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Bankruptcy Basics: Avoidance Formula.

Section 522(f)(2) employs a mathematical formula to determine whether a lien impairs an exemption and can thus be avoided. Application of this formula can result in the total or partial avoidance of a lien. When the total value of the property which the lien covers can be claimed as exempt, then any amount of liens on that property can be avoided. However, if a lien only partially impairs an exemption, only that portion of the lien may be avoided.

Bankruptcy Basics: Mortgage Workout Compared to Chapter 13 Bankruptcy.

A chapter 13 bankruptcy can often be structured to give the homeowner a plan similar to a mortgage workout. But there are differences. Unlike a workout involving a loan modification, a chapter 13 bankruptcy plan will generally not change the interest rate or loan term for the mortgage as a whole, and will not involve forgiveness of delinquent amounts. There are also expenses to file a bankruptcy case and a portion of the payments paid under the plan (approximately ten percent) will be retained by the bankruptcy trustee as a commission.

Truth in Lending: 10.3.3.5 Rescission by Recoupment Where Consumer Attempted to Exercise Rescission Within the Three-Year Period

In some cases, careful investigation may reveal that the consumer made some efforts to rescind or cancel the transaction within the three-year period.436 For example, the consumer may have included a request for cancellation in a letter that the creditor ignored.437 Courts were split on whether anything short of a lawsuit is sufficient to exercise the right of rescission for purposes of the three-year limit in section 1635(f).438 The Su

Truth in Lending: 9.10.2.1 General

The Helping Families Save Their Homes Act of 2009 (hereinafter the 2009 Act) amended TILA to require that borrowers be notified whenever ownership of their mortgage loan is transferred.1145 The Act applies to all mortgages secured by the consumer’s principal dwelling.1146 This includes loans secured by manufactured homes that are a consumer’s principal dwelling.

Truth in Lending: 5.11.2.8.7.3 “Adjustable Payment (AP) Table” subsection

If the periodic principal and interest payments may change after consummation but the change is not due to an adjustment of the interest rate (or if the product is a seasonal payment product), the “Adjustable Payment (AP) Table” subsection must appear next in the “Additional Information About This Loan” part of the closing disclosure form.1164 The creditor must answer yes or no whether the transaction includes interest only payments, optional payment amounts (payments in an amount other than the scheduled payment), step payments, or seasona

Truth in Lending: 5.11.2.7.6.6 “Adjustable Interest Rate (AIR) Table” subsection

If the interest rate may increase after consummation, a separate “Adjustable Interest Rate (AIR) Table” subsection must appear under the “Closing Cost Details” master heading.957 If the legal obligation does not allow the interest rate to change, the creditor must not include this table in the loan estimate.958 This table must include the following in this sequence:959

Home Foreclosures: 8.2.2.1 Overview

Mortgage loans typically involve a thick stack of paperwork. Some of these documents are required by federal or state law. Others are used because of industry custom or lender practice. Some documents, such as a pooling and servicing agreement or an assignment, may be generated after the loan closing as the loan travels through the secondary mortgage market. Mortgage servicers also generate records, such as payment histories and escrow account information, which may be relevant to a homeowner’s claims.

Home Foreclosures: 8.2.5.2 Payment History

A complete life-of-the-loan payment history should be obtained from the current servicer. The payment history should provide a complete breakdown of all transactions from the date of the original loan closing to the present. The payment history should show each payment received as well as how that payment was credited.

Home Foreclosures: 8.2.5.3a Periodic Statements

For closed-end loans, servicers are required to send periodic statements to borrowers on residential mortgage loans unless an exemption applies.40 Exemptions to the periodic statement rule apply to reverse mortgages, timeshare plans, and if the servicer provides the consumer with a coupon book that provides specific information about the loan, a practice not much used anymore.41 Small servicers, as defined an

Home Foreclosures: 8.2.5.6a Bankruptcy Notices

If the borrower filed a chapter 13 bankruptcy case to cure a mortgage default after December 1, 2011, Bankruptcy Rules 3001 and 3002.1 require the servicer to disclose prepetition default fees and arrearage amounts on the initial proof of claim, send notices of any mortgage payment changes, send notices of any fees and expenses that are charged to the borrower’s account during the case, and file a response at the end of the case indicating whether the borrower has fully cured the default.53

Home Foreclosures: 8.2.7.6 Rating Agencies

Credit rating agencies provide opinions on the creditworthiness of particular companies, securities, or obligations. The growth of complex financial products in the mortgage market has meant that the rating agencies play a bigger role in this sector. As a result, the agencies collect a tremendous amount of data related to lenders, servicers, insurers, and other parties involved in mortgage transactions. This data includes both financial and operational information.

Mortgage Servicing and Loan Modifications: 7.1 Overview

Fannie Mae and Freddie Mac are the common names for two government-sponsored entities (GSEs) created by Congress to provide liquidity in the housing market by purchasing and investing in mortgage loans. Fannie Mae, more formally known as the Federal National Mortgage Association, is the largest of the two corporations and one of the biggest investors in the mortgage marketplace.

Mortgage Servicing and Loan Modifications: 7.2.1 The Servicing Alignment Initiative and CFPB Rules

The servicing alignment initiative is an FHFA-led effort to standardize and streamline the servicing of delinquent mortgages owned or guaranteed by Fannie Mae and Freddie Mac.7 The initiative sought to establish consistent policies and processes between the two corporations in several key areas: outreach and communication with homeowners; management of the foreclosure process; requirements for loan modification and other workout options; and time standards with respect to the foreclosure process.

Mortgage Servicing and Loan Modifications: 7.2.3.1 In General

The servicing alignment initiative, by design, speeds up the foreclosure process by streamlining the process and setting strict timelines. Unfortunately, a faster foreclosure process puts homeowners at greater risk of foreclosure, especially when they have submitted, and are awaiting a decision on, a loss mitigation application. The GSEs’ servicing guidelines address the problem of dual tracking, the simultaneous processing of a workout application and pursuit of foreclosure, by providing detailed requirements regarding foreclosure referral and suspension.

Mortgage Servicing and Loan Modifications: 7.3.1.1 Introduction

Simultaneously with the phasing out of the HAMP program in December 2016, Fannie Mae and Freddie Mac announced the implementation of a new Flex Modification program. The Flex Modification replaces not only the GSEs’ version of HAMP, but also the Standard Modification and Streamlined Modification that the GSEs offered in the past. In the post-HAMP world, the Flex Modification is the only form of modification routinely offered by the servicer of a mortgage loan owned or guaranteed by one of the GSEs.

Mortgage Servicing and Loan Modifications: 7.3.1.3.1 Overview

The Flex Modification provides a modification with uniform terms and with limited reliance on individual borrower financial information. A borrower who submits a complete loss mitigation application to a servicer within ninety days of becoming delinquent is eligible to be evaluated under Flex Modification terms that are slightly more favorable than the standard used for a borrower who did not apply early. The evaluation of the early application may take the borrower’s income into account, and in some limited cases this may produce a more affordable payment.

Mortgage Servicing and Loan Modifications: 7.3.1.3.2 The application for a Flex Modification

The GSEs require that borrowers complete a Uniform Borrower Assistance Form (GSE Form 710) if they wish to apply for any of the approved GSE loss mitigation options, including the Flex Modification.53 The four-page form requires that the borrower list income and expenses and answer basic eligibility questions, including designation of a hardship. The borrower must submit income documentation along with the completed Form 710. The form itself describes how the borrower must document income.

Mortgage Servicing and Loan Modifications: 7.3.1.3.3 When can the borrower apply for a Flex Modification?

A borrower is eligible to be considered for a Flex Modification when the loan is at least sixty days delinquent.62 In addition, a borrower who is current or less than sixty days delinquent can be reviewed for a Flex Modification if the borrower meets the “imminent default” standard defined by the GSEs.63 As under their prior modification protocols, the GSEs use a standardized calculator to determine whether a borrower meets the imminent default standard.64

Mortgage Servicing and Loan Modifications: 7.3.1.3.4 The trial period plan offer

When a servicer reviews a borrower for a Flex Modification after receipt of a borrower response package it relies primarily on information from its own records. This includes any property valuation estimate it has obtained. The servicer refers to the borrower’s income information in the borrower response package only when the borrower submitted the package within ninety days of default. In these cases, the servicer considers an additional step in the Flex Modification waterfall. This extra step takes into account the debt-to-income ratio for the modified payment.

Mortgage Servicing and Loan Modifications: 7.3.1.3.5 The servicer’s unilateral offer of a Flex Modification based on proactive solicitation

Review for Flex Modification eligibility is mandatory for servicers of GSE loans when a delinquency has reached ninety days. The servicer must mail all eligible borrowers a Flex Modification offer between the 90th and 105th day of delinquency.79 The servicer makes these offers without receipt of a borrower response package or other request from the borrower.