Who owns my loan? The difference between Investor and Servicer (part 2)

In Part 1 we defined Servicer & Investor,

Investor: the owner of your mortgage/note (your Investor may change during the life of your loan). The Investor provides servicing guidelines which instruct the Servicer how to handle the loans owned by that particular Investor.

Servicer: the middle man between you and the Investor. Servicers are responsible handling all collection records, activities and communications with the Borrower. The Servicer reports to the Investor.

Servicing rights can also be sold and the loan is then transferred to the new Servicer. Under RESPA and Dodd-Frank, the Borrower must receive notice when a transfer of service takes place. Usually the Borrower will receive two notices; one from the current (and soon to be former) Servicer which will provide the date that the new Servicer will take over and the current Servicer will no longer accept payments, and the second from the new Servicer which will provide additional details regarding the new loan number, whom you can contact for questions and where to send your payments.

Your Mortgage Servicer may be required to provide modifications under certain programs. The Department of Justice and the Attorney Generals have a settlement with the five major mortgage Servicers which requires them each to offer a number of modifications, including modifications that reduce principal. These are often called “DOJ” or sometimes “AG” modifications.

The government HAMP program requires Servicers who accepted TARP funds to provide HAMP modifications to eligible borrowers. HAMP also allows Servicers to voluntarily participate in the program. The Servicer is responsible for contacting the mortgage Investors to solicit and encourage participation for those who may have restrictions on modifications that might otherwise prohibit a HAMP modification. Whether your loan is eligible for HAMP depends on whether or not the Servicer of your mortgage participates in the HAMP program. The only exception being: if your Investor is Fannie Mae or Freddie Mac then your loan is eligible for HAMP despite a non-participating Servicer.

Q. How does the transfer of service affect my loan modification application?

A. Similarly, a Borrower may benefit if their loan transfers from a Servicer that does not and is not required to participate in HAMP to a Servicer who participates in HAMP. However, if the new Servicer is not a HAMP participant, it must still evaluate and provide HAMP modifications to loans eligible at the time of transfer. We have seen a similar trend for DOJ Servicers transferring loans to Servicers outside of the DOJ settlement.

Unfortunately, although mortgage and payment records transfer to the new Servicer, a loan modification application will have to be updated and resubmitted to the new Servicer with the new loan number.

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Q. What if my loan is transferred to a new Servicer during my Trial Modification?

A. The new Servicer should abide by the Trial Modification agreement or offer. Any borrower in this situation needs to make certain that their trial payments are being sent to the correct location and counted towards their trial requirements.

Who owns my loan? The difference between Investor and Servicer (part 1)

When you take out a mortgage from “Quick Mortgage Bank” (for example), it is common practice for that Mortgage Lender to sell your mortgage/note on the secondary mortgage market. This allows the original lender, “Quick Mortgage Bank” the financial ability to make more loans. The new owner, generally referred to as the Investor (or Mortgagee), may be Fannie Mae or Freddie Mac, another big name bank, or a REMIC trust. A mortgage/note may be sold several times during its existence. (Under RESPA & Dodd-Frank, you should receive a notice each time your loan is sold and to whom it has been sold.)

You may continue to send payments to “Quick Mortgage Bank” or another big name bank who acts as a middle man between you, the Borrower (aka Mortgagor) and the Investor. This bank is called the Mortgage Servicer.

Q. How does the sale of my mortgage/note affect my loan modification application?

A. The investor provides guidelines and restrictions to the way a mortgage can be modified. When a new investor comes into play, your loan may be eligible for additional modification options

For Example: We have seen cases where an investor does not allow modifications in certain situations but when the loan is sold to another investor who does not have that restriction; the borrower’s loan is no longer ineligible and he or she may qualify for a modification.

or your loan may now be restricted from certain changes.

For Example: Some investors restrict changes to length of the mortgage term. There may be a guideline that whereby you cannot extend the existing term of the mortgage. Under the government program HAMP, there are provisions to accommodate such restrictions without disqualifying the borrower from a HAMP modification.

But generally, the sale of your mortgage/note will go unnoticed and will not affect your modification application.

Q. Can I force the Investor to sell my mortgage/note to an Investor who allows modifications?

A. The Borrower has very limited rights regarding the mortgage/note and has no say in the sale of the mortgage/note is sold. However, in a rare circumstance, a Borrower may have defenses in the foreclosure law suit which can be used to encourage the sale of a mortgage/note to a more lenient Investor, if such an Investor is a willing participant. 

Mortgage Modifications for Million Dollar Mortgages

After rejecting a mortgage loan modification application I had submitted for Lake County clients with a $2.1 million dollar mortgage, a Chase Loss Mitigation Supervisor/Manager chastised me, saying:

"Loan modifications are not for people with million dollar mortgages. They are for low and middle income homeowners who have experienced financial difficulties. They are certainly not for the wealthy with multi-million dollar homes."

That is simply not true!  Months after that conversation, we obtained a principal reduction modification for these clients, with approximate terms as follows:

1. The new mortgage balance would be reduced from about $2.1 million to less than $900,000.   Over $1.2 million of the principal balance was forgiven...wiped out, erased.
2. Mortgage payments were reduced by over $5,000 per month.

We obtained a modification for another family with a multi-million dollar home in which their monthly payments were reduced from a whopping $17,000 a month to less than $6,000 per month.  For that family, we also obtained an EXTINGUISHMENT of their second mortgage of over $450,000, under the National Mortgage Settlement Agreement, a/k/a the Attorney General/ Department of Justice Consent Order.  That means the second mortgage was completely forgiven by the lender.  My clients no longer owed the $450,000.  That's like winning the lottery! That also reduced their monthly housing payments by another $1,300 per month, for a total savings of more than $12,000 per month.

The above are just two of many success stories with jumbo and million dollar plus mortgages.  If you have a mortgage balance exceeding the HAMP Mortgage Limits, don't assume it can't be modified, and don't accept the response from a lender representative telling you so.  Your mortgage may be too large to qualify for one type of modification, but not for all types.

Note that it is a good idea to get professional help with any loan modification application.  However, for large mortgages, like the ones above, the cost of good legal representation is miniscule compared to the size of the benefit it can bring the homeowner.  The cost of good legal representation might be far less than your savings for just one month.  Also, with the availability of principal reductions and extinguishments today through Principal Reduction Alternative HAMP "PRA HAMP," HAMP Tier II, the AG/DOJ Consent Order, and other programs, you might feel as if you've "Won the lottery" when you receive your loan modification.

Finally, whatever you do, don't just walk away from your home because you think your mortgage is too big to be modified or because your home is underwater, i.e., you owe more than it's worth.  Apply for a loan modification with principal reduction first... but that's another blog for another day.

Discharge Eligibility - When Can I file a new bankruptcy case?

Bankruptcy is a tool and product of federal law, and the truth of the matter is that, due to a huge variety of circumstances, it may be necessary to file more than one bankruptcy case.  The question then becomes "when can I file a new bankruptcy case?"

First of all, it is important to realize that being eligible to file for a particular form of bankruptcy relief is not the same as being eligible for bankruptcy discharge.  Eligibility for filing bankruptcy simply allows debtors to go through the process.  Discharge eligibility determines whether a discharge order will be entered at the end of the case; the discharge order is what actually eliminates the debts.

In some cases, using a Chapter 13 bankruptcy, even if a debtor is not eligible for discharge, can be a very effective way to manage debt.  The lack of discharge at the end can make the decision difficult, but it can still be the right decision for a given circumstance.

Eligibility for discharge is determined by the filing date of the previous case.

New Case	Old Case	Waiting Period	Statute
Chapter 7	Chapter 7	8 years	11 USC §727(a)(8)
Chapter 7	Chapter 13	6 years, or  none if the last case paid 70% or more on claims	11 USC §727(a)(9)
Chapter 13	Chapter 7	4 years	11 USC §1328(f)(1)
Chapter 13	Chapter 13	2 years	11 USC §1328(f)(2)

• If your previous case was a Chapter 7 case, and you want to file a new Chapter 7 case, you have to wait 8 years from the filing of the previous Chapter 7 case to be eligible for discharge in the new Chapter 7 case.
• If your previous case was a Chapter 13 case, and you want to file a new Chapter 7 case, then you have to wait 6 years from the filing date of the previous Chapter 7 case to file new the Chapter 13 case.  However, if the payments made in the previous Chapter 13 case paid more than 70% of the claims, then you can file a Chapter 7 immediately after the Chapter 13 is completed.
• If your previous case was a Chapter 13 case, and you want to file a Chapter 7 case, you must wait 4 years from the filing date of the Chapter 13 case to file the new Chapter 7 case.
• If your previous case was a Chapter 13 case, and you want to file a new Chapter 13 case, you must wait 2 years from the filing date of the previous Chapter 13 case to file the new Chapter 13 case.

11 USC 1328(f)(1) and (2):

(f) Notwithstanding subsections (a) and (b), the court shall not grant a discharge of all debts provided for in the plan or disallowed under section 502, if the debtor has received a discharge—

(1) in a case filed under chapter 7, 11, or 12 of this title during the 4-year period preceding the date of the order for relief under this chapter, or

(2) in a case filed under chapter 13 of this title during the 2-year period preceding the date of such order.

11 USC §727(a)(8) and (9):

(8) the debtor has been granted a discharge under this section, under section 1141 of this title, or under section 14, 371, or 476 of the Bankruptcy Act, in a case commenced within 8 years before the date of the filing of the petition;

(9) the debtor has been granted a discharge under section 1228 or 1328 of this title, or under section 660 or 661 of the Bankruptcy Act, in a case commenced within six years before the date of the filing of the petition, unless payments under the plan in such case totaled at least—

(A) 100 percent of the allowed unsecured claims in such case; or

(B)

(i) 70 percent of such claims; and

(ii) the plan was proposed by the debtor in good faith, and was the debtor’s best effort;