Minnesota Attorney General's Office
1400 Bremer Tower
445 Minnesota Street
St. Paul, MN 55101
M - F 8 am - 5 pm
Mortgage Fact Sheet
Many people are struggling with real estate and mortgage problems. This Fact Sheet provides basic information about mortgage modifications and other potential available relief for homeowners.
What is a mortgage modification? Many homeowners seek mortgage modifications because they are having difficulty making their mortgage payments. Modifications can take the form of interest rate reductions, extension of the amortization period (i.e., the length of time it takes to pay off a mortgage), principal forbearance (i.e., adding part of the amount owed to the end of the mortgage), capitalizing the loan (i.e., adding all delinquencies to the back-end of the loan), and, in some cases, principal reduction. Typically, a homeowner’s new mortgage payment is tied to a percentage of their income, often 31 percent.
What are some of the programs that might help me explore a modification? Over the past several years, many homeowners have faced corporate red-tape and callous disregard when they have tried to modify their mortgages. Lenders routinely lost paperwork, didn’t return phone calls, requested the same documentation over and over again, and bounced people around from one bank employee to the next. In some cases, lenders have made it unfairly difficult for homeowners to pursue modifications and prevent unnecessary foreclosures.
The following are some of the programs homeowners might explore if the homeowner desires a modification:
1. HAMP. The Home Affordable Modification Program (“HAMP”) is a federal program that provides incentives to lenders and servicers to modify mortgages. The federal government announced that HAMP will be available through the end of 2013. If a borrower is approved for a HAMP modification, the borrower will enter a mandatory trial period of at least three months before being considered for a permanent modification. More information is available at www.makinghomeaffordable.gov.
2. UP. The Home Affordable Unemployment Program (“UP”) is a federal program that permits eligible unemployed borrowers to make a partial payment, not to exceed 31 percent of the borrower’s monthly gross income, during the UP forbearance period. Borrowers should ask their servicer if it participates in UP. More information is available at www.makinghomeaffordable.gov.
3. National Mortgage Settlement. In February 2012, the federal government and 49 states entered into a settlement with the nation’s five biggest banks: Wells Fargo, Bank of America, Citigroup, JP Morgan Chase, and GMAC/Ally. Under the federal government’s portion of the settlement, banks are supposed to restructure certain eligible mortgages. In addition, as part of the settlement, banks must also handle modification requests more fairly than they had in the past.
4. Contact the lender. Many mortgage servicers offer in-house modifications. Eligibility and application processes will vary by mortgage servicers, so borrowers should contact their mortgage servicer to determine any assistance it can provide. In addition, Fannie Mae and Freddie Mac began offering their own modifications beginning on January 1, 2012 for those borrowers that are not eligible for HAMP. Like HAMP, this program requires a trial period and escrow of taxes and insurance, among other things. If a borrower has any trouble during the process, the borrower may contact the Minnesota Attorney General’s Office.
What is a trial modification? A trial modification usually lasts three months, but it can sometimes take longer for a mortgage servicer to evaluate a borrower for a permanent modification. During the trial period, the borrower will make reduced payments to the mortgage servicer, and at the conclusion of the trial period, the borrower will then be reviewed for a permanent modification. Be aware that there are negative credit reporting consequences during the trial period because the borrower is paying less than the full mortgage payment. And, because escrow accounts are mandatory for modified mortgages, a borrower’s payment may increase substantially due to taxes and insurance.
What else do I need to know about modifications? As mentioned above, there are credit reporting consequences during the trial period. If a borrower is not approved for a permanent modification, the borrower’s credit report generally will not be corrected and their credit score may be lowered. In addition, the borrower may be charged late fees because the borrower is paying less than the full payment during the trial period, and if the bank continues with the foreclosure process, the borrower may continue to accrue foreclosure fees. For the five banks that are subject to the national mortgage settlement, however, there are restrictions on their ability to commence or continue with the foreclosure process in some cases, so affected borrowers should ask the bank if the borrower will continue to accrue additional fees or costs.
What if I don’t qualify for a modification? There are still options. Borrowers should ask their mortgage servicer if they’re eligible for forbearance (i.e., the mortgage servicer allows the borrower to pay less than the full mortgage amount for a period of time and upon conclusion a lump sum payment of the remaining delinquency is due) or a repayment plan (i.e., the borrower pays an increased amount for several months to bring the loan current). Keep in mind that a forbearance plan does not eliminate the debt. Instead, the borrower will owe the forbearance amount at a later date (possibly with interest).
Steer clear of mortgage modification scams. Be wary of people that offer assistance with a modification for a fee. Borrowers can always work with their bank on their own for free, and help is available for free from HUD-approved non-profit organizations. If a borrower encounters difficulty dealing with their mortgage servicer, the borrower can always contact the Minnesota Attorney General’s Office, too. In addition, since the national mortgage settlement, some fraudsters have called homeowners pretending to be the homeowner’s mortgage servicer and asking for private financial information. Do not provide private financial information to people--call the bank at its known phone number to be sure you’re talking to a bank representative!
Refinancing Your Loan
Interest rates are at historically low rates right now. Yet, many lenders won’t let homeowners—including those who are current on their mortgages—refinance to take advantage of these low market rates because the homeowners are “underwater” on their home mortgage (e.g. owe more on their mortgage than their home is worth). If this applies, a homeowner may wish to explore the following:
1. If the lender is one of the five biggest banks. Under the federal government’s portion of the settlement, Wells Fargo, Bank of America, Citigroup, JP Morgan Chase, and GMAC/Ally are required to create a refinancing program for current but underwater borrowers. Many federal criteria apply that limit who is eligible. For instance, refinancing is available for loans that meet the following criteria: first lien mortgages owned by the servicing bank originated prior to January 1, 2009, not modified within the past 24 months, current (i.e., no delinquencies within the past 12 months), borrowers who have not been in bankruptcy within the prior 24 months, and not in foreclosure within the prior 24 months. There are also other requirements that may affect eligibility. These banks are required to notify eligible borrowers of their eligibility to refinance under the refinance program. If a borrower wants to find out if they’re eligible, the borrower can ask their bank directly. Borrowers can also go to www.nationalmortgagesettlement.com for additional information. Please note that this only applies to loans that are serviced and owned by one of the five banks but not to loans that are owned by Fannie Mae/Freddie Mac.
2. If the borrower has another lender. If a borrower’s current mortgage servicer is not one of the five banks subject to the national settlement or the mortgage isn’t eligible, the borrower should still contact the borrower’s mortgage servicer to see if it will refinance the borrower’s loan. In addition, the borrower may be eligible for the Home Affordable Refinance Program (“HARP”), a federal refinancing program available to borrowers whose mortgages are owned or guaranteed by Freddie Mac or Fannie Mae. Borrowers can also try refinancing through another bank or contact a HUD-approved non-profit housing counselor for additional assistance.
3. Steer clear of refinancing scams. Some homeowners become the target of fraudulent refinancing offers. Such fraudulent refinancing offers may begin with a call from an “underwriter,” who may pretend the call is from the homeowner’s current mortgage lender and make a refinance offer that is hard to pass up (whether due to low interest rate, no closing costs, guaranteed approval, or the like).
What is a short sale? Millions of Americans are “underwater” on their home mortgage, meaning they owe more on their mortgage than their home is worth. A short sale is when a bank allows a homeowner to sell the home for less than the principal balance of the mortgage. With short sales, sellers should be aware that the bank may still hold the seller liable for the deficiency (i.e., the difference between the principal amount owed on the mortgage and the selling price). If the seller has a second mortgage, the seller may be liable to the owner of the second mortgage debt for any deficiency as well.
Tips to follow. If interested in a short sale, ask the bank about the application and qualification process. Also ask the bank (including the bank that services a second mortgage, if applicable) if it will hold the borrower liable for the deficiency balance following the short sale. Keep in mind that banks have been known to drag their feet and take months to evaluate short sale requests. There may be income tax consequences, so borrowers may want to consult with a tax advisor.
National settlement with Big 5 Banks and Short Sales. If the borrower’s bank is one of the five that are part of the national mortgage settlement, the bank may be willing to waive a deficiency balance (including on second mortgages) under the federal government’s portion of the settlement. In addition, under the settlement, the bank is required to review and make a decision on short sale requests within 30 days after it receives all necessary documents and information.
Finding a Reputable Foreclosure Counselor
Because there are fraudsters that prey on those who have difficulty making their mortgage payments -- whether by charging fees for “help” negotiating a modification or otherwise - borrowers should use a HUD approved housing counseling agency. Borrowers can search for HUD approved housing counseling agencies using the link below:
U.S. Dept. of Housing and Urban Development
451 7th Street SW
Washington, DC 20410
(800) 569-4287 or TTY: (800) 877-8339
Minnesota Housing Finance Agency
400 Sibley Street, Suite #300
St. Paul, MN 55101
651-296-7608 or 800- 657-3769
Minnesota Housing Finance Agency
Minnesota Home Ownership Center
633 South Concord Street, Suite #250
South St. Paul, MN 55075
Lutheran Social Services Financial Counseling
424 West Superior Street, Suite 600
Duluth, MN 55802
(888) 577-2227 or (218) 529-2277
For Those Who Have Been Harmed
Some people may have already lost their home to foreclosure or otherwise been harmed by a bank’s practices. If this applies, know this:
1. Federal Agency Settlements. The OCC, Office of Thrift Supervision, and Federal Reserve reached an agreement with several large servicers. The agreement applies to foreclosure actions between January 1, 2009 and December 31, 2010. If a borrower was the subject of a foreclosure action (this includes those borrowers who were simply referred to foreclosure, even though never actually foreclosed) and the borrower believes the borrower suffered financial injury due to errors, misrepresentations, or deficiencies in the mortgage servicer’s foreclosure process, check to see if the mortgage servicer is subject to this settlement. The full list of mortgage servicers is available at www.independentforeclosurereview.com. Some bank customers will receive checks (even though they did not submit a request for review before the December 31, 2012 deadline) while customers of other banks will continue in the review process (if they made a timely request for review). More information about this process is available at www.independentforeclosurereview.com.
2. National Mortgage Settlement. Under the national settlement with Wells Fargo, Bank of America, Citigroup, JP Morgan Chase, and GMAC/Ally, these banks will provide payments to borrowers whose homes were sold or otherwise taken in foreclosure between January 1, 2008 and December 31, 2011 and who meet certain other eligibility criteria. The amount of the payment will depend on the number of claims received. Eligible individuals had until mid-January, 2013 to request a payment under the National Mortgage Settlement fund. We have been told that Rust Consulting, the national settlement administrator, will likely mail checks to eligible individuals who made a claim between June 10 and 17, 2013. If you have questions about this process you can contact Rust Consulting, the settlement administrator, by phone at 1-866-430-8358 or by mail at National Mortgage Settlement Administrator, c/o Rust Consulting, Inc., P.O. Box 8043, Faribault, MN 55021-9443.
National Mortgage Settlement. Borrowers who have questions about the national mortgage settlement may go to www.nationalmortgagesettlement.com.
Tell the Regulators. If a homeowner has a problem with a bank or mortgage company, the borrower should let the regulators know. The Office of the Comptroller of the Currency is the federal agency which licenses and is supposed to regulate national banks, and it may be reached as follows:
Office of the Comptroller of the Currency
Customer Assistance Group
1301 McKinney Street, Suite 3450
Houston, TX 77010
Toll free: 1-800-613-6743
State chartered banks and mortgage servicers are subject to regulation by the Minnesota Department of Commerce, which may be reached as follows:
Mike Rothman, Commissioner
Minnesota Department of Commerce
85 East Seventh Place, Suite 500
St. Paul, MN 55101
For additional assistance. For additional assistance, homeowners may want to contact these agencies:
Office of Minnesota Attorney General Lori Swanson
1400 Bremer Tower
445 Minnesota Street
St. Paul, MN 55101
TTY: (651) 297-7206
Consumer Financial Protection Bureau
Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington D.C. 20220