Then The Banks Ask To Be Excused From The Same Federal Requirements
First, remember the basics. For the most part, when a bank gives a mortgage, it is not lending its own money. The bank is usually using the money given to it by the federal government. And here’s the key thing…..when banks use federal (taxpayer) dollars, they must use those dollars under very specific terms and conditions. Before a bank issues a Fannie/Freddie, VA or FHA mortgage, an explicit pre-condition of issuing that mortgage is compliance with all the requirements of those various entities.
But of course in this country, circa 2015, the banks live lawless corporate lives. They act with impunity and are permitted to ignore all the rules and requirements that they agreed to follow before they took the money! This point needs to be emphasized early and often….before the banks agreed to take and use taxpayer dollars, they agreed to follow many very important rules and regulations.
One critical agreement the banks made, in the context of issuing FHA insured mortgages was that they were going to engage in more robust loss mitigation activities prior to filing a foreclosure against a homeowner. Before a bank extended the mortgage money, they agreed…explicitly, that they would do things like have a face to face meeting with the consumer prior to filing the foreclosure. A big part of the reason behind this was FHA wanted to exhaust all efforts at saving a home prior to taking it back…..FHA and the banks using FHA money have an obligation to preserve and protect and save taxpayer dollars. And so, they both agreed that they would work very hard to reduce taxpayer exposure to FHA claims.
As part of the defense of homeowners in foreclosure we carefully examine all aspects of the mortgage and loan documents to determine whether the servicer has complied. And (this should come as little surprise to most people), in a very high percentage of cases, the banks act with lawless impunity, not complying with state or federal laws and ignoring their own regulations.
When we encounter these violations we move to have cases dismissed…..and we are increasingly successful in this effort. And because we are increasingly successful in these efforts, the banker groups have moved quite quickly to be relieved from their obligations to consumers, issuing the attached letter to the FHA.
Understand this very important point…because consumer attorneys are increasingly successful in asserting consumer rights, the banks are pushing back….lobbying their regulators to allow them to ignore consumer rights!
And while they are begging to be relieved of the contractual obligations they agreed to with FHA….FHA should not grant this relief because the consumers should not agree to give up these rights!
The letter really is quite incredible….because consumers are having success in forcing banks to comply with the agreements they made, the banks assert that they cannot possibly comply with those contracts and are demanding relief. There should be a sense of outrage all across this country.
Here is the letter from the Mortgage Banker’s Association issued to Carol Galante, Assistant Secretary as HUD:
On behalf of our members, the National Council of State Housing Agencies (NCSHA)1
and the Mortgage Bankers Association (MBA)2 write to ask that the Federal Housing
Administration (FHA) make a crucial adjustment to FHA’s pre-foreclosure requirements that
will reduce unnecessary compliance burdens and allow mortgage lenders and servicers to more
efficiently operate their loan modification and assistance efforts.Specifically, we ask that FHA eliminate the well-intentioned but outdated requirement
that a lender have a face-to-face meeting with a borrower before the borrower becomes three
months delinquent. Our members, which include many public and private organizations that
service a significant number of FHA and other loans, are strongly committed to taking a
proactive approach to assisting delinquent borrowers and helping them stay in their homes.
We know that FHA shares this goal. That being said, FHA’s pre-foreclosure face-to-face
meeting requirement has diverted resources that could be better targeted towards assisting
struggling homeowners and has proven to be overly burdensome and sometimes unworkable.FHA regulations (24 CFR Section 203.604) require all mortgagees to have a face-to-face
meeting with the borrower, or make a reasonable effort to do so, before the borrower is
seriously delinquent. “Reasonable effort” consists of at least one letter sent to the borrower by
certified mail and at least one in-person visit to the borrower in his or her home. In addition to
the regulation, FHA’s Single-Family Handbook (paragraph 7-7C2) requires that the individual
conducting the in-person visit have the ability to negotiate repayment plans with the borrower.The imposition of the face-to-face requirement dates back to a time when borrowers
were less likely to be aware of loss mitigation options and when mortgage origination and
servicing activities were more likely to be conducted locally. HUD statements in 2007
acknowledge that this requirement is “obsolete and unnecessary” and suggested that future
amendments or changes would be forthcoming.HUD’s 2007 conclusion is even more appropriate today. Currently, a financially
troubled borrower receives calls and written solicitations from their servicers and housing
counselors offering their services. Most servicers have increased their loss mitigation staffing
and outreach through call centers or their websites and have implemented processes that are
sensitive to the need to promptly offer timely loss mitigation options. Such contact on the part
of the servicer is required by the Bureau of Consumer Financial Protection’s (CFPB) new
servicing rules as well as state law in many jurisdictions. Additionally, the ability to research
options on the Internet makes most borrowers far more aware of the availability and variety of
loss mitigation options. Notably, these more recent rules—many promulgated with a goal of
consumer protection following an unprecedented foreclosure crisis — do not have a face-to-face
meeting requirement. In sum, the benefits to the face-to-face requirement pale in comparison to
the costs, particularly when few homeowners want an in-person meeting.While the promulgation of this requirement was undoubtedly well-intentioned, in
practice it imposes a substantial financial and logistical burden upon many mortgagees with
few, if any, corresponding borrower protections in today’s mortgage world. The regulation is
not clear and certain issues—such as the definition of what constitutes a branch office—can
result in significant compliance expenses and unpredictable legal risks. In order to fully comply
with the regulations and Handbook as currently written, mortgagees have to either engage a
third party vendor or hire and train representatives who have the capability to negotiate loan
modifications or divert previously trained staff to the task of traveling to contact borrowers at
their homes.Hiring and training staff with such credentials can be prohibitively expensive,
particularly for smaller and/or public mission-driven mortgagees. In addition, despite
mortgagees’ good faith efforts to set up face-to-face meetings, home visits are often not
successful. In order to avoid committing a violation, many mortgagees in this situation will
send representatives to make multiple visits, which is costly and inefficient. Consequently,
compliance with this requirement results in a serious commitment of resources by mortgagees
that provides borrowers with no additional benefits or protections than those already required
under other consumer protection servicing regulations.In response to comments that the Face-to-Face Interview requirement was obsolete and unnecessary, HUD notes
that: “HUD agrees with the commenters and has determined that amending the existing requirement is appropriate.As the Department has already relieved the industry from a requirement to conduct a face-to-face meeting as a requirement for loan
origination, it may also be time to make a similar change with respect to FHA’s servicing requirements.”Given these concerns, we ask that FHA adjust its pre-foreclosure policy to eliminate the
face-to-face meeting requirement. In the alternative, we ask that paragraph 7-7C2 of the FHA
Single-Family Handbook be amended to eliminate the requirement that a mortgagee’s
representative have the authority to negotiate repayment plans with the borrower. Most
lenders with branch offices are usually running these offices for retail origination, not servicing,
and thus either must have staff trained in an area that is frequently irrelevant to their day-today
work or require certain employees to travel extensively.Elimination of the face-to-face meeting requirement would recognize the reality that loss
mitigation outreach is now required by CFPB’s servicing rules as well as most state laws that
address early delinquencies and pre-foreclosure assistance. As such, eliminating the face-toface
requirement would allow lenders to shift more resources to other loss mitigation efforts.
We remain committed to the various initiatives FHA has undertaken in the wake of the
financial crisis and economic downturn to help struggling homeowners remain in their homes.
The change we request will eliminate unreasonable burdens that take resources away from
efforts that can more effectively assist borrowers.
Thank you very much for your attention to this matter. We welcome the opportunity to
meet in order to discuss these matters further.The full letter is here below:
