduct valid sale, foreclosing
party must comply
•  “with the terms of the mortgage and with
the statutes relating to foreclosure of
mortgage by the exercise of a power of
sale.” M.G.L. c. 183 § 21
Complying with Mass.
Foreclosure Laws
•  Three important notices to borrower
–  Statutory notice of right to cure
–  Contractual notice of acceleration
–  Statutory notice of foreclosure sale
Complying with Mass.
Foreclosure Laws
•  Statutory notice of right to cure
•  M.G.L. c. 244 § 35A (the “35A notice”)
•  Must provide name and address of
“mortgagee”
•  Offers time to bring current before
foreclosure starts (150- day cure period)
•  U.S. Bank v. Schumacher, 467 Mass. 421
(2104) (in eviction case, must show harm
from improper notice to set sale aside)
Complying with Mass.
Foreclosure Laws
•  The acceleration notice
•  Contained in the mortgage – usually
paragraph 22
•  “Lender” must send
•  Explains right to reinstate mortgage and
contest foreclosure
•  Contractual requirement for valid sale.
Complying with Mass.
Foreclosure Laws
•  Notice of foreclosure sale
•  Informs borrower of sale date and
procedures
•  Must correctly identify the mortgagee – the
current assignee of the mortgage (Ibanez)
Complying with Mass.
Foreclosure Laws
•  Identifying holder of note
•  Lender/Servicer Affidavit under M.G.L. c.
244 § 35C
•  Authorizes recording of certification of
noteholder status – protection for innocent
third party purchasers at foreclosure sales.
Other Defenses to Foreclosure
•  Challenging lender/servicer conduct
related to loss mitigation
•  Violation of duty to consider borrower for
eligibility for loan modification
Enforcing Loan Modification
Rules
•  What might work
–  Breach of contract theories
•  Breach of TPP
•  Breach of duty of good faith and fair dealing
–  Promissory estoppel
–  Tort claims (negligence, intentional
misrepresentation)
–  “93A” – unfair and deceptive acts in
commerce
Legal Theories for
HAMP Enforcement
•  Two types of cases:
•  Enforcing the obligation to consider
borrower for initial HAMP eligibility
•  Enforcing conversion from trial payment
plan to permanent HAMP modification
What Relief does borrower want?
•  Evaluation or mod?
•  It helps to allege borrower is qualified for
HAMP
•  Run CheckMyNPV.com
HAMP Enforcement - TPP
•  Enforcement of TPP as contract
– Consideration
– Terms of the contract
– What about statute of frauds?
Prior TPP Letter Language
•  “If I comply with the requirements in Section 2
[regarding payments] and my representations
in Section 1 [regarding income verification]
continue to be true in all material respects,
the Lender will send me a Modification
agreement for my signature and will modify
my Loan Documents….”
Responding to the
Servicer’s Failure to sign
•  What constitutes a signature?
–  Signature?
–  Or letterhead?
•  Partial performance can overcome contract formation
and statute of frauds problems
•  Reference structure of HAMP
•  In re Pico, 2011 WL 3501009 (Bankr. S.D. Cal. Aug. 9, 2011)
•  “The Court cannot adopt IBM's interpretation that Chase
was free not to sign the LMA despite promising to do
so . . . .”
Did the Homeowner Comply with
the contract?
• 
• 
• 
• 
Make all payments?
Make all payments on time?
Provide all information?
Update all information?
•  What does TPP require?
What Is the Duty of Good Faith
and Fair Dealing?
•  According to Restatement (2d) of Contracts:
Remedy for “evasion of the spirit of the
bargain, lack of diligence and slacking off,
willful rendering of imperfect performance,
abuse of power to specify terms, and
interference with or failure to cooperate in the
other party’s performance.” (§ 205)
•  Requirement for honesty, standards of
decency, fairness and reasonableness
•  Adherence to industry standards for loss
mitigation, including, perhaps, loss mitigation
requirements of pooling and servicing
agreement
EXAMPLES of BREACHES OF DUTY OF
GOOD FAITH & FAIR DEALING
•  Falsely stating not a HAMP participant
•  Falsely stating investor does not permit HAMP
modifications
•  Offering non-HAMP mods with less favorable terms
•  Demanding redundant, unnecessary documents
•  Routine loss of documents
•  Denying receipt of documents
•  Failing to give decision
•  Failing to send accurate notices of denial/cancellation
•  Failing to disclose NPV data
Promissory Estoppel
• 
• 
• 
• 
Unambiguous promise
Foreseeable reliance by homeowner
Detriment
A contract, but no consideration
Initial Application &
Promissory Estoppel
•  Aceves v. U.S. Bank, N.A., 2011 WL
242426 (Cal. App. Jan. 27, 2011):
•  Clear and unambiguous promise: not
foreclose while we negotiate loan mod
•  Reliance on promise: declined to pursue
bankruptcy relief, other options
•  Reasonable reliance to detriment
•  Consideration not a required element
OTHER Possible Common Law
theories
•  Negligence
–  Is there a duty of care?
–  Breach/Injury/Causation
•  Fraudulent misrepresentation
–  One of the successful theories in Wigod
•  Court’s equitable authority
Understanding GovernmentInsured Mortgages
•  Three Federal Agencies Insure Loans:
•  HUD – manages FHA single-family insured loan program
•  VA – manages VA single-family insured loan program
•  USDA (Rural Housing Service, RHS, FmHA) – manages two
distinct programs:
–  USDA insured single-family home loan program
–  USDA direct loan program (purchase and home repair
loans)
Structural Similarities - Authority
• 
• 
• 
• 
• 
Federal Statute
Codified Regulation (C.F.R.)
Agency Handbook
Administrative updates (on website)
Court decisions
59
FHA-Insured Loans
•  Federal Housing Administration (FHA) Single
Family Insured Mortgage Program
•  The United States Department of Housing
and Urban Development (HUD) runs the
program through FHA, who manages the
Mutual Mortgage Insurance (MMI) Fund. 12
U.S.C. § 1708(a).
•  National Housing Act, 12 U.S.C. §§ 1707 –
1715z25
FHA LOSS MITIGATION
AUTHORITY
•  Statute; 12 U.S.C. § 1715u
•  HUD Regulations: 24 C.F.R. § 203.500, et seq. and §203.600,
et seq.
•  HUD Mortgagee Letters
•  HUD Handbooks (e.g. No. 4330.1)
•  Court Decisions
•  HUD/FHA website: http://www.hud.gov/offices/adm/hudclips/
(contains Mortgagee Letters, Handbooks)
FHA Mortgage Terms
•  There is both a contractual and regulatory
basis for the mandatory nature of loss
mitigation.
•  Paragraph 6(B) of the FHA Note: “In many
circumstances regulations issued by the
Secretary [of HUD] will limit Lender’s rights to
require immediate payment in full in the case
of payment defaults. This Note does not
authorize acceleration when not permitted
by HUD regulations.”
Litigation - Breach of Contract
•  The FHA note and mortgage specifically
incorporate the loss mitigation regulations.
•  When servicers breach the regulations,
they also breach the contract.
•  While this argument is sometimes
couched in different terms, it essentially
boils down to a breach of contract.
FHA Loss Mitigation Tools
• 
• 
• 
• 
• 
• 
• 
• 
Repayment agreement
Forbearance
“Special forbearance”
FHA standard loan modification
FHA HAMP
Assumptions
Pre-foreclosure sale
Deed in lieu of foreclosure
FHA-HAMP
•  When the FHA standard mod is not affordable
–  Does not leave borrowers with “surplus income” of at
least $300/month
–  Does not reduce payment by 10%
•  Total partial claim may not exceed 30 percent of
the unpaid principal balance as of the default
date (if arrearages exceed this amount, they
may be capitalized)
•  .Payment between 25% and 40%
•  No formal NPV test
Major Mortgagee Letters
• 
• 
• 
• 
• 
• 
2000-05 (general structure)
2009-23 (implements FHA-HAMP)
2009-35 (adjusts loan modification)
2012-22 (revised FHA-HAMP)
2013-32 (fixed issues with 2012-22)
Others: Mortgagee Letters 2013-17 (interest
rates), 2013-38, 2013-39 (communications
with homeowners), 2013-40
FHA Policy - Caveat
•  On September 11, 2014, HUD issued a
draft version of its Single Family Housing
Policy Handbook related to mortgage
servicing.
•  HUD’s website claims the new handbook
consolidates policy and provides a
comprehensive guide for servicing.
•  Comments are due by October 17, 2014.
•  Final version expected mid-2015.
Mortgagee Letter 2000-05
•  Provides the basic structure of FHA loss
mitigation
•  Includes “partial claim” – this is a major
component of FHA-HAMP
•  HUD’s website on partial claims: “The
Borrower will execute a Promissory Note and
Subordinate Mortgage payable to HUD.”
Mortgagee Letter 2000-05
•  The partial claim note is interest free.
•  The entire principal balance is payable as
one balloon payment. No monthly or
periodic payments are required.
•  The note is due at the earlier of 1) payoff
of the first mortgage, 2) when the borrower
no longer owns the property, or 3) other
specified event. See Mortgagee Letter
2013-19
Mortgagee Letter 2009-23
•  FHA’s first try at a HAMP-type program.
•  Prior to Mortgagee Letter 2009-23, FHA had
a loan modification program, but it did not
have an affordable payment target, such as
31% of gross income.
•  FHA-HAMP generally did not include steep
interest rate reductions or extensions of the
the loan term to 40 years.
Mortgagee Letter 2009-23
•  Term extensions are limited by 24 C.F.R. §
203.616, and the interest rate is not
significantly reduced under FHA-HAMP.
•  Instead, FHA-HAMP combined a partial claim
with a loan modification.
•  The payment reduction was generally
supposed to come from the partial claim.
Under FHA-HAMP, the partial claim could
include more than just arrears.
Mortgagee Letter 2009-23
•  Very few people qualified for this program.
•  Consumer advocates complained to HUD
for years about the original version of
FHA-HAMP.
Mortgagee Letter 2012-22
•  Mortgagee Letter 2012-22 uses basic
concepts from past Mortgagee Letters,
including the combination of a partial claim
and a loan modification for FHA-HAMP.
•  It made significant change to the waterfall,
making FHA-HAMP much more prominent
and changing other programs.
Mortgagee Letter 2013-32
•  2013-32 is a clarifying mortgagee letter
that addressed problems.
•  Like 2012-22, it relies heavily on a flow
chart to illustrate the program.
•  Likely to be confusion over implementation
Mortgagee Letters 2012-22 and
2013-32
•  Revised FHA-HAMP is still early in
implementation, and it is unclear still how
some of the rules will work in practice.
•  You need to understand how the flow chart
works (Attachment A) in order to catch
inevitable servicer mistakes.
New Applications
•  CFPB “one bite at the apple” for complete
applications limits only CFPB/RESPA
remedies
•  For FHA, if prior denial of option:
–  May re-apply if changed circumstances
•  For FHA, if prior option failure:
–  May re-apply if changed circumstances
FHA National Servicing Center
Oklahoma City Office
U.S. Department of HUD
301 NW 6th Street, Ste 200
Oklahoma City, OK 73102
Fax: (405) 609-8405 or
(405) 609-8421
www.hud.gov/offices/hsg/sfh/nsc/nschome.cfm
E-mail: [email protected]
1-877-622-8525
See also HUD Neighborhood Watch: https://entp.hud.gov/sfnw/public/ (data on
FHA loss mitigation activity by state and by servicer)
RURAL HOUSING LOANS
•  U.S.D.A.’s Rural Housing Service (“RHS,”
formerly “FmHA”) manages two singlefamily home loan programs for borrowers
in rural areas.
•  Guaranteed Loan Program: private lender,
guarantee not obvious from mortgage and
note
•  Direct Loan Program: The United States is
the lender and they tell you they are
RHS RESOURCES
Guaranteed Loans:
42 U.S.C. § 1472, et seq.
USDA Regulations: 7 C.F.R. § 1980.301, et seq.
RD Instruction 1980-D (tracks regulations) at
http://www.rurdev.usda.gov/regs/
RD Administrative Notice 4433 at
http://www.rurdev.usda.gov/regs/
•  Includes USDA Rural Development Loss Mitigation
Guide (Single Family Guaranteed Loan Program)
– Appendix 4: Loss Mitigation Checklist
– Appendix 5: Loss Mitigation Forms
RHS Guaranteed Loan Program
•  RHS Guaranteed Loans: Loss Mitigation
obligation: 42 U.S.C. § 1472(h)(13)
•  Options for RHS Guaranteed Loans
–  Special Forbearance
–  Loan Modification
–  Pre-Foreclosure Sale
–  Deed-in-Lieu
RHS-HAMP
•  For RHS-Guaranteed loans only
•  Very similar to FHA-HAMP
•  Appears in form of new final RHS Loan Modification
Regulation: 7 C.F.R. § 980.373 (effective 9/24/10)
•  HAMP Supplemental Directive 10-10 (9/17/10)
•  MHA Handbook for Non-GSE Servicers Ch. VI
–  Handbook describes servicer & borrower incentives
–  Requires servicer participation agreement to get
incentives
Rural Housing Direct Loans
These are loans directly from the United States
government (USDA) to the borrower for
purchase or construction of residence
•  “Section 502” loans under U.S. Housing Act
–  Regulations: 7 C.F.R. Part 3550
–  Handbook HB-2-3550 (Centralized Servicing
Center):
http://www.rurdev.usda.gov/regs/hblist.html
RHS Direct Loans
•  Direct Loans Special Features:
•  Interest credit/payment assistance
reduces monthly payment toward interest
based on household income
•  Periodic payment adjustments and review
•  Forborne interest is subject to “recapture”
VA Loans - Introduction
•  VA guarantees loans by private lenders
•  Available for eligible veterans
•  Can be for purchase, construction,
refinance
•  Relatively low interest rate, no down
payment
VA Loans Resources
•  Regulations: 38 C.F.R. § 36.4800-4893 &
38 C.F.R. § 4316-19
•  VA Handbook H26-94-1
•  Servicer Loss Mitigation Program
Handbook
•  Both handbooks at http://
www.homeloans.va.gov/servicers.htm
What Are the VA Options?
• 
• 
• 
• 
• 
• 
• 
• 
• 
Repayment Plan
Special Forbearance
Loan Modification
VA-HAMP
Compromise (short) sale
Deed-in-Lieu of foreclosure
Refinance
Assumption
Refunding- VA takes over loan
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