While we agree with the tone of the proposed rule that homeowners should not pay for modification services until they receive an official offer of modification from the lender, it does not solve the real issue of eligible borrowers being approved for permanent loan modifications. It is our position that it is in the best interest of distressed homeowners, loan servicers, and those legislative and regulatory agencies whose mission is to provide relief to struggling homeowners that the rule be amended to include, or legislation be approved that will accomplish the following: 1) Eliminate trial loan modifications in favor of permanent loan modifications There have been nearly 1,300,000 trial modifications offered under Home Affordable Modification Program (HAMP) with approximately 116,000 permanent modifications through January 2010. As of June 1, 2010, loan servicers will only be able to evaluate borrowers for trial loan modification eligibility if the borrower submits evidence of qualified income in advance. Currently, borrowers are able to verbally state income to get approved for a trial loan modification, and later verify income in writing to obtain a permanent loan modification. We agree the evaluation of a borrowers eligibility for a trial loan modification based on verification of qualified income in advance is an optimal solution as opposed to the current verbal method of approval used by many loan servicers. If loan servicers are going to manually underwrite the loan modification in advance, why the need for a trial modification period at all? We believe that the way to fix HAMP is by eliminating trial modifications completely by making them all permanent based on upfront underwriting. When a consumer applies for a new loan, they are either approved or denied based on the lenders underwriting guidelines. There is no trial period if they are approved. Underwriting does not continue. Trial loan approvals do not exist. The borrower either performs on their contractual obligation or they do not. Trial modifications have become a nightmare from public relations and financial perspectives for loan servicers in particular and the banking industry, HAMP, Treasury, and policy makers in general. This change alone would significantly compress the amount of time needed to convert trial loan modifications into permanent loan modifications. Loan servicers would save millions of dollars while simultaneously providing better service to the millions of distressed homeowners HAMP was designed to assist. 2) Allow loan servicers to include foreclosure acceleration language as a condition of the loan modification approval To protect loan servicers from additional risk associated with re-defaults on modified mortgages, the terms of modification should allow the mortgage note to revert to the pre-modified terms of the original mortgage agreement. Loan servicers should be permitted to proceed with an accelerated foreclosure process should the borrower fail to perform as agreed during the first three payments of the new loan contract (The proposed equivalent of a trial period). Giving loan servicers the right to act quickly to foreclose should the borrower fail to pay as agreed during the first three months (trial period) will be an incentive for loan servicers to approve more permanent loan modifications. With default rates approaching 100% for borrowers who are thirty days or more delinquent on their mortgage, many loan servicers prefer to cut their losses and foreclose versus modify. If a homeowner fails to perform under the new proposed terms during the first three months, the loan servicer would have the right to accelerate the foreclosure process. This will save the loan servicers significant time and expense and is a fair exchange for giving the homeowner the opportunity to cure default or imminent default via a permanent loan modification. This change will deter borrowers from gaming the system and save the loan servicers significant time (months) and money (tens of thousands of dollars) trying to cure the default, and then foreclose. Lawmakers and policy makers will get credit for better supporting distressed homeowners and loan servicers will strengthen their case for foreclosure, and place the pressure on the borrower to perform as agreed post modification or quickly vacate. 3) Require loan servicers to decision a loan modification application without requiring updated docs within 30 days of confirming they have the required information needed to decision file Loan servicers are taking 6 months or so to decision a file. By the time they get around to reviewing the file, the documents provided are updated or lost. The biggest complaint by professionals trying to help distressed homeowners and from the homeowners themselves is the need to provided updated versions of the same documents every 30 days or having to send the same information repeatedly even after the loan servicer has acknowledged being in receipt of all documents needed to decision a file. Many have concluded that requiring updated docs repeatedly and losing paperwork is a stall strategy loan servicers have implemented to avoid having to decision a file at all. It appears that the loan servicers objective is to delay a decision with the hope that the borrowers will abandon their request for a loan modification or the hardship will be cured and the homeowner will no longer be eligible for a loan modification. Whether intentional or not, the delays are not in the spirit of HAMP and cause more harm than good to the homeowners HAMP was created to assist. If loan servicers can approve an application for a new loan in less than thirty days with one complete set of required documents, they can approve a loan modification to an existing borrower within thirty days using one complete set of qualified documents. 4) Loan servicers should be required to specifically disclose why the borrower was denied a loan modification Loan servicers unilaterally decision applications for loan modifications based on a single factor. Do they make more money by modifying the loan or foreclosing on the loan? If the loan servicer believes they will earn more money by modifying a loan, the loan modification is approved. If they believe they will earn more money by foreclosing on the property, they will decline the modification and force the borrower to perform or default. We believe it is in the best interest of all parties to require loan servicers to specifically disclose the reason an application for a loan modification is denied and how they arrived at their decision to deny. - What income/expenses were used by the loan servicer (we frequently find errors in their calculations) to decision a file? - If a file is declined for Net Present Value (NPV), the loan servicer should be required to disclose the assessed value used to decision the file. - Homeowners should have an oversight agency they could turn to if they feel there was an error based on the denial disclosures. 5) When a modification fails or the homeowner is not eligible for a modification, foreclosure alternatives should automatically and instantly be offered to the homeowner Before commencing any foreclosure action for any reason, the loan servicer should be required to provide the homeowner with a written explanation of the foreclosure process, including estimated timelines and credit consequences. The explanation should have written proof of service to avoid borrowers claims of improper notice. As part of the explanation process, loan servicers should offer standardized short sale and deed-in-lieu of foreclosure options. Deed-in-lieu of foreclosure should be offered to every homeowner once a notice of default has been filed. The homeowner should receive a cash offer (based on size of mortgage and not less than $3,000) to vacate the property by a certain date (not more than 90 days) and leave the property in swept clean condition. In most cases, a short sale is a better alternative for the homeowner because it allows the homeowner to experience closure through the selling of the home versus the loss of the home through foreclosure. The homeowner receives the equivalent net proceeds as they would via a foreclosure; however, the stress associated with the anticipation of the 3-day notice to vacate is alleviated. A short sale is more beneficial for the loan servicer than foreclosure or deed-in-lieu of foreclosure because the homeowner assists the loan servicer in disposing of the property more quickly and for more money than the loan servicer could typically receive by selling the property via auction. Federal guidelines for short sales should include: - All short sale offers should be reviewed and decisioned within 14 days of receiving all required documents. - Upon acceptance and successful conclusion of the short sale transaction, the homeowner should receive $3,000 from the loan servicer to assist them in their transition to a new home. - Loan Servicers should not prohibit investors from buying and selling homes within 30 days of closing (clearing inventory is the fastest way to reduce supply, increase demand and get home prices appreciating again. This is best solution for our economy.) If a real estate investor wants to buy a house at a price agreed to in advance by the loan servicer, the real estate investor should have the right to resell the house for a profit or a loss at anytime after closing. Some banks are agreeing to sell houses to real estate investors with a condition that they are not permitted to resell the property for 30 days. - If a loan servicer denies a short sale offer, the loan servicer should be required to counter with a minimally acceptable offer so the buyer can raise their offer or pass on the transaction. Loan servicers are denying short sale offers from retail buyers and real estate investors and selling the same property at auction, months or years later for less than the short sale offer price. We believe these proposed guidelines protect everyone involved in the transaction fairly and offer all parties, including the US housing market, the best possible financial conclusion. If we are going to fix the housing crisis, we must begin by helping homeowners modify existing loans to affordable levels, or provide them with alternatives that minimize the emotional strain foreclosure has on the families that live in them. We believe that these guidelines are constituent friendly, fair to the loan servicers, homeowners and in the short term and long-term economic interest of the US housing market.