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Mortgage Servicing and Loan Modifications: 6.7.3.2 The 2MP Trial Period Plan

A three-month trial period was required under the program if the borrower was two or more payments delinquent on a second lien mortgage when offered the modification.315 A trial plan was not required if the borrower was current on the mortgage and the amount of the borrower’s monthly payment was equal to or greater than the amount that would be due after modification.316 The plan may not run concurrently or overlap the HAMP or Standard Modification trial period, unless the servicer is the same f

Mortgage Servicing and Loan Modifications: 6.7.3.3 2MP Modification/Extinguishment Steps

The program provided two alternatives for servicers of second lien mortgages: modify the loan, or receive a payment in exchange for releasing the lien (extinguishment).321 Servicers could partially extinguish or forgive a portion of the principal and then modify the loan.322 However, the converse was not allowed; if the second lien mortgage was modified under 2MP, the loan was not eligible later for a full or partial extinguishment of the loan.

Mortgage Servicing and Loan Modifications: 6.7.3.4 2MP and Borrowers in Bankruptcy

The guidelines regarding borrowers in bankruptcy in 2MP paralleled those of the first lien modification program. Borrowers with active chapter 7 or chapter 13 bankruptcy cases were eligible for 2MP if the borrower, borrower’s counsel or the bankruptcy trustee (with the borrower’s permission) submitted a request to the servicer.

Mortgage Servicing and Loan Modifications: 6.7.3.5 2MP Incentives

Servicers of second liens modified or extinguished under the program received a $500 fee.339 If the amount of the borrower’s monthly payment on the second lien was reduced by six percent or more, the servicer also received a fee of $250 for up to three years as long as both the HAMP modification and second lien modification remain in good standing and the loan has not been paid in full.340 This was in addition to any incentive compensation the servicer may have received for modifying the first l

Mortgage Servicing and Loan Modifications: 6.7.4 Home Affordable Unemployment Program (UP)

The Department of the Treasury on May 11, 2010, announced the Home Affordable Unemployment Program (UP), effective July 1, 2010.342 For up to twelve months, participants were able have their monthly mortgage payment reduced to less than or equal to thirty-one percent of their gross monthly household income, or their payments could be suspended in full.343 Servicers were given discretion to extend the period beyond twelve months, according to their investor/regulatory guidelines.

Mortgage Servicing and Loan Modifications: 6.7.5 Home Affordable Foreclosure Alternatives (HAFA)

HAFA Assistance was potentially available to borrowers who did not qualify for HAMP, who were offered a modification but declined it, who defaulted on a HAMP modification, or who did not successfully complete the terms of a trial period plan.357 Under the Home Affordable Foreclosure Alternatives (HAFA) portion of the Making Home Affordable program, borrowers were offered a short sale or a deed in lieu of foreclosure as a means of avoiding foreclosure.

Mortgage Servicing and Loan Modifications: 6.7.7 Treasury/FHA Second Lien Program (FHA2LP)

Under the Treasury/FHA Second Lien Program (referred to as FHA2LP), the Treasury provided incentives to servicers and investors of second lien mortgages to fully or partially extinguish these second loans as part of the refinance process.365 FHA2LP became effective on September 27, 2010 and expired on December 31, 2013.366 This program was designed to complement the FHA Short Refinance program, which allows borrowers who are current on their mortgage to refinance into an FHA-insured loan, provid

Mortgage Servicing and Loan Modifications: 6.7.8.2.1 Introduction

Under the terms of the National Mortgage Settlement, the five original servicers were required to set aside money to provide various forms of financial assistance to borrowers. Consumer relief was provided in the form of cash payments to former homeowners, loan modification and refinance programs for existing homeowners, and other assistance.375 Both the modification and refinance programs targeted borrowers who were underwater, that is they owed more on their mortgage than their homes were worth.

Mortgage Servicing and Loan Modifications: 6.7.8.2.2 Consumer relief provisions from other settlements

The Ocwen and Sun Trust Mortgage consumer relief provisions provided for modifications for loans that were underwater. Ocwen was to receive credit for modifications with principal reductions for loans that were underwater.376 Borrowers who were at least thirty days delinquent or at imminent risk of default could qualify for a modification that reduces the principal and interest payment at least ten percent.

Mortgage Servicing and Loan Modifications: 6.7.8.3.1 Introduction

The National Mortgage Settlement provides detailed guidelines and standards related to the servicing of loans in foreclosure and the loss mitigation process. The standards are meant to address some of the abuses unearthed in the government’s investigation of servicing practices of the original five servicers, including widespread use of “robo-signed” affidavits in foreclosure proceedings. The servicing standards are contained in Exhibit A (referred to as the “Settlement Term Sheet”) to each of the five consent judgments.

Mortgage Servicing and Loan Modifications: 6.7.8.3.5 Authority to foreclose

Servicers must implement procedures ensuring that the servicer or foreclosing entity has a “documented enforceable interest” in the note and mortgage under state law, or is otherwise a proper party to the foreclosure action.388 A statement setting forth the basis that the foreclosing party has the right to foreclose must be set forth in a pleading or affidavit of indebtedness filed in court foreclosure proceedings, and in the preforeclosure notice sent to borrowers.

Mortgage Servicing and Loan Modifications: 6.7.8.3.6.1 Proofs of claim

The five servicers must ensure that any factual assertions made on the proof of claim form or in any of its attachments are accurate, complete, and supported by competent and reliable evidence.389 If the servicer has filed a proof of claim or stay relief motion in a case pending before the settlement that contains materially inaccurate information, the servicer may not rely upon the claim or motion, and must file an amended claim or motion, at the servicer’s expense, within thirty days of acquiring knowledge of the inaccuracy.

Mortgage Servicing and Loan Modifications: 6.7.8.3.6.2 Bankruptcy mortgage rules

The five servicers must also comply with the notice requirements under Bankruptcy Rule 3002.1(b) (notice of payment changes), Rule 3002.1(c) (notice of postpetition fees or charges), and Rule 3002.1(g) (response to notice of final cure payment).394 The Settlement imposes a sanction for noncompliance separate from that available under Bankruptcy Rule 3002.1(i).

Mortgage Servicing and Loan Modifications: 6.7.8.3.6.3 Stay relief motions

The settlement imposes additional requirements on servicers when they seek relief from the automatic stay in a borrower’s chapter 13 case in order to foreclose on the borrower’s home under state law.397 These requirements generally demand more evidentiary support for the motion than under current procedural rules in most bankruptcy courts, so attorneys should review stay relief documentation for compliance.

Mortgage Servicing and Loan Modifications: 6.7.8.3.6.4 Payment application in chapter 13 cases

The settlement also addresses payment application issues in chapter 13 cases. The servicers must ensure that there is prompt and proper application of payments made on prepetition arrearage and postpetition payment amounts.398 The debtor is to be treated as being current so long as the debtor is making payments in accordance with the confirmed plan and any later effective payment change notices.

Mortgage Servicing and Loan Modifications: 6.7.8.4.1 Monthly statements

The servicers are required to send monthly billing statements to borrowers containing the following account information: total amount due; allocation of payments (including notation if any payment has been posted to a suspense account); unpaid principal; fees and charges for the relevant time period; current escrow balance; and the reasons for any payment changes (no later than twenty-one days before the new amount is due).399 The billing statement requirement does not apply if the borrower is provided a coupon book for a fixed rate mortgage

Mortgage Servicing and Loan Modifications: 6.7.8.4.2 Servicing fees

The settlement requires that fees collected from borrowers be bona fide and reasonable.401 They must be disclosed in the preforeclosure notice and in a schedule of fees that each servicer must maintain and keep current. The schedule must be available on the servicer’s website or to the borrower (or their representative) upon request.402 It must identify and provide a plain language explanation of each fee, and state the maximum amount of the fee or how the fee is calculated.

Mortgage Servicing and Loan Modifications: 6.7.8.4.3 Application of payments

The Settlement appropriately distinguishes between daily accrual (or daily interest) loans and scheduled loans. For daily accrual loans in which a delay in posting payments can cause the borrower to incur additional interest charges, the Settlement requires that servicers post all payments made by the borrower no more than two business days after receipt at the address specified by the servicer. Diversion of these payments to a suspense or unapplied funds account, even those payments that are less than a full contractual payment, is not permitted.

Mortgage Servicing and Loan Modifications: 6.7.8.4.4 Force-placed insurance

The Settlement provides a significant protection to borrowers not found in existing regulation of force-placed insurance, through a similar requirement under Regulation X which went into effect on January 10, 2014.412 It requires the servicer to advance payments for the borrower’s existing insurance policy rather than force-place insurance if the mortgage has an escrow account and the borrower or insurance company does not cancel the existing policy.413 Although this protection does not extend t