Foreclosure Mediation Program
Mortgage Foreclosure Filings in Cook
County
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
12,705
16,228
17,450
15,815
15,632
16,494
22,248
32,651
43,876
47,049
Mortgage Foreclosure Filings in Cook
County
2010
– Estimated foreclosure case filings: 48,000 –
52,000
– 60,766 mortgage foreclosure cases were
pending as of March 31, 2010
Chicago Volunteer Legal Services
“CVLS”
– Funded in 1964
– Largest, non-government funded
– Over 2,900 volunteers
– In 2009, CVLS provided free legal services to
17,427 low income people in the Chicago
area
CVLS Contact Information
Patricia Nelson, Director of Foreclosure Mediation Program
312-332-5539; pnelson@cvls.org
Natalie Weidemier, Attorney Support Supervisor
312-332-1687; nweidemier@cvls.org
Rebekah Rashidfarokhi, Staff Attorney
312-332-7399; rrashidfarokhi@cvls.org
Shirley Chiu, Staff Attorney
312-332-8239; schiu@cvls.org
Veronica Rodriguez, Foreclosure Mediation Administrator
312-332-3508; vrodriguez@cvls.org
Access to Justice
– Court appointed by the Chancery Division
– Full legal representation for pro-se litigants
– 150-200 cases/year
– Possible representation for foreclosure cases
that do not settle in mediation
Default Foreclosure Timeline
January –
March
Pre-Complaint: 3 missed
payments
April
Complaint: Filed
Late April
Jurisdiction: Service
June
Case Mgmt Date: No
Appearance filed
July
Motion for Default
Judgment entered
November
December
Sale: No notice if default
Sale Confirmed: OP
stayed for 30 days
Contested Foreclosure Timeline
January –
March
Pre-Complaint: 3 missed
payments
April
Complaint: Filed
Late April
Jurisdiction: Service
June
Case Mgmt Date: No
Appearance filed
July
Motion for Default
Judgment: Borrower
appears and requests
time to file Appearance &
Answer. Judge grants 30
days
Contested Foreclosure Timeline
August
Borrower files
Appearance & Answer
Late August
Borrower issues
Discovery to Lender
Late April
Jurisdiction: Service
November
Lender partially responds
to Discovery
December
Borrower sends 201(k)
letter
January,
2011
Lender complies w/
Discovery
Contested Foreclosure Timeline
February
Motion for Summary
Judgment: Borrower
requests Briefing
Schedule (28 days to
Respond, 14 to Reply)
and Hearing Date
May
Summary Judgment
entered – sale cannot
take place for 90 days
September
Sale
October
Confirmation of Sale, OP
stayed for 30 days
November
Borrower must relinquish
possession of property
Mediation Process Timeline
January –
March
Pre-Complaint: 3 missed
payments
April
Complaint: Filed
Late April
Jurisdiction: Service
Early May
Borrower calls Hotline on
Summons, receives appt.
to meet w/ HUD and CLC
Mid-May
Borrower meets w/ HUD
counselor & begins loan
mod process. Borrower
meets w/ CLC attorney
who reviews for legal
defenses & assists with
Appearance, Answer, Mtn
Mediation
Mediation Process Timeline
June
Case Mgmt Date:
Mediation Order entered,
CVLS appointed
June
CVLS and Plaintiff’s
attorney receive Notice of
Mediation date. Date will
be scheduled w/in 5
weeks of Case
Management Date
June
CVLS volunteer (YOU)
agree to accept case
July
You meet w/ client –
either personally or over
phone
Mediation Process Timeline
July
Email Plaintiff’s attorney
to negotiate loan mod.
No agreement reached
August
Mediation- case settles w/
a desired loan mod
August
Receive final written
agreement, client
executes
September
12 Week Post-Mediation
Status: You are not
required to attend.
Plaintiff dismisses case
Retention Options
Borrower Remains in the Property
Loan Modification
– Lender modifies one or more of these terms:
- Interest Rate
- Term of the Loan
- Principal
– Two types: HAMP & Non-HAMP
Retention Options
Borrower Remains in the Property
HAMP Loan Modification
– Federal program
– Monthly mortgage payment no more than 31% of gross
income
– Modification sequence: reduce interest rate, extend
term of the loan, forbear principal
Retention Options
Borrower Remains in the Property
Forbearance
- Lender agrees not to accept payments for a specified
period of time
- Unemployed borrowers or those experiencing a
temporary, finite loss of income
- UP Program
Retention Options
Borrower Remains in the Property
Repayment
- Borrower pays arrearages (missed payments,
attorney’s fees, lender’s costs) over a period of time,
usually 6-12 months
- Borrower must make regular mortgage payment in
addition to repayment amount
- Unrealistic for most borrowers
Retention Options
Borrower Remains in the Property
Chapter 13 Bankruptcy
- Stays foreclosure if filed before the sale
- Borrower’s debt, including mortgage arrearages,
consolidated and borrower makes monthly payment to
trustee
- Borrower must make regular mortgage payment as well
- Last alternative – negative impact on credit
Non-Retention Options
Borrower Surrenders Possession of Property
Deed in Lieu of Foreclosure
- Borrower deeds property to lender and lender agrees
not to pursue personal deficiency
- Why? Credit score, cannot reinstate, no equity
- Why not? Cook County judges rarely grant personal
deficiency judgments, less time in the property, credit
still negatively impacted
Non-Retention Options
Borrower Surrenders Possession of Property
Consent Judgment
- Similar to DIL except 2nd mortgage on property
– 2nd mortgagee bound if proper notice & does not object
– 2nd mortgagee can later file a collection case based on
the Note even though mortgage foreclosed
Non-Retention Options
Borrower Surrenders Possession of Property
Short Sale
- Sale price does not cover outstanding mortgage
- Lender approval required
- Amount forgiven IS taxable if investment property
Non-Retention Options
Borrower Surrenders Possession of Property
Cash for Keys
- DIL variation
- Lender pays Borrower to timely vacate home
w/out destroying property
- Lender avoids incurring eviction costs
Non-Retention Options
Borrower Surrenders Possession of Property
Exit w/ Post-Foreclosure Rental
- Lenders’ inventory of foreclosed homes are
increasing which may serve as an incentive to
rent the property to the Borrower
Non-Retention Options
Borrower Surrenders Possession of Property
Chapter 7 Bankruptcy
- Chapter 7 will not stay the foreclosure
- Chapter 7 will release Borrower from any debt,
including any potential deficiency judgment
James Brady
Legal Assistance Foundation of Metropolitan Chicago

What is HAMP?

How does HAMP work?
◦ What loans are eligible?
◦ How do you figure that out?
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Waterfall for payment reduction
NPV test
Trial modifications
Denials
Bankruptcy
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How does HAMP impact litigation?

Problems
Related programs
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◦ Stopping a foreclosure
◦ Waiver
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Home Affordable Modification Program
Component of Making Home Affordable initiative.
Voluntary incentive-based plan

Participating servicers supposed to screen everybody,
subject only to investor limits
Uniform modification characteristics

◦ For non-GSE loans, servicers choose whether to participate or not
◦ Mandatory for all Fannie Mae and Freddie Mac insured loans,
even if servicer not participating.
◦ Similar HAMP programs for VA and FHA loans
◦ Payments reduced to 31%, following standard waterfall
◦ Modification results in a positive Net Present Value (NPV) for
investors
◦ Trial modification followed by permanent modification
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No regs
No statute
Guidance
◦ Non-GSE: Supplemental Directives, Model Forms & FAQs
(hmpadmin.com)
◦ Fannie Mae: Announcements (efanniemae.com)
◦ Freddie Mac: Bulletins (freddiemac.com)
◦ FHA: Mortgagee letters
(hud.gov/offices/adm/hudclips/letters/mortgagee/index.cfm)
◦ VA: Circulars (homeloans.va.gov/valeri.html)
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$1000 for each completed loan mod
$1000 a year for 3 years for sustained loan
modification, if payment reduced by 6% (or ½ of the
amount the borrower’s monthly payment is lowered
by, if less)
Incentives for deed in lieu or short sale
$500 for pre-default loan modification
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$1500 pre-default loan modification with payment reduced by at
least 6%
Partial loan guarantees for modified loans (declining principal
coverage)
Interest or principal reduction subsidies for half the difference
between a payment at 38% DTI and 31% DTI
Home Price Decline Protection (HPDP) payments
◦ Increase as
 House price decline index (MSA or non-MSA region) increases
 UPB balance increases up to $259,000
 MTM-LTV increases, up to 90%
◦ Permanent mods, payment reduced at least 6%, NPV run after 9/1/09
◦ HPDP: Supplemental Directive 09-04
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Servicers can do modifications that go deeper than
HAMP and still receive incentive payments
◦ FAQs #3, 19

Servicers can offer non-HAMP modifications, although
everyone should be screened for and offered a HAMP
mod
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All Fannie Mae/Freddie Mac loans covered
◦ Search engine online to see if either owns the loan

List of participating servicers
◦ List with contact information available online
◦ Applies to operating subsidiaries/affiliates
◦ Servicer Participation Agreement (SPA) available online

Websites:
◦ www.makinghomeaffordable.gov
◦ www.financialstability.gov

Similar programs for Fannie & Freddie
◦ Fannie: Announcement 09-05R
◦ Freddie: Chapter C65 of Seller/Servicer Guide

Servicers get same incentives
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Mandates that banks receiving TARP money on a “going
forward basis” offer loan modifications
Servicers who sign contract must modify all eligible
loans
◦ Approximately 85% of eligible mortgage debt covered by
HAMP servicers
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Servicers of GSE loans must modify GSE loans
Servicers, not investors, participate
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HAMP doesn’t override PSAs.
BUT, the program follows “the “usual and customary
industry standards”
If investor forbids modification, servicer must request
waiver
◦ Supp. Dir. 09-01: servicers required to use “reasonable efforts”
to get approval.
◦ Supp. Dir. 10-02: servicers required to provide list to Treasury
of investors not participating in HAMP and to contact each in
writing at least 1x to encourage participation.

15 U.S.C. §1639a creates safe harbor from investor
litigation for servicers who modify under HAMP
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Is the borrower eligible?
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Default or imminent risk of default
Current payment greater than 31% of income
Property eligibility
Loan eligibility
Does the borrower qualify?
◦ Hardship affidavit
◦ Verified income
◦ NPV test (will the investor profit more by a mod than without
a mod?)
Default: must have been caused by hardship
Or default is “imminent” due to hardship
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◦ Is the rate about to reset?
◦ Lost income in the home?
 Employment income
 Divorce/ separation
 Death
◦ Fraud in origination
◦ Low cash reserves

Imminent default guidance:
◦ Fannie Mae: Announcement 10-02
◦ Freddie Mac: Bulletin 2010-01
◦ Non-GSE loans: Supp. Dir. 09-01 gives servicers wide latitude; FAQ
#19 refers servicers to GSE guidelines
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Income
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Gross income for borrowers. Can include income for non-borrower household members.
Net income gets multiplied by 125%
Rental income gets multiplied by 75%
Borrowers receiving unemployment benefits not eligible
Must be able to document monthly income
Borrower DOES NOT have to disclose child support or alimony
Expenses
◦ PITIA on first mortgage only
◦ Mortgage insurance not included

Note: Neither income nor expenses are an absolute bar, but a borrower’s income
may be too low or too high for a HAMP mod
◦ Too low and the borrower will fail the NPV test
◦ Too high and the borrower may already be at or under 31% DTI
Supp. Dir. 09-01, Supp. Dir. 10-01, Supp. Dir. 10-04

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Property must be:
◦ Primary residence. Investment properties not eligible.
◦ One to four units
Loan must be:
◦ First lien originated on or before January 1, 2009
 Home equity loans eligible if loan is first or only lien on property
◦ Unpaid principal balance cap
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1 unit: $729,450
2 unit: $934,200
3 unit: $1,129,250
4 unit: $1,403,400
◦ Not previously modified under HAMP
Supp. Dir. 09-01

Submission of “Initial Package” triggers servicer’s duty
to review for HAMP
◦ Request for Modification and Affidavit (RMA)
◦ 4506T-EZ form
 RMA and 4506T-EZ Forms available at makinghomeaffordble.gov
or hmpadmin.com
◦ Proof of income
 As of 6/1/10, will not accept oral/unverified income
 Checklist available at makinghomeaffordable.gov
Supp. Dir. 10-01
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10 business days from receipt of Initial Package to
acknowledge borrower’s request in writing.
30 calendar days from receipt to approve, deny, or
request more information in writing
If denied, 10 business days from determination to notify
of denial in writing.
Supp. Dir. 09-07, Supp. Dir. 09-08, Supp. Dir. 10-02

Target payment – PITIA 31% of gross monthly income
◦ If servicer reduces payment to 38%, Treasury subsidizes rate
reduction to 31%
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Waterfall Analysis
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Capitalize arrearage
Reduce interest rate
Amortization term extended to 40 years
Principal forbearance
Allowed to forgive principal, but not required.
Servicers will only take steps necessary to get payment to
target amount.
Supp. Dir. 09-01
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Capitalized arrearage includes:
◦
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Past due principal and interest
Escrow deficiencies/advances, though doesn’t have to be.
Foreclosure costs
Servicing fees: property inspections, credit report fee
CANNOT include:
◦ Late fees: unpaid fees will be waived
◦ Additional modification fees: no charge for HAMP. Supp. Dir.
09-01.
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Reduced to as low as 2% for 5 years (to get to 31%)
Can go lower, but incentives only paid down to 2%
Increase at 1% after 5 years to lower of
◦ Freddie Mac rate
◦ Interest rate cap in note

Once rate increases to cap, fixed for life of loan.

Forbearance
◦ Limited to 30% of unpaid principal balance or 100% LTV
(Supp. Dir. 10-01)
◦ Treated as non-interest bearing balloon payment

Reduction:
◦ Not required
◦ Additional incentives available ($1,000/year for 5 years of
successful mod)
Supp. Dir. 10-01
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What are the loan mod terms?
◦ Payment
 Income
 Escrow
◦ Forbearance required
◦ FDIC Loan Mod in a Box

What is the unpaid principal balance?
◦ 30%
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What is the current value?
◦ Difference between unpaid principal balance and current value
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Measures the benefit to the investor of a loan mod
◦ Not servicer
◦ Not borrower
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Weighs value and probability of
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Current payments
Foreclosure
Loan mod
Foreclosure after loan mod
Positive NPV test= HAMP loan mod
Negative NPV test—still possible to have a loan mod, but
unlikely to qualify for HAMP.
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HAMP NPV test not public
◦ Should demand entire NPV in discovery
◦ FDIC has comparable model online at FDIC.gov.
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Default model based on:
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FICO score
MTM LTV
Current delinquency
DTI
Value of current loan reduced by probability of default
Value of loan mod reduced by probability of redefault.
Servicers can generate their own NPV and use their own
numbers for required inputs
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Current income stream on loan is high
◦ Small likelihood of default (high FICO, low LTV, current, low DTI)
Foreclosure looks attractive
◦ High home value
◦ Chance of cure is high
Mod looks risky
◦ Declining home prices
◦ High chance of redefault
Mod doesn’t generate enough income
◦ Borrower’s income is so low that at 31%, the mod doesn’t generate
enough income

Trial Period Plan

Will be converted to permanent modification upon
completion of trial modification
If fails trial period: no further HAMP mod. “1 bite at the
apple.”

◦ At least 3 months trial at proposed modified payment
◦ Arrears will accrue during trial. Payments are held in suspense and
only credited when equal to full monthly payment under note.
◦ Will be reported to credit bureaus as either in default or making
payments under a plan
◦ May be required to get housing counseling if back end ratio is more
than 55% DTI but need not be completed before modification.
Supp. Dir. 09-07, Supp. Dir. 10-01

If more information needed:
◦ Servicer must send written request to borrower that identifies
specific information needed
◦ Letter must allow 30 days to provide missing documents.
◦ If still not returned, servicer must send 2nd letter giving
borrower 15 days to provide documents before denying
application.
◦ If still not provided, servicer will send Denial Notice that cites
denial due to insufficient information to determine eligibility
Supp. Dir. 09-08, Supp. Dir. 10-02
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Servicers must notify borrowers when:
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Not offering a trial mod
Not offering a permanent mod
Borrower at risk of losing trial mod
Borrower withdraws or refuses loan mod offer
Who gets notices:
◦ Borrower who submitted request for HAMP
◦ Borrower who verbally gave information sufficient for NPV
review
◦ Borrower offered trial mod
Supp. Dir. 09-08
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Must be sent to borrower within 10 days of determining
HAMP modification denied.
Must state why homeowner was denied
Must describe alternative loss mitigation options
If due to NPV, must offer opportunity to request NPV
inputs
ECOA compliance required by Supp. Dir. 09-08 and
FRB guidance
FCRA not specifically cited, but surely included in all
other applicable regs
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If denied based on NPV: notice will allow opportunity to
request certain inputs (e.g. income, UPB) in 30 days
(sale stayed)
Servicer must provide inputs w/in 10 days of request
Not required to provide property valuation,
assumptions, fees
No foreclosure sale for additional 30 days if borrower
requests inputs
Must review new borrower data, recalculate if likely to
change outcome

Process set out in Sup. Dir. 09-08
◦ If NPV inputs inaccurate, servicer must re-run if “material”
◦ No foreclosure sale until inaccuracies “resolved”

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In-house servicer escalation teams
Contact appropriate escalation team
◦ Non-GSE: escalations@hmpadmin.com; (866) 939 – 4469
◦ Fannie Mae: resource_center@fanniemae.com; 1-800-7FANNIE
◦ Freddie Mac: Phone: borrower_outreach@freddiemac.com;
1-800-FREDDIE

As of June 1, 2010 – are eligible for HAMP:
◦ Borrowers in an active chapter 7 or chapter 13 bankruptcy
case must be considered for HAMP if the borrower,
borrower’s counsel or bankruptcy trustee submits a request to
the servicer.
◦ Borrowers may not be denied a permanent HAMP
modification on the basis of a bankruptcy filing.
◦ Servicers cannot object to confirmation of a chapter 13 plan,
move for relief from the automatic stay, or move to dismiss
the chapter 13 case if on the basis that the borrower paid
only the trial period plan payments rather than the
scheduled mortgage payments
Supp. Dir. 10-02

Servicers may accept copies of the bankruptcy schedules and
tax returns filed in the case in lieu of the RMA and Form
4506T-EZ, if they are within 90 days.

Borrowers in a chapter 13 case who are determined eligible
for HAMP may be converted to a permanent modification
without completing a trial period plan if current on postpetition payments and if payments are >31% of gross monthly
income.
Supp. Dir. 10-02

Should be no waiver
◦ Supplemental Directive 09-01, p. 2


Language in modification agreement, paragraph 4E
appears to waive some defences
Can get a HAMP mod even if in active litigation or
bankruptcy

Servicer communication
◦ No response
◦ No details about analysis or determination

Re-verification of income
◦ Documents lost
◦ Homeowner no longer eligible
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Accumulation of arrears
Foreclosure sales
Wrongful denials
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2nd Lien Modification Program (2MP)
Voluntary participation: signing separate SPA
agreements.
◦ List of participating servicers at makinghomeaffordable.gov

Though announced, Treasury reports not “operational”
until August.
Supp. Dir. 09-05
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To be eligible, borrower must have final HAMP mod on
1st lien
Then, 2nd lien can be modified or extinguished, in whole
or in part.
Modification follows first lien:
◦ Interest rate reduced to 1% for 5 years, then rate of first lien
◦ Amortization to match first lien
◦ Proportional principal forbearance
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Unemployment Program, effective July 1, 2010
Three-month “forbearance”
◦ Payments scheduled at 31% of income
Borrower must request forbearance before 3 months of
payments are delinquent
Servicer may require borrower to demonstrate receipt of
unemployment for 3 months before evaluating for forbearance
If re-employed at end of forbearance, could be considered for
HAMP
Otherwise, could be considered for a short-sale or deed-in-lieu
Unemployment income will not be considered in determining
HAMP eligibility
Supp. Dir. 10-04
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Homeowners must request forbearance plan before 3
months delinquent
Servicers can require homeowners to receive
unemployment benefits for up to 3 months before
reviewing for forbearance
Borrowers must demonstrate receipt of unemployment
benefits through effective date of forbearance
agreement
◦ First day of the month following mailing of forbearance plan to
homeowner by servicer
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Borrowers should request forbearance immediately
upon becoming unemployed
Borrowers should hold servicers’ to response timelines, so
that unemployment benefits do not run out before
effective date of forbearance plan
Servicer must send notice of forbearance plan 10
business days after its determination
Will accrue late fees
No referrals to foreclosure or judicial sale during
evaluation for UP or during forbearance
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If unemployed, evaluated for UP not HAMP
Evaluated for HAMP mod if:
◦ Not eligible for forbearance
◦ Re-employed
◦ 30 days prior to expiration of forbearance
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Forbearance period does not count towards 3 month
trial plan
Can convert from trial plan to forbearance if become
unemployed
◦ Must complete new trial plan
◦ Subject to 3 month waiting period

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Homeowners can get $3000 for completing a short-sale
or DIL
Must meet basic HAMP eligibility requirements
◦ No NPV test
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Must be evaluated for HAMP and fail or request HAFA
◦ If borrower requests HAFA, they must be informed of HAMP
and given 14 days to consider pursuing HAMP
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Deficiency must be waived
Borrowers may be required to make monthly payments
of 31% of income
Supp. Dir. 09-09
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Minimum net proceeds defined in advance
Minimum 120 days to sell the property
Borrower supposed to clear subordinate liens; servicer
may authorize up to a total of $6K from sale proceeds
paid to subordinate lienholders, no more than 6% of the
subordinate lien’s outstanding principal balance
Servicer may require borrower to list house first, before
entering into a deed-in-lieu
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Works in tandem with HUD partial claim, but some different rules
HAMP considered last modification tool for FHA loans, rather used
as first option like Fannie/Freddie/non-GSE.
Incentive payments now available for FHA-HAMP mods
◦ Includes principal reduction payments to borrowers

Mortgagee letters available at
http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/index.cfm


Mortgagee Letter 09-23 sets forth basic outline
Be aware of other modification options available for FHA mortgages
◦ See, e.g., Mortgagee Letter 09-35 (requiring that modifications reduce
the base rate to the current market rate)
Supp. Dir. 10-03


Basic program guidance in Circular 26-10-02, available at
http://www.homeloans.va.gov/valeri.htm
FAQs available at
http://www.homeloans.va.gov/docs/VA_HAMP_FAQ_for_Servicers.pdf

Largely adopts Treasury forms and models, except
◦ Two step NPV process, with VA guarantee and without
 If it passes without but fails with, VA “refund” of the loan should happen
◦ All VA loans eligible for consideration
◦ Only modifications on loans 61+ days delinquent eligible for servicer
incentive payment

Divorced spouse of veteran who retains home eligible
How Volunteering in Foreclosure
Mediation Will Work
– Receive CVLS email w/ available mediation dates
– Volunteer accepts a mediation date
– Receive CVLS email w/ cases attached
– CVLS sends letter to client w/ your contact information
– Client contacts attorney (or vice versa)
How Volunteering in Foreclosure
Mediation Will Work
1st Discussion Between You and the Client
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Either in person or over the phone
Scope of Representation
Pre-Mediation & Mediation: purpose, process
Confirm Financials
Reality Testing
Identify Goals: Retention/Non-Retention
Best/Worst Case Scenario
How Volunteering in Foreclosure
Mediation Will Work
Pre-Mediation Negotiation w/ Plaintiff’s Attorney
– Save correspondence (emails, correspondence, etc…)
– Be aggressive
– Agreements must be in writing and signed before cancelling
mediation
– Use mediation summary terms
How Volunteering in Foreclosure
Mediation Will Work
Mediation
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Must have all updated financials
Clients must appear
Be prepared and on time
Use mediation summary terms
Post-Mediation
– Report results to CVLS