Avoiding Foreclosure Review Guide

Servicers

A company that handles all the administrative aspects of a loan from the closing to mortgage payoff, including handling the payments, escrow, and all documentation for records.

Signs of Scams

A company/person: • Asks for a fee in advance to work with your lender to modify, refinance, or reinstate your mortgage. • Guarantees they can stop a foreclosure or get your loan modified. • Advises you to stop paying your mortgage company and pay them instead. • Pressures you to sign over the deed to your home or sign any paperwork that you haven't had a chance to read and you don't fully understand. • Claims to offer "government-approved" or "official government" loan modifications. • Asks you to release personal financial information online or over the phone, but you do not know the company/person. • Offers to help modify your mortgage either directly, through advertising, or by other means such as a flyer. • Asks you to surrender the title to your home in the belief you will be able to remain in the home as renters and buy your home back over the next few years.

GSE loan or mortgage

A government-sponsored enterprise, or GSE, is a financial services entity created by Congress. A GSE loan or mortgage refers to a mortgage owned by Fannie Mae or Freddie Mac.

HELOC

A home equity line of credit, or HELOC, is a line of credit that you can take from at any time during the draw period, up to your credit limit. Typically, the draw period is 10 years and the repayment period lasts 15 years.

Emergency Budget

A household budget created to increase savings, reduce expenses, and/or pay down debt in financial emergency situations.

Foreclosure

A legal process in which mortgaged property is sold to pay the loan of a defaulting borrower. Foreclosure laws are based on the statutes of each state.

Conventional Mortgage

A private sector loan typically issued to borrowers with high credit ratings.Excludes subprime loans or mortgages insured by the U.S. government.

Dual Tracking

A process that occurs when the servicer moves forward with foreclosure while simultaneously working with the borrower to avoid foreclosure. Restricted by the CFPB mortgage servicing regulations.

Front-End-Ratio

A rate that calculates a borrower's housing-related obligations as a percentage of gross monthly income. Frequently used by lenders to qualify borrowers for a mortgage. Also called a housing ratio.

Back-End-Ratio

A rate that calculates a borrower's total monthly debt, including housing and other debt obligations, as a percentage of gross monthly income. Frequently used by lenders to qualify borrowers for a mortgage. Also called a debt-to-income ratio.

Below are the different options for a client considering a transition out of the home. Match each option with its definition.

A. Deed-in-Lieu B. Foreclosure C. Short Sale Correct: (B) Foreclosure ___ 1. A legal process in which mortgaged property is sold to pay the loan of the defaulting borrower. Laws are based on the statutes of each state. (C) Short Sale ___ 2. A procedure in which the borrower is allowed to sell a property for an amount less than the outstanding mortgage balance owed to avoid a foreclosure. Also called a pre-foreclosure sale. (A) Deed-in-Lieu ___ 3. A process that allows a homeowner to avoid foreclosure, providing a deed to the lender instead. Though it helps avoid foreclosure, the process does not allow the homeowner to stay in the home.

Servicemembers Civil Relief Act

An act that protects military personnel and their dependents in issues related to housing, including certain protections against default judgments, foreclosure, and eviction.

Cash-for-Keys

An alternative to a legal eviction following foreclosure. The occupant receives cash funds from the servicer in exchange for turning in the keys and vacating the property. Certain conditions apply, such as returning the property in broom-clean condition with all appliances.

Negative Amortization

An increase in the principal balance of a loan caused by monthly payments that do not cover the interest due. The unpaid interest is added to the unpaid principal balance, causing the loan to grow over time. Can occur when an ARM has a payment cap that results in monthly payments that are not high enough to cover the interest due.

Teaser Rates

An initial temporary interest rate on an adjustable-rate mortgage that results in lower mortgage payments. To attract borrowers, the rate is typically lower than the market rate, but only remains in effect for a short period of time before increasing, which in turn increases mortgage payments. Can be a sign of predatory lending.

Deficiency Judgement

Assessment of liability by a court against a homeowner for the unpaid balance owed to the servicer after a foreclosure, short sale, or deed-in-lieu if the sale does not cover the full amount owed.

What is the correct order of steps for clients that will transition out of the home? A. Client secures new housing prior to the sale date. B. Counselor and client formally apply for the desired option, as well as any financial transition assistance, and receive a response. C. Client packs the home to prepare for the move, especially in foreclosure cases, because the client may not have much time to vacate the property after the sale date. D. Counselor and client discuss the possibility of purchasing a new home if and when client is ready. E. Counselor and client reach out to servicer to discuss available options, and then determine which to pursue. F. Counselor and client work on improving credit to reduce the negative effects of foreclosure on the credit report. G. Counselor analyzes client's information, and together the counselor H. Client moves into new housing.

Correct Order: _____(E)__________ _____(B)_________ ______(G)_________ ______(A)_________ _______(C)________ _______(H)________ ________(F)_______ ________(D)_______

Which contributed to the increase in foreclosure rates? Mark all that apply. ___ 1. Subprime lending ___ 2. Risky loan products with features like negative amortization ___ 3. Homeowners paying off mortgages early ___ 4. Aggressive marketing of HELOCs ___ 5. Demand from the secondary market ___ 6. Using teaser rates to qualify more borrow

Correct checked answers: _+__ 1. Subprime lending—This industry practice was a key factor in the increase in foreclosure rates. _+__ 2. Risky loan products with features like negative amortization—This industry practice was a key factor in the increase in foreclosure rates. ___ 3. Homeowners paying off mortgages early—These homeowners made extra payments because they could afford to, and they avoided foreclosure in the process. _+__ 4. Aggressive marketing of HELOCs—This industry practice was a key factor in the increase in foreclosure rates. _+__ 5. Demand from the secondary market—Lenders offered more loans so they could meet the demands of the secondary market. _+__ 6. Using teaser rates to qualify more borrowers—Lenders qualified many borrowers based on what they would pay with a loan's introductory rate rather than what the rate would most likely be after the teaser rate expired.

Which items does a counselor need to know to evaluate a client's budget? Mark all that apply. ___ 1. Credit score reflecting recent negative impact ___ 2. Monthly income from a part-time job ___ 3. Credit report information including delinquencies ___ 4. Mortgage information including past due amount

Correct checked items: ___ 1. Credit score reflecting recent negative impact—While credit scores are important for overall financial understanding, the score is not necessary to create a budget. _+__ 2. Monthly income from a part-time job—Income is an important part of the budgeting process. __+_ 3. Credit report information including delinquencies—A credit report ensures that you have the full financial picture, including past due accounts. _+__ 4. Mortgage information including past due amount—Mortgage information is important in this situation so a counselor can see why the client is having trouble making payments.

A counselor must know the foreclosure processes. Which of the following state agencies are typically where counselors can look for information on their states' processes? Mark all that apply.

Correct checked items: _+__ 1. Housing Department _+__ 2. Attorney General's Office _+__ 3. State Housing Finance Agency _+__ 4. Department of Community Affairs

Which is a reasonable option for a homeowner facing foreclosure? Mark all that apply. ___ 1. Talk to servicer about modification or repayment plan ___ 2. Remain in the home without paying mortgage ___ 3. Establish an emergency budget to catch up on payments ___ 4. Send partial mortgage payments when possible

Correct checked items: _+__ 1. Talk to servicer about modification or repayment plan—A servicer may be more likely to work with you if you inform them of your situation. ___ 2. Remain in the home without paying mortgage—You won't be able to stay in your home indefinitely if you don't pay your mortgage. Typically, extended nonpayment will result in foreclosure, after which the new owner, usually the lender, can start eviction proceedings. __+_ 3. Establish an emergency budget to catch up on payments—An emergency budget allocates money to priority payments first by cutting unnecessary expenses. ___ 4. Send partial mortgage payments when possible—In many cases, servicers will not accept partial payments. Always speak to your servicer before starting a payment plan.

Which of the attributes below are loan modification scams and which are not? Designate answers as "A" if they are aspects of a scam, or "B" if they are not aspects of a scam. ___ 1. Borrower receives a letter from his servicer discussing possible workout options ___ 2. Borrower receives a call from a lending company that says they will get her a modification for $1,000 ___ 3. Loan modification company guarantees they can get a borrower a modification ___ 4. Borrower receives letter from HARP program informing him he may qualify for refinancing ___ 5. Borrower receives a call from a company she's never heard of about a loan modification and is asked for her Social Security number over

Correct matched items: (A) Aspects of a scam Borrower receives a call from a lending company that says they will get her a modification for $1,000 Loan modification company guarantees they can get a borrower a modification Borrower receives a call from a company she's never heard of about a loan modification and is asked for her Social Security number over the phone (B) Not aspects of a scam Borrower receives a letter from his servicer discussing possible workout options Borrower receives letter from HARP program informing him he may qualify for refinancing

Which actions below typically occur during a judicial foreclosure process and which actions typically occur during a non-judicial process? Mark the actions that are judicial with an A and the ones that are non-judicial with a B. ___ 1. The client receives a Notice of Default in the mail. ___ 2. The client's opportunity to fight a foreclosure takes place in court. ___ 3. The servicer can't take any foreclosure action against a client until a judge grants them permission. ___ 4. Communication occurs between the servicer and the homeowner. ___ 5. The client has until five days before a foreclosure sale to cure a delinquency and stop the sale.

Correct matched items: (A) Judicial 2. The client's opportunity to fight a foreclosure takes place in court. 3. The servicer can't take any foreclosure action against a client until a judge grants them permission. (B) Non-Judicial 1. The client receives a Notice of Default in the mail. 4. Communication occurs between the servicer and the homeowner. 5. The client has until five days before a foreclosure sale to cure a delinquency and stop the sale.

The following are benefits of different FHA loss mitigation programs. Match the program benefit with the corresponding program. A. Assists borrowers who do not have a verifiable loss of income or increase in living expenses B. Suspends mortgage payments or allows for partial payments while borrower is unemployed C. Can combine a loan modification and partial claim to bring the mortgage current ___ 1. Special Forbearance - Unemployment Agreement ___ 2. Informal/Formal Forbearance ___ 3. FHA-HAMP Loan Modification

Correct matched items: (B) Suspends mortgage payments or allows for partial payments while borrower is unemployed: 1. Special Forbearance - Unemployment Agreement (A) Assists borrowers who do not have a verifiable loss of income or increase in living expenses: 2. Informal/Formal Forbearance (C) Can combine a loan modification and partial claim to bring the mortgage current: 3. FHA-HAMP Loan Modification

The following Florida clients are facing foreclosure but qualify for financial assistance through one of the programs below. All of the clients are low- to moderate-income homeowners and are both behind on their mortgage and live in their primary residence. Match each client on the right to the most appropriate financial assistance program on the left. A program may be used more than once. A. Leon County Foreclosure Prevention Assistance Program B. Florida Hardest-Hit Program— Mortgage Loan Reinstatement Payment C. Florida Hardest-Hit Program—Unemployment Mortgage Assistance Program ___ 1. Homeowner 1 has been unemployed for 14 months. ___ 2. Homeowner 2 is five months behind on her mortgage and has received an NOD. She had a temporary financial hardship that is now cleared. She can make up the past due amount over time. She has requested assistance from her servicer but has been declined. ___ 3. Homeowner 3 is three months behind on her mortgage because she was laid off and has received an NOD. She is working full-time again and can afford her original payments once she is caught up. ___ 4. Homeowner 4 had his hours cut in half and is struggling to pay his mortgage. He has made partial payments for six months, but the servicer has sent him an NOD.

Correct matched items: (C) Florida Hardest-Hit Program—Unemployment Mortgage Assistance Program: 1. Homeowner 1 has been unemployed for 14 months. (A) Leon County Foreclosure Prevention Assistance Program: 2. Homeowner 2 is five months behind on her mortgage and has received an NOD. She had a temporary financial hardship that is now cleared. She can make up the past due amount over time. She has requested assistance from her servicer but has been declined. (B) Florida Hardest-Hit Program—Mortgage Loan Reinstatement Payment: 3. Homeowner 3 is three months behind on her mortgage because she was laid off and has received an NOD. She is working full-time again and can afford her original payments once she is caught up. (C) Florida Hardest-Hit Program—Unemployment Mortgage Assistance Program: 4. Homeowner 4 had his hours cut in half and is struggling to pay his mortgage. He has made partial payments for six months, but the servicer has sent him an NOD.

The following are components of the RMA form, which is required for most loss mitigation assistance requests. Match each component of the form to the section where it is located. A. Has the mortgage on your principal residence ever had a HAMP trial period plan or permanent modification? B. I/we certify under penalty of perjury that I/we have not been convicted within the last 10 years of any one of the following in connection with a mortgage or real estate transaction: (a) felony larceny, theft, fraud, or forgery, (b) money laundering, or (c) tax evasion. C. I/we am/are requesting review under MHA. I am having difficulty making my monthly payment because of financial difficulties created by . . . D. Taxable Social Security or retirement income ___ 1. Hardship Affidavit ___ 2. Borrower Information ___ 3. Income/Expenses for Household ___ 4. Dodd-Frank Certification

Correct matched items: (C) I/we am/are requesting review under MHA. I am having difficulty making my monthly payment because of financial difficulties created by: 1. Hardship Affadavit (A) Has the mortgage on your principal residence ever had a HAMP trial period plan or permanent modification?: 2. Borrower Information (D) Taxable Social Security or retirement income: 3. Income/Expenses for Household. (B) I/we certify under penalty of perjury that I/we have not been convicted within the last 10 years of any one of the following in connection with a mortgage or real estate transaction: (a) felony larceny, theft, fraud, or forgery, (b) money laundering, or (c) tax evasion: 4. Dodd-Frank Certification

Match the recent regulatory change or nationwide settlement on the left with the reason it was created on the right. A. Making Home Affordable B. Consumer Finance Protection Bureau C. National Mortgage Settlement D. Issuance of New Mortgage Rules E. Hardest-Hit Fund ___ 1. To make it easier for borrowers to understand loan terms, to require homeownership counseling for some mortgages, and to expand protections ___ 2. To enable 18 states and the District of Columbia to develop locally tailored programs to assist struggling homeowners in their communities ___ 3. To create a federal agency charged with addressing failures of consumer protections ___ 4. To help homeowners avoid foreclosure, stabilize the housing market, and improve the economy ___ 5. To penalize five financial institutions for deceptive lending and foreclosure practices

Correct matched items: (D) Issuance of New Mortgage Rules: 1. To make it easier for borrowers to understand loan terms, to require homeownership counseling for some mortgages, and to expand protections. (E) Hardest-Hit Fund: 2. To enable 18 states and the District of Columbia to develop locally tailored programs to assist struggling homeowners in their communities. (B) Consumer Finance Protection Bureau: 3. To create a federal agency charged with addressing failures of consumer protections. (A) Making Home Affordable: 4. To help homeowners avoid foreclosure, stabilize the housing market, and improve the economy. (C) National Mortgage Settlement: 5. To penalize five financial institutions for deceptive lending and foreclosure practices.

What is the correct order of the general steps to submit a foreclosure alternative application in HLP? Place the statements in correct sequence. _______________ _______________ _______________ A. Complete entry of basic homeowner data on the Financial, Q&A and Documents navigation tabs. B. Create the case on the New Case tab. C. Use the Review & Submit tab to identify if all required elements have been completed and submit the application.

Correct order: (B) Create the case on the New Case tab. (A) Complete entry of basic homeowner data on the Financial, Q&A and Documents navigation tabs. (C) Use the Review & Submit tab to identify if all required elements have been completed and submit the application.

What is the correct order of steps in the loss mitigation request process? _____________ _____________ _____________ _____________ _____________ _____________ _____________ _____________ A. Complete forms B. Respond to additional requests for information C. Determine client housing intentions D. Submit package E. Determine type of mortgage F. Consider servicer approval or denial G. Determine reason client is delinquent H. Gather documents

Correct order: (G) Determine reason client is delinquent (C) Determine client housing intentions (E) Determine type of mortgage (H) Gather documents (A) Complete forms (D) Submit package (B) Respond to additional requests for information (F) Consider servicer approval or denial

All of the following statements are true if a client would like to secure rental housing after a foreclosure, short sale, or deed-in-lieu, except: A. The client should wait until after the sale is finalized. B. The client should be prepared to have a co-signer. C. The client should try to secure housing before the sale is finalized. D. The client should have money saved for a security deposit. .

Correct: (A) The client should wait until after the sale is finalized.

Under the MHA program, modification options offer relief to homeowners _______, while refinance options target borrowers _______. A. in default; in good standing B. in good standing; in default C. with GSE loans; with non-GSE loans D. with non-GSE loans; with GSE loans

Correct: (A) in default / in good standing

Jessica, a Florida resident, was in a car accident and subsequently had to pay medical bills and purchase a new car. Although she is still able to work, Jessica is unable to cover her mortgage payment because of the unexpected expenses. She is now seven months past due on her mortgage and has received a Notice of Default. Her requests to her servicer for a retention option have been denied. To help her catch up on her other bills so she can start making her mortgage payments again, for which payment assistance program should she apply? A. Florida Hardest-Hit Program—Mortgage Loan Reinstatement Payment B. Leon County Foreclosure Prevention Assistance Program C. Florida Hardest-Hit Program—Unemployment Mortgage Assistance Program

Correct: (B) Leon County Foreclosure Prevention Assistance Program Jessica has exhausted all other options and will not qualify for the other programs since she was never unemployed.

All of these are options when creating an emergency budget for a client who wants to remain in his/her home, except: A. Asking older children who live with them to help pay some bills B. Missing mortgage payments C. Cooking dinner at home every night D. Earning extra income from a side business

Correct: (B) Missing mortgage payments Homeowners need to show their servicer they are making a good faith effort to meet their financial obligations.

Since receiving a loan modification several years ago, a borrower had been current on his mortgage until he recently suffered a severe reduction in income. A housing counselor advised the client to seek assistance from the servicer to prevent foreclosure. The servicer claimed it could not evaluate the borrower for further relief due to the prior modification. Is the servicer in compliance? A. Yes B. No

Correct: (B) No Servicers are required to provide certain borrowers with foreclosure protections more than once over the life of the loan, provided that borrowers become current on payments at any time between completed prior and subsequent loss mitigation applications.

When a borrower is trying to avoid foreclosure, a mortgage company will usually consider a _____ before a _____. A. deed-in-lieu, short sale B. short sale, deed-in-lieu

Correct: (B) short sale, deed-in-lieu

What does it mean for a mortgage to be underwater? A. A mortgage required for any structure built at or below sea level B. A home suffered flooding and resulting damages caused mortgage delinquency C. A mortgaged property is worth less than the balance owed to the lender D. A borrower is drowning in late payments and trying to become current

Correct: (C) A mortgaged property is worth less than the balance owed to the lender.

All of the following are eligibility requirements of the FHA-HAMP Loan Modification, except: A. Mortgage is in default or imminent default but not in foreclosure. B. At least one borrower has continuous income. C. Borrower must demonstrate minimum surplus income amount. D. Property must be and must remain the borrower's primary residence.

Correct: (C) Borrower must demonstrate minimum surplus income amount.

After the sale date of a home, which scenario could result in an eviction, typically with little notice to the client and under the enforcement of a law officer? A. Short sale B. Deed-in-lieu C. Foreclosure

Correct: (C) Foreclosure

A client needs to gather all of the financial documentation below to submit an MHA loan modification request, except: A. Two most recent bank statements B. Utility bill showing homeowner name and property address C. Last two years of tax returns D. Information on amounts paid for child care

Correct: (D) Information on amounts paid for child care

All are consequences of a homeowner going through foreclosure, short sale, or deed-in lieu, except: A. Negative impact on credit for several years B. Short-term inability to secure a new prime mortgage C. Potential loss of equity built up in home D. Lack of financial assistance for relocation

Correct: (D) Lack of financial assistance for relocation

What are the most common reasons why individuals face foreclosure? Select one of the following options. A. Increase in expenses and reduction in income B. Medical bills and poor budget management skills C. Poor investment and/or not being able to flip an investment property D. Reduced and/or lost income

Correct: (D) Reduced and/or lost income Often, clients seeking counseling say that they are facing foreclosure due to reduced or lost income.

All of the following are true about HLP's Case Status system, except: A. The Status tab is only visible when a case is open. B. It shows the last case update and amount of time the case remained in the previous status. C. It shows who is in control of the process—the servicer or the counselor. D. Servicers must update the case status every 20 days when they are in control of the process.

Correct: (D) Servicers must update the case status every 20 days when they are in control of the process. Servicers must update the case status every 10 days.

Which best describes access to the HLP main platform where loss mitigation/retention option applications are submitted? A. Counselors can sign up for an account directly on the site. B. Homeowners can sign up for an account directly on the site. C. Only counselors with certain certifications can have an account on the site. D. The counseling agency's HLP account administrator must provide access for each counselor at the agency.

Correct: (D) The counseling agency's HLP account administrator must provide access for each counselor at the agency.

Which program continues to be available to borrowers after the MHA expiration in December 2016? A. HAMP B. HARP C. PRA

Correct: B) HARP

Anthony received a letter regarding modifying his mortgage in the mail, and he knew it was from a scammer. To which of the following entities should he report this activity? A. Federal Trade Commission B. Homeowners Hope Hotline C. Loan Modification Scam Alert Campaign D. All of the above

Correct: D. All of the above

Lenders often offer short sale or deed-in-lieu options for homeowners trying to sell the home quickly before attempting a regular home sale. A. True B. False

Correct: (B) False

Rent: 30% of gross income

In general, clients should spend no more than 30% of their gross income on rental housing. In Penelope's case, $540 is 30% of her gross monthly income of $1,800.

Subprime Lending

Loans to borrowers with poor credit. Typically charge higher interest rates to insure against losses.

Tax Relief

Refer to the Internal Revenue Service, or IRS, for information about tax consequences for each disposition option.

Surplus Income

The amount of income left over after all financial obligations are met. Calculated by subtracting expenses from net income.

Delinquent

The failure of a borrower to make timely mortgage payments under a loan agreement. Most mortgages allow for a grace period, generally ten to fifteen days, before a late fee may be assessed.

Default

The inability to make timely payments or fulfill legal obligations of loan terms. Mortgage loans are typically considered in default when a payment has not been made after 60 to 90 days.

Robo-Signing

The process in which important documents that require careful review are signed automatically, like a robot, by someone who does not follow appropriate procedures or verify information. A common practice in the foreclosure crisis.

Loan Acceleration

The process of accelerating the payment of the full loan balance. Once a homeowner is in default for a certain period of time, a clause in many promissory notes allows lenders to demand immediate payment of the remaining loan balance.

Limited Time to Secure Housing

Though clients in foreclosure may have limited time and options, clients who select short sale or deed-in-lieu often have more time to secure their next housing arrangement.

Financial Documentation

Though specific requirements will vary based on servicers and programs, clients generally need to submit the following financial documents with their application: • Monthly mortgage statement • Information about other mortgages on the home, if applicable • Two most recent pay stubs for all household members contributing toward the mortgage payment • Last two years of tax returns • The most recent quarterly or year-to-date profit and loss statement, if self-employed • Documentation of income from other sources, such as alimony, child support,social security, etc. • Two most recent bank statements • A utility bill showing homeowner name and property address • Unemployment insurance letter, if applicable • Account balances and minimum monthly payments due on all credit cards • Information about savings and other assets • A letter describing any circumstances that caused reduced income or increased expenses, such as job loss, divorce, illness, etc. (not always required but often useful)

Imminent Default

When default is reasonably foreseeable. Typically applies to borrowers who are either current or less than 60 days delinquent. With FHA mortgages, borrowers facing imminent default are defined as those who are current or less than 30 days past due on the mortgage obligation and are experiencing a hardship that prevents them from making the next payment.