practical guidance on 35b loan modification reviews ©2014 office of massachusetts attorney general...

Practical Guidance on 35B Loan Modification Reviews

©2014 Office of Massachusetts Attorney General Martha Coakley

Bill Allen, Deputy DirectorHomeCorps Loan Modification Initiative

Presentation Overview

• Overview of Chapter 244 s. 35B– “Certain Mortgages”– Protections for homeowners

• Impact on the Application Process– Returning the Notice of Election– 35B Application Timeline– SPOC Interactions & Document Chasing

• Evaluating a Servicer’s 35B Response– Acceptance & Counter-Offers– Denials

• Tracking Violations of Chapter 244 s. 35B


An Act Preventing Unlawful and Unnecessary Foreclosures

Became law Aug. 3, 2012, with most homeowner protections effective Nov. 1, 2012.

Amended M.G.L. c. 244 “Foreclosure & Redemption of Mortgages:”– Added § 35B establishing significant protections for homeowners with

“certain mortgages.”– Other changes included § 35C prohibiting specific conduct by creditors

and § 14 regarding foreclosure notices and proof of chain of title.

Division of Banks was given authority to create regulations, published at 209 CMR 56.00


“Certain Mortgage”§35B(a)

Owner occupied property where the loan has any one of these features:(1) Introductory rate for ≤ 3 years that is 2% lower than fully indexed rate;(2) Interest-only payments for any period of time;(3) Payment option, where any option results in negative amortization;(4) Loan did not require full documentation of income or assets;(5) Prepayment penalty exceeds those allowed by MGL c. 183 § 56 or federal law

(e.g. penalty in excess of 3 months’ interest, prepayment penalty extends beyond 36 months);

(6) At origination, LTV ratio of 90% and DTI > 38%;(7) At origination, one transaction where CLTV ratio exceeded 95%.


If a creditor is unable to determine whether the loan has one or more of these factors it is a “certain mortgage.”

Not a “Certain Mortgage”§35B(a)

• Loans financed by the Massachusetts Housing Finance Agency• Loans originated though programs of Massachusetts Housing

Partnership Fund• A loan on a property that is not “owner occupied”

– Vacation Homes– Rental Properties

• A loan which is not “made primarily for personal, family or household purposes…”– Business loans


How do I tell if this applies to my clients?

Either the client has to tell you they received a notice of Right to Request a Modified Mortgage Loan (“35B Notice”) or you need to ask for it!

Asking if the borrower has received a 35B Notice should be a standard part of your intake.

For some clients the notice may still be on the way, so it’s worth telling them…


DON’T THROW IT OUT!

The 35B Notice contains a Notice of Election which must be completed and returned within 30 days of the creditor’s notice being sent.

A Typical Foreclosure Timeline in Massachusetts*


F/C Sale

Referral to Foreclosure

Borrower Defaults

150 Day Right to Cure Period

SCRA Notice & 30 Day Response Period

Publications of Sale(minimum 3 weeks)

35B Election Periodonly 30 days

*The timing of events leading to a foreclosure may vary significantly. This is particularly true where a borrower has reinstated or modified a loan and then re-defaulted.

Reasonable Steps & Good Faith§35B(b)

Creditor required to take “reasonable steps” and make a “good faith effort to avoid foreclosure.” Defined as where creditor has considered:

– An assessment of borrower’s ability to make an affordable monthly payment

– NPV of receiving payments compared to net recovery following foreclosure

– Interests of creditor (including investors) considered


Creditor is prohibited from publishing a notice of foreclosure sale until these steps are taken

Presumption of Good Faith & Compliance §35B(b)(2)(iv)

A creditor is presumed to have acted in good faith and to have complied only if:

– A loan modification is offered “in all circumstances where the [NPV] of the modified mortgage loan exceeds the anticipated net recovery at foreclosure”


So finding an NPV positive modification may be the key to getting a modification under Ch. 244 s. 35B.

35B Loan Modification Timeline§35B(c)

30

Borrower must return the Notice of Election with a complete RMA or all

documents required by 209 CMR 56.06(2) within 30 calendar days from

when the notice was sent

60 90 120 150

Send a missing items letter within 5 business days of receipt of the Notice of

election

35B Notice is sent

Borr

ower

Cred

itor

Issue an “assessment” within 30 calendar days from receipt of the

Notice of Election, including: verified financials, NPV analysis, and either a

modification offer or a denial

If approved: Borrower may submit a counter-offer within 30 calendar days

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Tips for working with the 35B timeline

• Don’t wait to submit the Notice of Election if you’re missing a supporting document—the 30 day deadline is essential

• The initial application may often be completed in a rush—try to anticipate what the creditor will ask for in the 5-day MIL

• If you return the Notice of Election and RMA through a provided FedEx envelope make sure you have the tracking number, if there’s no tracking number send it back via certified mail—the date received by the creditor determines the 30 day deadline for the assessment

• As soon as a SPOC is assigned request confirmation of receipt, confirm the homeowner’s 150 day right to cure has been preserved, and if the SPOC is not familiar with the accelerated 35B timeline—make them aware of it!


Other Issues you may encounter

• What if an application is already in process when the borrower receives the 35B notice?

– You’ll need to consider the borrower's situation on a case-by-case basis, and let the borrower make the decision of whether or not to submit a new application. They should consider that if the Notice of Election is not returned with a statement of financials or RMA, the right to modify and the 150 day right to cure will be lost.

• What if the 35B Notice is dated many days prior to the homeowner receiving it? Doesn’t that cut unfairly into the borrower’s 30 day time to complete the application and return the Notice of Election?

– Yes it does! Bring the issue to the attention of servicer and the Attorney General’s Office. Many servicers use document vendors that have been known to delay the release of their letters. This is an issue we are aware of and would like to be apprised of any examples you may encounter. Also, we don’t recommend relying on a verbal extension of the deadline—get it in writing or get the application in within 30 days!


Tracking Violations of Ch. 244 s. 35B

Did the Creditor…1. Send the 5 Day Letter?2. Issue the “assessment” within 30 days of receiving the

Notice of Election?3. Offer an NPV positive modification where one was available

or proposed via a counter-offer?4. Investigate any alleged errors in the Creditor’s assessment?5. Provide Access to the Creditor’s Represenative?6. Respond to a counter offer within 30 days?7. Complete the 35B review process before publishing a notice

of sale?


practical guidance on 35b loan modification reviews ©2014 office of massachusetts attorney general...

Documents

b notice

notice of election

creditors notice

notice of right

b loan modification

modified mortgage loan

b response acceptance

ba loans