| After a series of failed attempts at helping | | | | "specified deposit of funds" and a hardship letter). |
| homeowners in foreclosure, California lawmakers | | | | The major blow to this program is the |
| are now proposing a state-mandated mortgage | | | | requirement that borrowers deposit 50% of their |
| mediation program. Will this provide needed relief | | | | current mortgage payment each month with the |
| to distressed borrowers or just throw another | | | | administrator while the borrower is negotiating the |
| speed bump at lenders and slow down the | | | | modification. Of course, those payments go to |
| recovery? | | | | the lender if a loan modification fails, which they |
| Assembly Bill 1639 passed committee and will | | | | do more than 60% of the time. We have already |
| head to the California State Assembly floor this | | | | seen that most loan modification programs simply |
| week. If this bill becomes law, it would establish | | | | don't work. For loan mods, there is a narrow |
| the Facilitated Mortgage Workout (FMW) program | | | | window between the front-end DTI analysis and |
| which would require lenders to meet with | | | | the Net Present Value test. If the numbers don't |
| borrowers in order to develop a modification plan | | | | fit, you fail the program. Therefore, the borrower |
| before they could proceed with foreclosure. | | | | has to come out of pocket to get into a program |
| Basic eligibility for the program is as follows: | | | | that has already been proven to fail more than |
| 1. The property must be an owner-occupied | | | | 60% of the time. Not great. |
| principal residence. | | | | As for the "required" in person meeting being |
| 2. The loan must be a 1st mortgage originated | | | | touted in the Bill, that meeting only occurs after |
| prior to Jan 1, 2009. | | | | the borrower has opted into the program, has |
| 3. The unpaid principal balance can't be more than | | | | met all of the obligations under the law, and |
| $729,650. | | | | deposited the 50% of the mortgage payment |
| 4. The law doesn't apply if the borrower has | | | | with the administrator. |
| already been offered a loan modification that | | | | There are good things about the program that |
| would cut the borrower's housing related debt to | | | | should be noted. This bill has some teeth to slow |
| 38% or less of the borrower's gross income. | | | | down the foreclosure process and give the |
| Everything sounds good so far, but, as with other | | | | borrower a chance to really think through the |
| foreclosure prevention programs, the devil is in | | | | options (including negotiating a short sale or |
| the details. | | | | possibly a "planned foreclosure" with a |
| Although the law would "require" lenders to meet | | | | cash-for-keys exit). There is also strong language |
| with borrowers prior to proceeding with | | | | requiring the lender to suspend the foreclosure |
| foreclosure, the burden for initiating the program | | | | process while the borrower is actually negotiating |
| rests fully on the borrower's shoulders (the | | | | in the program. The Bill requires a third-party |
| program isn't automatic commenced). The | | | | "conciliation officer" to be involved which might |
| borrower must take substantial measures to | | | | give the lender some perspective on the situation. |
| activate the program. The lender does have to | | | | Finally, there are tight guidelines to get an answer |
| provide notice of the program in the Notice of | | | | from the lender. |
| Default (the recording of this "NOD" commences | | | | These high points aside, it is hard to be optimistic |
| the statutory foreclosure process). This is where | | | | that this program will help many homeowners. |
| the problem starts. Most borrowers simply ignore | | | | Prior foreclosure moratoria and loan modification |
| the Notice of Default because they are | | | | programs (both state and federal) have been |
| overwhelmed once the foreclosure officially | | | | unmitigated failures. First, we had the California's |
| commences. As required by statute, borrowers | | | | Foreclosure Reform Law (Senate Bill 1137), which |
| receive about a dozen copies of the NOD all at | | | | "added" a 30-day period before the NOD could be |
| once (some are certified mail, some are regular | | | | filed. The word added is in quotes because lenders |
| mail, and some are posted at the home). I have | | | | typically wait something like 90 or 120 days after |
| personally seen borrowers simply collect all the | | | | the borrower is in default before filing for |
| mail from the lender, including the NOD, and shove | | | | foreclosure, so there really is no additional time |
| it all in a drawer, unopened. | | | | granted to the borrower. This was pointless |
| Further, even if the borrower opens the NOD, the | | | | legislation Then, the California Foreclosure |
| mediation program notice will be buried behind | | | | Prevention Act (ABX2 7 and SBX2 7) added an |
| multiple pages of recently enacted statutory | | | | additional 90 day period between the NOD filing |
| required disclosures. Borrowers may never even | | | | and the Notice of Trustee Sale (this "NTS" sets |
| learn of the new mandated program and will most | | | | the actual foreclosure auction date for the home). |
| likely miss the 30-day deadline to opt in even if | | | | However, that law provided an exemption that |
| they do find the notices. | | | | my 3 year old daughter could find her way |
| If the borrower actually receives and reads the | | | | through. Therefore, essentially no lender is subject |
| notice and then wishes to opt into the mediation | | | | to the extra 90-day period whatsoever. This was |
| program, the borrower must complete a | | | | also pointless legislation. Finally, we all know about |
| (yet-to-be determined) form and return it to the | | | | the ongoing failure of the Treasury's much hyped |
| administrator of the program within 30 calendar | | | | HAMP modification program. |
| days of receiving the notice of default. Further, | | | | For all its good intentions, Assembly Bill 1639 |
| the borrower will be required to provide "other | | | | appears to be just more of the same: Pointless |
| information" within 15 days of the request to | | | | legislation. |
| participate (tax returns, income verification, a | | | | |