By TED CARTER
Homeowners who have fallen significantly behind on their mortgages are getting six additional months to stave off foreclosure, thanks to a new mandate from the U.S. Department of Housing and Urban Development.
HUD, in rule changes announced last Friday, is requiring servicers of Federal Housing Administration-backed loans to delay foreclosure for a full year and to evaluate all borrowers for the Home Affordable Modification Program or a similar loss mitigation program. HUD previously encouraged servicers to help get borrowers into loan-assistance programs but now is mandating they do so.
HAMP allows homeowners with mortgages taken on before Jan. 1, 2009 to work out new mortgage terms, including putting current day values on the property securing the loan and interest rate reductions.
HUD said its new rules and the “non-profit pool” provision should help make the distressed loans more attractive to non-profit organizations that participate in HUD’s Neighborhood Stabilization Outcome portion of the Distressed Asset Stabilization Program. This includes giving non-profits a first look at vacant properties, allowing purchasers to re-sell notes to non-profits and allowing a non-profit-only pool.
The first sale will be in June.
At the outset of the nation’s foreclosure crisis, HUD resold its foreclosed properties, recouping some of its costs through the principal mortgage insurance its requires on each loan its backs. In 2012, the agency began selling the distressed loans ahead of foreclosure, typically at discounts of 40 cents to 60 cents on the dollar.
The arrangement worked well enough for HUD to report at the close of the second quarter of 2014 that a resolution had been reached on 50 percent of distressed FHA loans. Of these, 34 percent avoided foreclosure and 11 percent became classified as re-performing, meaning the borrower had resumed making timely payments.
With those steps, HUD lowered its overall loss rate from 63 percent in 2010 to 53 percent in 2014, the agency reports.
Those numbers should improve even further with the additional six months HUD is giving borrowers to get mortgage help, said Phil Eide, senior VP of Jackson-based Hope Enterprise Corp.’s Community Development and Housing division.
Further, the additional time will give non-profits such as Hope Enterprise time to consider taking on some of the distressed mortgages, Eide said.
“We’re looking at that,” he said, but added: “We’re not saying we’re ready to pull the trigger.”
Hope Enterprise, parent of FHA-loan originator Hope Federal Credit Union, does not yet fully understand how the new effort will work. But “it is an intriguing opportunity,” Eide said.
“It could give us another angle for helping someone work through” mortgage distress, he said.
Before the rule changes HUD announced last week, loan servicers could foreclose six months after they received the loan and were encouraged, though not required, to assess a borrower’s qualifications for loss mitigation programs. Purchasers of the geographically targeted neighborhood stabilization pools have always been required to ensure that at least 50 percent of the loans in a pool help areas hardest hit by foreclosure avoid the neighborhood decline associated with numerous vacant properties, HUD said in a press statement last week.
“These changes reflect our desire to make improvements that encourage investors to work with delinquent borrowers to find the right solutions for dealing with the potential loss of their home and encourage greater non-profit participation in our sales,” said Genger Charles, acting general deputy assistant secretary for the Office of Housing.
“The improvements not only strengthen the program but help to ensure it continues to serve its intended purposes of supporting the MMI Fund and offering borrowers a second chance at avoiding foreclosure.”
Meanwhile, Mississippi is winding down a foreclosure prevention effort funded by a 2012 legal settlement with the nation’s main loan services for fraudulent practices.
Established through Attorney General Jim Hood’s office as the Mississippi Mortgage Foreclosure Prevention Consortium, the effort allocated $1.92 million to the Mississippi Center for Justice, North Mississippi Rural Legal Services and the Mississippi Center for Legal Services for legal assistance to distressed borrowers. The program ends June 30.
Charles O. Lee, an attorney with the Mississippi Center for Justice, said his non-profit organization used the money to help borrowers get their mortgages modified to more affordable terms. And, in some instances, the Center used the money to take loan services to court, Lee said.
“Anything we did to help homeowners stay in their homes was part of the grant,” he said.
Those efforts will continue after the grant expires next month, according to Lee.
Through the grant awards to the Center for Justice and the two other non-profit assistance organizations, many more Mississippians today know their options for keeping their homes than did earlier in the foreclosure crisis, Lee said.
“I think there is still some fallout from the crisis,” he said. “I think individuals who underwater or facing foreclosure are in a better position to be informed.”
The Mississippi Home Corp., a quasi-public housing assistance agency, received a $2.1 million allocation that went to hire counselors to advise distressed mortgage borrowers on a range of topics. Many helped by the agency were people caught up in foreclosures and in need of help repairing their credit. Others were people who needed to learn more about home buying and mortgages before buying their homes, said Scott Spivey, executive director of the agency the Legislature created in 1989 to help provide affordable housing across the state.
The Home Corp. has not had a lot of success with HUD’s Home Affordable Modification Program, according to Spivey.
“We found that a lot of our borrowers didn’t qualify for HAMP,” he said. And many of those who did qualify were discouraged to learn the modifications did not change the mortgage payment amount enough to make it worthwhile, he added.
More effective, he said, has been the Home Corp.’s participation in the Treasury Department’s Hardest Hit Fund, known in Mississippi as the Home Saver program. The program temporarily paid the mortgages of qualified homeowners who lost jobs or received pay cuts.
The loan servicers were largely receptive to working with the Home Corp. to help distressed borrowers, Spivey said. “They are not eager to foreclose. They say they don’t want to be the bad guys here.”
That’s right, said Scott Dickey, BancorpSouth’s mortgage division president.
“For us, foreclosure is always the last option and one that we certainly want to avoid if possible,” he said in an email.
The new HUD rules should provide some clarity, Dickey added. “The most recent announcement by HUD will provide additional guidance for mortgage servicers and homeowners who may be in one of the affected distressed neighborhoods.”