Vicki Vidal, Senior Director Government Affairs at the MBA has requested from MBA members that any comments or concerns should be sent  by Monday, October 15 to Meghan Sullivan at mwsullivan@mortgagebankers.org and copied to Vicki VVidal@mortgagebankers.org. The MBA will draft a response as the state is open to comments for a brief time. 

A final proposed compact will be released on November 8th.

Following is a summary of the Compact provided by Vicki Vidal.

Summary
 
For the purposes of the compact, “subprime” is defined as loans for which the rate spread must be reported under HMDA as well as loans to owner-occupants with a FICO score of 620 or less. 

“Prepare for Large-Scale Modifications”

This requires servicers to pledge to prepare staffing and resources necessary and engage foreclosure counsel to perform large-scale modifications of residential owner- occupied subprime loans by:

• Informing all staff and all foreclosure counsel of the commitments in the compact
• Creating a single- toll-free number dedicated to connecting borrowers to LIVE loss-mitigation, not collection, staff. The live staff must have the “skills and authority to make binding modifications to borrowers’ loan agreements”
• When workout and modification options are not available due to contractual concerns, the compact requires servicers to: “pledge to use best efforts to secure amendments to servicing agreements that will authorize servicers to effect large-scale workouts and modifications.” In the future, servicers “pledge to use their best efforts to maximize the workout and modification provisions included in their servicing agreements, in accordance with customary and usual standards of prudent mortgage servicing.”

“Identify and Contact At-Risk and Defaulting Borrowers”

For subprime ARM loans, beginning six months prior to a reset, servicers must provide borrowers on a recurring monthly basis both written and telephonic notice that:

• They have an ARM about to reset, along with the current rate and corresponding payment prior to reset as well as the anticipated future interest rate and corresponding payment following reset.
• Specific notification of possible workout options, as well as specific notification that the possible workout options will include amounts for mortgage payment only, and not any escrowed amounts.

For low- and no- doc loans, servicers agree to make “reasonable efforts to obtain appropriate documentation” verifying income, assets, and liabilities and utilize that information in attempting loan modification or workout.None of these documentation costs may be added to the principal of the loan or otherwise charged to the borrower.

In circumstances where the servicer has exhausted good faith efforts to modify a defaulting loan and chooses to initiate foreclosure proceedings, the servicer must

• Assign an individual staff member that is not foreclosure counsel as a single point person for the affected borrower. This staff member shall maintain regular contact with the borrower or the borrower’s attorney with the goal of reinstating the loan and avoiding foreclosure.
• Provide notification to the borrower 10 days in advance of referral to foreclosure counsel of the servicer’s intent to foreclose, expressly providing the borrower with the contact information for the individual staff person assigned as the point person for the borrower.

“Utilize Preferred Workout Methods”

•  Servicers pledge to modify loan terms to the greatest extent possible so as to provide “permanent, affordable” relief.
• Where necessary to keep or make a loan a performing asset, and in accordance with existing contractual obligations servicers pledge to waive, late fees, prepayment penalties, refinancing or modification fees, inspection fees, security fees, and attorney fees and to include servicers escrows for taxes and insurance if not already present.
• When possible, servicers pledge to avoid submission of adverse credit information to any credit reporting agency where the borrower’s acceptance of any of the following modification keeps or makes the loan a performing asset. For subprime ARMs where payment shock will likely cause delinquency, servicers agree to offer streamlined loss mitigation options to maintain the borrower’s ability to repay, factoring in escrows if the borrower isn’t current on taxes and insurance.

If the loan is modified to a fixed-rate loan, the resulting fixed rate can only exceed the introductory rate if the servicer documents ability to pay the higher rate factoring in escrow for taxes and insurance. Documentation shall include proof of taxes and insurance premiums, a new appraisal, current credit scores, and a “conservative” DTI analysis. Borrower shall not be charged for this documentation.

For subprime low- and no-documentation and stated income loans, servicers will modify the loan to make payments feasible, including, but not limited to converting the interest rate to an affordable fixed rate.

For borrowers whose existing debt exceeds the fair market value of the collateral by 10% or more and the borrower wishes to “stay in their home while documenting a reasonable ability to make payments on a reasonable fixed-rate mortgage,” servicers agree to offer workout packages based on the ability to pay that puts the borrower in the position they would have been in had “an accurate valuation” been used in the origination of their loan, subject to legal and contractual ability to do so.

If federal legislation is passed to remove tax consequences arising from the forgiveness of mortgage debt, servicers agree to forgive any loan principal representing the excess appraised value, where legally and contractually permitted to do so.

Servicers agree to remove any negative reports on the borrower’s credit report related to default of loans described above and will assist borrowers in improving credit scores where loan modification results in a performing loan.
 
“Improve Incentive Structure”

• Servicers will create incentives for staff and foreclosure counsel to achieve workouts instead of foreclosure
• All interaction with borrowers and efforts made to workout the loan must be documented
• Loss mitigation staff must certify in writing that the borrower was notified of modification options before directing the matter to counsel. 
• Servicer must provide foreclosure counsel with notice of servicer’s participation in the compact, an explanation of the servicer’s loss mitigation procedures, a complete copy of the borrower’s loan file. 
• Foreclosure counsel will certify in writing that they have notified the borrower of modification options and has attempted to workout the mortgage. 

“Reporting”

Requires monthly progress reports signed by an officer of the company certifying their accuracy that include:

• Number of subprime owner-occupied loans in OH
• Type and percentage of workout types and total number of foreclosure suits initiated
• Annualized value of the unpaid principal of the servicer’s newly defaulting subprime loans as a percentage of the total value of all subprime loans in OH that month
• A breakdown of 30-, 60-, 90- day delinquency and foreclosure rates on subprime loans in the state.

“Term”

Effective 11/8/07 until the 12-month moving average of foreclosure filings in OH declines for four consecutive months or 12/31/10, whichever occurs first.

To view the Compact in its' entirety, please click here.

To view the Press Release from the Governors office, please click here

To view an alert from the Ohio Mortgage Bankers Association, please click here.

For local media reports, please click on the following links

Cleveland Plain Dealer

Youngstown

Columbus Dispatch

About Safeguard
Safeguard Properties is the largest privately held field services company in the country. Located in Cleveland, OH  and founded in 1990 by Robert Klein, Safeguard has grown from a regional preservation company with a few employees and a handful of contractors performing services in the Midwest, to a national company with over 425 employees.  Safeguard is supported by a nationwide network of subcontractors able to perform any requested superintendence, preservation, and maintenance functions, as well as numerous ancillary services in the U.S., the Virgin Islands, and Puerto Rico