Briefing: Foreclosure Modification Rules
The Patrick administration last month established regulations for mortgage lenders that will prevent them from foreclosing on a property if it costs them less to modify the terms of a loan the borrower is having a hard time paying. The rules were created out of a law signed by Gov. Deval Patrick nearly a year ago that had the backing of housing advocates.
What must lenders do under these new rules?
Lenders will have to consider all available “loss mitigation” options before they start the foreclosure process. Chiefly, they must compare the cost of modifying the terms of a mortgage to the cost of foreclosing using a net present value (NPV) analysis prior to foreclosing on certain mortgages, such as those with teaser rates or interest-only payments.
How will borrowers know their options?
The law requires lenders to send a notice to borrowers informing them of their rights to request a loan modification. Starting Sept. 18, lenders must inform borrowers of their right to request a modification, which the borrower must do within 30 days of the date of the letter. The regulations outline both the lender's and borrower's responsibilities if the borrower requests a modification, including how borrowers may provide documentation for additional consideration.
How might this impact foreclosures?
Before the rules came out, the law itself was already having an impact, according to real estate data firm The Warren Group of Boston. Foreclosure activity in Massachusetts has been declining steadily since the fourth quarter of 2012. For April, the number of foreclosure petitions, which launch the foreclosure process, plummeted 79 percent from April 2012, due in part to the law, the Warren Group said, citing the Massachusetts Housing Partnership.
Who would the rules benefit, more specifically?
The rules would help borrowers who took out mortgages with introductory interest rates lasting at least three years that are lower than fully indexed rates by at least 2 percent. They would also help borrowers who are making interest-only payments or who didn't need to provide full income and asset documentation at the time they took out the loan.
What’s the banking industry’s take on this?
Jon Skarin of The Massachusetts Bankers Association, a trade group for the state's banks, said the rules provide banks with a “blueprint” that will help them comply with the law. Skarin said “most (banks) are happy that (the regulations are) finalized because now they know exactly what the roadmap is.”
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