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Mortgage Servicing and Loan Modifications: 50 U.S.C. § 3953. Mortgages and trust deeds

(a) Mortgage as security. This section applies only to an obligation on real or personal property owned by a servicemember that—

(1) originated before the period of the servicemember’s military service and for which the servicemember is still obligated; and

(2) is secured by a mortgage, trust deed, or other security in the nature of a mortgage.

Mortgage Servicing and Loan Modifications: 50 U.S.C. § 4021. Anticipatory relief

(a) Application for relief. A servicemember may, during military service or within 180 days of termination of or release from military service, apply to a court for relief—

(1) from any obligation or liability incurred by the servicemember before the servicemember’s military service; or

(2) from a tax or assessment falling due before or during the servicemember’s military service.

Mortgage Servicing and Loan Modifications: 1.1.1 Scope

This treatise covers the law and provides practical advice related to mortgage servicing and mortgage loss mitigation alternatives. It examines federal and state regulation of mortgage servicing, identifies common abusive servicing practices and potential claims, reviews loss mitigation alternatives for borrowers in financial distress, and provides practical guidance on litigating claims against mortgage servicers.

Mortgage Servicing and Loan Modifications: 1.1.4 Additional Pleadings, Practice Tools, and Primary Source Materials Found Online

This treatise’s digital version, at www.nclc.org/library, includes over 100 legal pleadings, practice tools, and primary source materials relevant to mortgage servicing and loan modifications. The NCLC Digital Library website contains sample loss mitigation counseling forms and sample qualified written requests, extensive primary source materials concerning HUD, VA, and Rural Housing Service, and reverse mortgages—federal statutes, regulations, handbooks, loss mitigation guidelines, and key agency letters.

Mortgage Servicing and Loan Modifications: 1.1.5.1 In General

Mortgage Servicing and Loan Modifications was originally adapted from NCLC’s Foreclosures and Mortgage Servicing (5th ed. 2014). As the content of that treatise continued to expand with new legal requirements concerning mortgage servicing, mortgage loan modifications, and home foreclosures, NCLC split that treatise into two new volumes—Home Foreclosures (2019) and Mortgage Servicing and Loan Modifications (2019).

Mortgage Servicing and Loan Modifications: 1.2.1 Introduction

The workings of the mortgage markets are a mystery to most consumers. However, for an advocate, a basic understanding of how mortgage markets function and the players involved has become essential to the effective representation of mortgage borrowers.

Mortgage Servicing and Loan Modifications: 1.2.2.2 Mortgage Broker

Traditionally, mortgage brokers acted as an intermediary between borrowers and lenders. They did not originate loans. Instead, mortgage brokers were merely middlemen bringing home purchasers or homeowners and lenders together. Brokers operated on behalf of borrowers and attempted to find them the best loans available. This type of arrangement created a special duty on the part of the broker to act in the best interest of the borrower.75

Mortgage Servicing and Loan Modifications: 1.2.2.3 Loan Officer

Loan officers are employees of financial institutions who assist home buyers or homeowners in selecting a mortgage loan product offered by their institutions. They are essentially in-house salespeople for banks or mortgage companies. Until recently, loan officers were not required to be individually licensed (although their institutions would generally be licensed entities). Many loan officers must obtain an individual license after undergoing pre-licensing training and passing an exam.80

Mortgage Servicing and Loan Modifications: 1.2.2.4 Mortgage Electronic Registration System (MERS)

The Mortgage Electronic Registration System (MERS) is an electronic registry and clearinghouse established to track ownership and servicing rights in mortgages. For many home loans, MERS, as “nominee” for the lender, is the mortgage owner of record or the beneficiary on a deed of trust. MERS typically has no legal or beneficial interest in the promissory note. Prior to 2012, mortgage servicers often initiated foreclosure proceedings in MERS’s name and served documents on borrowers stating that MERS was foreclosing on their homes.

Mortgage Servicing and Loan Modifications: 1.2.2.6 Appraiser

Originators, or in some cases mortgages brokers, hire an appraiser or appraisal management company (AMC) to determine the value of the property. AMCs are essentially brokers for appraisal services. They administer networks of independent appraisers to perform appraisals.

Mortgage Servicing and Loan Modifications: 1.2.2.7 Closing Agent or Attorney

The mortgage loan closing or settlement is usually conducted by an agent for the lender.85 Often this agent is an attorney. The name and address of the closing agent, also known as the settlement agent, is listed on the HUD-1 settlement statement or closing disclosure. Homeowners are sometimes under the mistaken impression that the closing agent works for them. This is not surprising since the homeowner pays the agent’s bill for conducting the closing and other pre-closing activity, such as searching title and preparing documents.

Mortgage Servicing and Loan Modifications: 1.2.2.8 Escrow Agent

If all of the monies from the loan proceeds are not distributed at the loan closing, the closing agent is usually responsible for holding the remainder until certain events occur. If it is a home improvement loan, it is common for the remaining proceeds to be paid to a home improvement contractor once work is completed.

Mortgage Servicing and Loan Modifications: 1.2.2.9 Private Mortgage Insurance Companies

Mortgage insurance is common in mortgage transactions involving home purchases. When the borrower’s down payment is less than twenty percent of the purchase price, private mortgage insurance is generally required. The cost of this insurance is added to the borrower’s monthly payment and escrowed by the lender. If the borrower defaults, the mortgage insurer will pay the lender some of the monies not recouped in the foreclosure process.

Mortgage Servicing and Loan Modifications: 1.2.2.10 Government Mortgage Guarantors

There are special government programs that provide mortgage insurance or guarantees to lenders who make mortgage loans to homebuyers who meet certain criteria. These programs are offered by the federal government (the Federal Housing Administration, which is part of the U.S. Department of Housing and Urban Development; the Rural Housing Service, which is part of the U.S. Department of Agriculture; and the Department of Veterans Affairs) or by a state housing finance agency. Under these programs, the insurance covers close to 100% of losses.

Mortgage Servicing and Loan Modifications: 1.2.3.1 Introduction

After a mortgage loan transaction has been consummated a new set of players frequently comes onto the scene. The rise of the secondary mortgage market and the securitization of mortgage loans created an entirely different cast of characters that play roles during the lifespan of a mortgage loan.

Mortgage Servicing and Loan Modifications: 1.2.3.2 Secondary Mortgage Market

The secondary market is not a place like Wall Street. Rather, this term describes the phenomenon by which originating lenders sell their loans to buyers (often called investors), usually in bulk. This enables mortgage companies specializing in home equity lending to originate large numbers of loans with a comparatively small capital base. Some originators may obtain a line of credit from a major bank or firm, originate mortgage loans, sell the loans to the secondary market, and repay the credit line.