The Mortgage Process: Servicing Preliminary Considerations Initiating Partnership Mortgage Fundamentals Preparing for Sale Servicing Full Servicing Federal Laws (Small Servicer Exemption) HFHI Policy 24 Controlling Delinquencies Escrow management Foreclosures/ Bankruptcies Remember: MPAR University on My.Habitat!

Mortgage Servicing Why Mortgage Servicing? Fund for Humanity Affiliate’s biggest asset Unrestricted funds Sustainability Need to take this seriously. Not only because of the federal laws and HFHI policies that mandate proper servicing, but because this is your source of unrestricted funds; keeps your affiliate sustainable when servicing is done properly!

Mortgage Servicing Full Servicing At a minimum, full Servicing includes, but is not limited to: Receive, process, record and update account status of mortgage payments Establishment of, allocation to, and disbursement from federally insured escrow accounts Customer resolution management Life of loan monitoring and management of tax and insurance (including flood insurance, when applicable) Annual escrow analysis Delinquency management, including collections management Recommendations for resolution of delinquency problems Loss Mitigation, including forbearance agreements, deed-in-lieu, loan modifications & foreclosure Reporting to credit depositories OFAC database management (follow policy frequency) Most people think of servicing as the first few bullets. It is A LOT more than that. Either your affiliate or your third party servicer has to be doing this. All of this!

Mortgage Servicing Major Changes January 2014 RESPA/TILA Mortgage Servicing Rules 9 rules split between 2 Regulations Many provisions to each rule Exemptions Small servicers State Finance Agencies All servicers – Master and Sub-servicers must comply Just like we spoke about the origination rules, 2014 brought lots of changes to servicing rules too. We do have an exemption. TO BE VERY CLEAR, this does not exempt affiliates from all rules. Still need to follow some rules.

Small Servicer Exemption You are a small servicer if you service 5,000 or fewer mortgage loans, and you are the creditor or assignee for all of them. New - Nonprofit Small Servicer definition – Allows Habitat affiliates who service for other affiliates even for a fee, the benefit of the small servicer exemption. Loans must be owned or originated by the servicer or the other affiliate(s) and the amount serviced must be less than 5000.

Federal Servicing Laws Minimum Requirements Prompt Crediting of Payments and Response to Request for Payoff Full (principal and escrow) mortgage payment must be applied to the homeowner’s account the day it is received Partial payments policy: Must pick one! Return Keep and apply Keep and hold until a full periodic payment is received, then apply Accurate Payoff Balance must be provided within 7 days of request Error Resolution and Information Request Both requests must be acknowledged to the homeowner within 5 days of receipt. Specific time frames to then respond with resolution or answer. State have laws associated with servicing that you must be aware of. Laws may include Escrow account management, payment application, partial payment treatment, and foreclosure to name a few. Error resolution and info request. Acknowledge within 5 days or receipt and then 30-45 days to respond with answer.

Federal Servicing Laws Minimum Requirements cont’d Purchase of Forced-Place Insurance – with exceptions In Habitat context, likely when insurance gets cancelled Must force place insurance if the cost of the force-placed insurance to the consumer is less than the amount the small servicer would need to disburse from the consumer’s escrow account to pay the consumer’s hazard insurance premium Loss Mitigation – with exceptions Cannot move for foreclosure if the homeowner is performing to the terms of a loss mitigation agreement First notice or filing of foreclosure cannot be made unless the homeowner is more than 120 days delinquent State have laws associated with servicing that you must be aware of. Laws may include Escrow account management, payment application, partial payment treatment, and foreclosure to name a few. Insurance cancellation – for too many claims maybe. Likely wound ’t be a lapse b/c affiliate is paying. Must force place insurance in certain situations. Remember, don’t want to disadvantage homeowner. Should force place the insurance even if it cost more b/c it’s your collateral. Lender just have to eat the excess cost.

Policy 24 - Minimum Requirements Mortgage Servicing Policy 24 - Minimum Requirements Know and follow applicable federal / state / local laws Affiliates that outsource Must be aware of regulations that govern the servicer (small servicer vs. large servicer) Know their servicer's policy of loss mitigation up to and including foreclosure and be provided with timely status of delinquent homeowners Receive timely reporting of mortgage account status Board approved comprehensive servicing policies Accurate mortgage balance must be provided to homeowner’s at least annually, including any subordinate mortgage balances State have laws associated with servicing that you must be aware of. Laws may include Escrow account management, payment application, partial payment treatment, and foreclosure to name a few. Third party servicers – TALK! SET OUT EXPECTATIONS IN CONTRACT! Ie who is going to send GLBA letter?

Policy 24 - Minimum Reqs cont’d Mortgage Servicing Policy 24 - Minimum Reqs cont’d Escrow account management in accordance with RESPA Initial and annual escrow statements Separate account for these funds, and cannot be used for any other purpose Escrow Guidelines & Sample Analysis Delinquency & Enforcement Accurate categorization of delinquent accounts ASR Mortgage Reporting Defined Forbearance or trial modification agreements must be documented and fully executed Foreclosure is permitted State have laws associated with servicing that you must be aware of. Laws may include Escrow account management, payment application, partial payment treatment, and foreclosure to name a few. Initial escrow statement – at closing or within 45 days. Delinquency reporting: Quarterly affiliates need to report to HFHI and also this should be used in reporting to your board.

Mortgage Servicing Delinquency Defined If the periodic payment is due the 1st of the month (May 1st ): If not paid, it is delinquent the next day (May 2nd), which is the 1st day of delinquency (June 15th is 45 days) It is 30 days delinquent if it is not paid before the next due date. It is 60 days delinquent, if not paid before the following due date It is 90 days delinquent, if not paid before the following due date. The first day of delinquency is important: To consistently trigger policy collections actions and to comply with12 USC 1701x(c)(5) requiring that before the 45th day, you must provide the delinquent homeowner information about credit counseling and the HUD toll free number for finding a certified nonprofit credit counseling agency. Should homeowner be a servicemember, the Servicemember Civil Relief Act (SCRA) notice also has to be provided by day 45. Absence of past due notifications can be used as a foreclosure defense See Sample Delinquency and Foreclosure Procedures and Notices Remember ASR and Board reports

Controlling Delinquencies Mortgage Servicing Controlling Delinquencies Steps for Resolving Serious Delinquencies: Acknowledge there is an issue and seek help from HFHI or other qualified experts Review policy and procedures to ensure it is comprehensive and covers all aspects of servicing Ensure that the policy is understood and followed Contact each homeowner that is delinquent to discuss options Forbearance agreement Trial modification Deed in Lieu of foreclosure Foreclose when appropriate Outsource servicing to a professional servicer Change the effect of the “homeowner grapevine”

Escrow Management (RESPA) Mortgage Servicing Escrow Management (RESPA) All servicers (in-house or 3rd Party) must comply with all federal and state laws pertaining to mortgage servicing, including escrow management: The funds must be deposited in a federally insured account designated as an escrow or trust account Must be kept separate, distinct and apart from funds belonging to the affiliate You may not “borrow” from the escrow account Must comply with RESPA’s escrow analysis requirements, which notify homeowners of payment increases due to a rise in tax or insurance See Escrow Management Collection on My.Habitat.

Foreclosures / Bankruptcies Affiliates should engage a local residential real estate attorney experienced with bankruptcy and the foreclosure process Before an affiliate files for foreclosure: Try to workout a loss mitigation option with homeowner Account must be more than 120 days delinquent (or state law timing) Must ensure that the homeowner has received all required notices or may need to reset Homeowner cannot be fulfilling forbearance agreement terms State laws dictate process – judicial or non-judicial Homeowner filing for bankruptcy evokes “automatic stay.” OH – Judicial foreclosure; statutory right of redemption must occur before confirmation of the of the foreclosure sale by the county court. PA – judicial - An Act 6 notice (Required to be sent by certified Mail) requires a notice of intention to foreclose to be sent within 60 days of a default occurring. The borrower will usually then have 30 days in which to set up a payment plan or cure any default during this time frame. An Act 91 notice (Required to be sent by regular mail with certificate of mailing) relates to a mortgage default where the borrower is advised there may be assistance available in the form of a HEMAP (Homeowners Emergency Mortgage Assistance Program) loan to cure the existing default. No right of redemption. WV – non judicial primarily, but judicial exists. No right of redemption

Servicing Take-Aways Servicing is more than collecting mortgage payments! Make sure all full servicing activities are accounted for in your Affiliate or through a third-party servicer. Even with the Small Servicer Exemption, Affiliates are subject to several servicing requirements under RESPA and TILA. HFHI Policy 24 also governs Affiliates’ servicing practices. Make sure you are properly counting days delinquent. This is important for default notices, Board reports, and the ASR. Follow all escrow management laws, including RESPA and state laws. Engage a residential real estate attorney experienced in bankruptcy and foreclosure. OH – Judicial foreclosure; statutory right of redemption must occur before confirmation of the of the foreclosure sale by the county court. PA – judicial - An Act 6 notice (Required to be sent by certified Mail) requires a notice of intention to foreclose to be sent within 60 days of a default occurring. The borrower will usually then have 30 days in which to set up a payment plan or cure any default during this time frame. An Act 91 notice (Required to be sent by regular mail with certificate of mailing) relates to a mortgage default where the borrower is advised there may be assistance available in the form of a HEMAP (Homeowners Emergency Mortgage Assistance Program) loan to cure the existing default. No right of redemption. WV – non judicial primarily, but judicial exists. No right of redemption

Questions 1/26/2018

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