"The Dodd-Frank Wall Street Reform and Consumer Protection Act" - Some Residential Mortgage Provisions

H.R. 4173

The Dodd-Frank Wall Street Reform and Consumer Protection Act - was signed into law by President Obama on July 21, 2010 as Public Law 111-203. It contains various residential mortgage provisions.

Section 4 - General Effective Date - one day after enactment

Section 941 - Regulation of Credit Risk Retention - Regulations are to be prescribed "to require any securitizer to retain an economic interest in a portion of the credit risk for any asset that the securitizer, through the issuance of an asset-backed security, transfers, sells or conveys to a third party." The securitizer is also to be prohibited from "hedging or otherwise transferring the credit risk that the securitizer is required to retain" and the securitizer is to be required to retain not less than 5 percent of the credit risk for certain assets.

Section 1001, et seq. - The Consumer Financial Protection Act of 2010.

Section 1400, et seq. - The Mortgage Reform and Anti-Predatory Lending Act

Section 1411 - Ability to Repay - The Truth in Lending Act (15 U.S.C. 1631 et seq.) is amended that, in accordance with regulation, creditors may not make a residential mortgage loan unless it makes a "reasonable and good faith determination based on verified and documented information that, at the time the loan is consummated, the consumer has a reasonable ability to repay the loan, according to its terms, and all applicable taxes, insurance...and assessments."

Section 1442 - Establishment of Office of Housing Counseling

Section 1446 - Study of Defaults and Foreclosures - HUD is to conduct an extensive study of the causes of default and foreclosure of residential home loans, including the role of escrow accounts and the role of "computer registeries of mortgage" (that must refer to MERS)

Section 1471 - Property Appraisal Requirements

Section 1482 - HAMP Guidelines - the HAMP supplemental directives and other guidelines are to require the mortgage servicer to provide the borrower whose request for mortgage modification is denied, "all borrower-related and mortgage-related input data used in any net present value (NPV) analyses". The input data is to be provided "at the time of such denial." A website is to be established to provide a calculator of the NPV analyses of a mortgage so that a homeowner can enter the information regarding their own mortgage and make a determination regarding whether their mortgage would be accepted or rejected for a HAMP modification.

Section 1483 - Public Availablity of HAMP Data

Update on HAMP

Testimony Before the Senate Committee on Finance on July 21, 2010

• Neil Barofsky - Special Inspector General of TARP
  
• Elizabeth Warren - Chair of the Congressional Oversight Panel
  
• Richard Hillman - Managing Director of Financial Markets and Community Investment Team for the GAO
  

Improper HAMP Denials and Servicer Noncompliance - The GAO Report to Congress

On June 24, 2010, the U.S. Government Accountability Office ("GAO") released its report to the Congressional Committees entitled "Troubled Asset Relief Program - Further Actions Needed to Fully and Equitably Implement Foreclosure Mitigation Programs." The report reviewed various issues, including the extent to which HAMP servicers have treated borrowers consistently and the action that Treasury has taken to address "the challenges of trial modification conversion, negative equity, redefaults, and program stability." The GAO report issued several recommendations to Treasury, including that it establish increase efforts to inform borrowers to use the HOPE Hotline if they have been incorrectly denied HAMP and to clarify the consequences for mortgage servicers for noncompliance with HAMP.

HAMP Inquiries and Complaints

The GAO report notes that Treasury directed the HAMP servicers to establish procedures to respond to borrower inquiries and complaints. To that end, HAMP contracted with the "HOPE Hotline" to handle incoming borrower calls about HAMP, including complaints about potentially incorrect denials. The present hierarchy of referrals is as follows:

1. Borrower to call HOPE Hotline at (888) 995-4673
   
2. Referral by HOPE Hotline to HUD Approved Counseling Agency or its "Making Home Affordable Escalation Team"
   
3. Escalation, as needed, to HUD Approved Counseling Agency's Management
4. Escalation, as neeeded to, Fannie Maes' HAMP Solution Center
   

HUD-Approved Counseling and MHA Escalation Team

The HOPE Hotline may refer the borrower to a HUD-approved counseling agency or a Making Home Affordable ("MHA") Escalation Team (which is "housed within a HUD-approved counseling agency") if there is an assertion that they have been wrongfully denied a modification or if their servicer has not applied the HAMP guidelines appropriately.

HUD-Approved Counseling Management

If "additional intervention is needed", the HUD-approved counsel is to "'escalate' the complaint to the housing counseling agency's management." The GAO report states that [a]s of mid-April, 2010, more than 37,000 borrower complaints had been escalated to the MHA Escalation Team."


Fannie Maes' HAMP Solution Center

If the counseling agency's management is unable to resolve the complaint, the case is "referred to an escalation team within Fannie Mae known as the HAMP Solution Center" which also handles escalations referred by "housing counselors and government agencies outside of the HOPE hotline." The GAO report states that as of April 1, 2010, more than 3,700 complaints had been escalated to the HAMP Solution Center of which 2,900 were resolved with 19% resulting in the initiation of a modification, 35% with a determination of ineligibility, and 17% being referred back to the servicers or the HOPE Hotline. The report notes that "Fannie Mae has set a goal of 7 business days for the HAMP Solution Center to resolve complaints, but as of mid-April 2010, the average resolution time was 23 days."


GAO on the Effectiveness of the HOPE Hotline and Escalation Processes

The GAO report states that [i]t is unclear whether the HOPE Hotline and the escalation processes are effective mechanisms for resolving concerns about potentially incorrect HAMP denials" and notes that neither "the MHA Escalation Team counselor nor [the] HAMP Solution staff review the borrower's application or loan file." Treasury advised the GAO that it "would be difficult to obtain borrower's loan files because they are so large" but that they are working toward access to at least some information from the loan files.

The GAO report also states that Treasury has not explicitly informed borrowers that the HOPE hotline can be used to raise concerns about their HAMP applications and potentially incorrect denials.


Servicer Noncompliance with HAMP Program Requirements

The GAO report notes that while Treasury has taken "some steps to ensure that servicers comply with HAMP program requirements," it has "yet to establish specific consequences or penalties for noncompliance with HAMP guidelines." Although the Treasury's HAMP Compliance Committee drafted a policy to establish consequences for servicer noncompliance with HAMP program requirements, the policy has not yet been finalized. In the meanwhile, issues of servicer noncompliance are to be reported to the Treasury's HAMP Compliance Committee for evaluation, with resulting "financial remedies," "targeted reviews"and requirements for servicers to "take action to correct areas of noncompliance."

In its April, 2010 report, the Congressional Oversight Panel "recommended that Treasury ensure compliance through established enforcement mechanisms that provide a clear message of the consequences for servicer actions."

GAO Recommendations


The GAO report's recommendations include recommendation that the Secretary of Treasury "finalize and issue consequences for servicer noncompliance with HAMP requirements as soon as possible."

Palm Beach County Mortgage Foreclosure Mediation

Palm Beach County Circuit Court Foreclosure Mediation

The Circuit Court of the 15th Judicial Circuit of Palm Beach County issued administrative order number 3.308-6/10 dated June 28, 2010, to take effect on July 12, 2010, providing for certain "Case Management of Residential Foreclosure Cases and Mandatory Mediation Referral."


Scope

The administrative order is to generally apply to "all residential mortgage foreclosure actions filed in the Fifteenth Judicial Circuit" as of the effective date of the order, in which the involved mortgage was subject to the federal Truth in Lending Act, Regulation Z. All mortgage foreclosure actions against homestead residences are to be referred to the Residential Mortgage Foreclosure Program ("RMFM Program") unless otherwise agreed or unless certain pre-suit mediation was previously conducted. Other procedures apply to non-homestead foreclosure actions. The Court may order mortgage foreclosure actions filed prior to order's effective date to be subject to this Administrative Order.

Program Manager

The administrative order appoints the Palm Beach County Bar Association as the Program Manager of the "Residential Mortgage Foreclosure Mediation Program." The mediations will be held at 1601 Belvedere Rd., Suite 304, West Palm Beach, Florida. It is to manage the program in accordance with the administrative order and the Florida Supreme Court's Administrative Order SC09-54.

Disclosure for Mediation

The homeowner may request the following information and documents from the lender prior to the mediation session:

• proof of ownership and status as holder in due course as to note and mortgage


• history of application of payment


• lender's position on the present net value of the mortgage loan


• lender's most current appraisal of the property

Pre-Suit Mediation

Mortgage lenders are encouraged to use alternative dispute resolution, including mediation, prior to filing a mortgage foreclosure action.