Recognizing that no homeowner should lose his or her home while experiencing financial hardship and considering the impending problems in the mortgage sector, HOPE NOW, the largest alliance of lenders, servicers, investors and counselors, has taken the necessary steps to prevent home foreclosures by establishing a uniform set of procedures and guidelines for all of its servicer members.
The new guidelines involve four principle objectives, which are to inform, expedite, protect and remedy.
In terms of the goal to inform, active HOPE NOW member servicers are expected to communicate effectively with borrowers about the options that they have to keep their homes. For instance, member servicers should contact homeowners with adjustable mortgage loans that are at risk of defaulting 120 days in advance of the borrower's reset date.
Additionally, servicers are expected to provide free confidential counseling in the form of hotlines, fax and email as direct ports of entry available to all Department of Housing and Urban Development-certified housing counseling agencies and counselors.
Member servicers have to report on loan performance to gauge the industry's progress in reducing foreclosure volume and increasing loss mitigation options to distressed homeowners. These actions are aimed at increasing transparency and clarity in the mortgage process.
In order to protect homeowners and best prevent foreclosures, servicers agreed to implement a streamlined loan modification process that is consistent with the American Securitization Forum guidance dated Dec. 6, 2007.
Servicers should also utilize loss mitigation options consistent with investor guidelines, including forbearance - where the homeowner's monthly payments are suspended - and repayment, which is when the delinquent homeowner resumes regular monthly payments. HOPE NOW believes that the extensive set of options that mortgage servicers use will greatly help to avoid foreclosures. These options may also allow delayed foreclosure proceedings and the possibility for the homeowner to remain in his or her home.
According to the guidelines, a key mitigation option is modification, which can include reducing the interest rate temporarily or permanently, fixing the interest rate temporarily or permanently on ARM loans, extending the term of the loan, deferring and capitalizing past due amounts, deferring principal (causing a balloon payment to be due at maturity or some other date), conditionally forgiving a portion of the debt or forgiving a portion of the debt.
Member servicers should transmit an acknowledgement of a request from a homeowner or an authorized third-party housing counselor seeking consideration or application for a loss mitigation option within five business days or less from receipt of the request. By acknowledging the homeowner's request, the servicers are showing commitment to their goal of protecting the interests of the homeowner.
HOPE NOW also put out guidelines for second mortgages and short sales, two of the most difficult foreclosure-related issues, will remedy the homeowner's negative experiences related to these issues. Subject to applicable servicing agreement limitations, servicers of second liens should re-subordinate their loans with respect to an existing first lien, where the second lien holder's position is not worsened as a result of a refinance or loan modification.
However, most securitization servicing agreements will not permit subordination if the resulting combined loan-to-value ratio of the new or revised mortgage loan is higher than the combined loan-to-value ratio prior to such transaction. Subordination is also not allowed if the interest rate on the new or revised loan is more than 2% higher than the existing rate or if the new or revised loan is subject to negative amortization.
To expedite the foreclosure prevention process, HOPE NOW will have a timetable (see chart page 18) for each mortgage servicer that, in turn, gives deadlines for homeowners to take the appropriate action on their mortgages.
The mortgage servicers participating in the agreement are: Acqura Loan Services, Assurant, Aurora Loan Services, Avelo Mortgage, Bank of America, Carrington Mortgage Services, Chase, Citigroup, Countrywide, EMC Mortgage, First Horizon and First Tennessee Home Loans, GMAC ResCap, Home Loan Services, HomEq Servicing, HSBC Finance, Indymac Bank, LandAmerica Financial Group/LoanCare Servicing Center, Litton Loan Servicing, National City Mortgage, Nationstar Mortgage, Ocwen Loan Servicing, Option One Mortgage, Saxon Mortgage Services, SunTrust Mortgage, Washington Mutual, Wells Fargo & Company and Wilshire Credit.
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