FORECLOSURE PREVENTION AND LOSS MITIGATION OVERVIEW FEBRUARY 24, 2011 FAITH-BASED AND NEIGHBORHOOD PARTNERS FORECLOSURE PREVENTION EDUCATION WORKSHOP 1

Today’s Agenda Reasons For Default FHA’s Loss Mitigation Program Strategic Foreclosures Mortgage Scams Questions Resources Foreclosure Prevention Tips 2

3 The Crisis Continues

Reasons for Default  Poor money management  Over extended obligations  Loss of income  Lack of concern or Understanding mortgage obligation  Illness  Divorce 4

Foreclosure Prevention Tips  Don’t ignore the problem/Open and respond to mail  Contact Lender and HCAs  Prioritize spending  Know Your Mortgage rights  Understand Foreclosure Prevention Options 5

FHA Loss Mitigation General Criteria  Borrower must be Owner Occupant  Loan must not be delinquent more than 12 months (PITI)  LM is mandatory on FHA loans that are delinquent  LM Options are in order of effectiveness 6

FHA’s Loss Mitigation Program Home Retention Tools:  Special Forbearance Agreement  Loan Modification  Partial Claim  FHA-HAMP 7

FHA’s Loss Mitigation Program Home Disposition Tools:  Pre-Foreclosure Sale (Short Sale)  Deed In Lieu 8

Special Forbearance Agreement:  Written agreement between lender and borrower which contains a plan to reinstate the loan  Three months delinquent but no more than 12 months  Minimum duration of four months – no max  Late fees not accessed 9 Home Retention Tools

Loan Modification:  A permanent change in the terms of a Mortgagor’s loan.  Interest Rate shall be reduced.  Legal fees and related foreclosure costs may be capitalized.  Allows a loan to be reinstated 10

Partial Claim: FHA advances funds on behalf of a borrower in an amount necessary to reinstate a delinquent  Not to exceed the equivalent of 12 months PITI.  Promissory Note is executed  Mortgage is subordinated to HUD  Interest rated shall be reduced  Not due and payable until the borrower pays off the 1 st mortgage or no longer owns property 11 Home Retention Tools

FHA’s Home Affordable Modification Program: Designed to help homeowners retain property and prevent foreclosure:  Provides borrowers with reduced mortgage payment  Combines Loan Mod with Partial claim  Results in a 30 year fixed rate mortgage  Imminent default or default mortgage 12 FHA-HAMP

Pre-Foreclosure Sale (Short sale): Allows a borrower in default to sell their home and use sale proceeds to satisfy mortgage debt.  At the time of sale, the property must be at least 31 days, but no more than 12 months  PFS is unavailable if a property has been abandoned or Mortgagor has ability to pay the debt.  The PFS must be an outright sale of the property. 13 Home Disposition Tools

Deed In Lieu (of foreclosure): Borrower voluntarily deeds collateral property to HUD in exchange for a release from all obligations under the mortgage  No walk aways/owner-occupant status  Borrower may receive up to $2,000 (Must be used to help pay off liens if needed)  Property must be left in good condition 14 Home Disposition Tools

 Borrowers with mortgages appraised significantly lower than property value often just walk away from their principal residence  This occurs when negative equity in the home reaches a level whereby, the mortgage substantially exceeds the property value  FHA’s Buy and Bail Policy 15 Strategic Foreclosures

Mortgage Scams  Be cautious of companies making donations to the church or requesting church approvals  Work with HUD Approved Housing counseling agencies, or verify authenticity of Housing Counselors/agencies invited to church events  Borrower should never make payments to anyone but lender or lender approved entity  Be aware of fake “government” modification programs 16

Mortgage Scams Common Scam Types  Phantom Help – The “rescuer” charges high fees for work that the homeowner could do for themselves, or charges for strong representation that never materializes  Bailout – Includes various schemes where homeowners surrender their house title thinking that they will be able to remain as renters and buy the house back 17

Mortgage Scams  Bait and Switch – Homeowners think they are signing documents for a new loan making the mortgage current, but actually sign away rights to the home. They are left still holding the mortgage payments.  Equity Stripping – A buyer purchases the home for the amount of the arrearage and flips the home for a quick profit. 18

HUD/FHA Resources 19

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HUD/FHA Resources Join HUD’s list: Receive notification of important industry announcements such as new mortgagee letters, handbooks, FHA mortgage limit increases, events and training opportunities. For borrowers facing foreclosure, struggling with their mortgages and/or trying to avoid foreclosure, visit Join Free FHA Webinars: Sign up and join other National FHA Mortgage industry partners HUD’s Office of Inspector General: Contact OIG to report fraud, waste, abuse, mismanagement or violations of law, rules or regulations by HUD employees or HUD program participants. Call:

HUD/FHA Resources FHA Call Center Call FHA Loss Mitigation – HECM (Reverse Mortgages) – National Servicing Call Center – HUD Approved Housing Counseling Agencies

Questions Vickie Johnson FHA Account Liaison 24