2015 MS FAQ Delinquent Loans and Loss Mitigation
FREQUENTLY ASKED QUESTIONS
These questions and answers constitute informal guidelines only and do not constitute legal advice or rules by DFI. Any interpretations of Chapter 454M, HRS, are specific to the facts and circumstances in each particular situation. Questions and answers will be updated and supplemented as DFI develops additional guidance. Additional answers can be found using the NMLS Resource Center.
If additional guidance is required on a unique situation in your company or for yourself, you may send your inquiry via letter or email to:
Division of Financial Institutions
Department of Commerce and Consumer Affairs
P.O. Box 2054
Honolulu, HI 96805
DELINQUENT LOANS AND LOSS MITIGATION
A mortgage servicer to establish and maintain a system for servicing delinquent loans, under Section 454M-5.5(m), HRS.
What are a mortgage servicer’s loss mitigation requirements?
“Loss mitigation option” means an alternative to foreclosure, including loan modification, reinstatement, forbearance, deed-in-lieu, and short sale. Section 454M-1, HRS. Requirements of mortgage servicers in connection with loan delinquencies and loss mitigation efforts are set out in Section 454M-5.5, HRS, including:
- Reasonable and good faith effort – Section 454M-5.5(a), HRS, requires mortgage servicers to make reasonable and good faith efforts consistent with Chapter 454M to engage in appropriate loss mitigation options, including loan modifications, to assist borrowers to avoid foreclosure. Mortgage servicers shall provide timely and appropriate responses to borrower inquiries and complaints regarding available loss mitigation options and ensure that borrowers are not required to submit multiple copies of required documents during consideration for any loss mitigation option. In the event of a delinquency or other act of default on the part of the borrower, or whenever a borrower who is at imminent risk of default contacts the mortgage servicer with respect to a loan modification or other loss mitigation option, the mortgage servicer shall:
(1) Inform the borrower of the facts concerning the loan, the nature and extent of the delinquency or default, the mortgage servicer’s loss mitigation option protocols, and the loss mitigation options and services offered by the mortgage servicer in accordance with Chapter 454M, HRS; and
(2) Pursue loss mitigation options with the borrower, including a loan modification whenever possible, in accordance with Chapter 454M, HRS , and, if the borrower replies, negotiate with the borrower, subject to the mortgage servicer’s lawful duties and obligations under the mortgage servicing contract, if any, to attempt a resolution or workout of the delinquency or to prevent the borrower’s default. (454M-5.5(a)(2), HRS.)
- When a loan modification must be considered – Section 454M-5.5(b), HRS, requires mortgage servicers to consider a loan modification as an alternative to foreclosure when:
(1) The borrower demonstrates that the borrower has experienced a financial hardship and is either unable to maintain the payment at the current amount required under the mortgage loan or is unable to make up the delinquent payments; and
(2) The net present value of the income stream expected of the modified loan is greater than the net present value of the income stream that is expected to be recovered through the disposition of the property through a foreclosure sale.
- Mortgage servicers participating in “HAMP” must comply with HAMP – Section 454M-5.5(c), HRS, requires mortgage servicers that are participating in the Home Affordable Modification Program Home Affordable Modification Program (“HAMP”) to offer loan modifications in compliance with HAMP guidance and directives including using reasonable efforts to remove prohibitions or impediments to the mortgage servicer’s authority, and obtain third party consents and waivers that are required by contract or law to effectuate a loan modification under HAMP.
- Acknowledgement of a borrower’s loss mitigation request – Section 454M-5.5(d), HRS, provides that unless a longer time is permitted under the guidance or directives implementing HAMP, within ten business days of receiving a request from a borrower or the borrower’s authorized representative for one or more loss mitigation options, the mortgage servicer shall transmit a written acknowledgment of the request to the borrower and, if applicable, to the authorized representative. The acknowledgment shall identify with specificity any information needed from the borrower for the mortgage servicer to review the borrower’s loss mitigation option request. The acknowledgment shall also include an explanation of the loss mitigation option process, including the following, as appropriate:
(1) The information that the borrower may be asked to provide and third party approvals that may be required for the mortgage servicer to evaluate and complete the request for a loan modification or other loss mitigation option;
2) The average length of time for a decision to be made regarding a loan modification or other loss mitigation option; and
(3) A notification of the actions the mortgage servicer, lender, or owner of the mortgage may take during the loss mitigation option process, such as whether the borrower may continue to receive collection letters or foreclosure notices, whether the foreclosure process will continue, or whether and to what extent collection and foreclosure will be stayed.
- Notice of determination of borrower’s loss mitigation request – Section 454M-5.5(e), HRS, provides that within thirty days of receiving all required documentation from the borrower and third parties, unless a shorter time is required under state or federal rules or regulations pertaining to mortgage servicing or under HAMP guidance or directives, a mortgage servicer shall complete its evaluation of the borrower’s eligibility for a loan modification or any other loss mitigation option requested by the borrower and advise the borrower, and if applicable, the borrower’s authorized representative, in writing of the mortgage servicer’s determination.
If the mortgage servicer approves the borrower for a loan modification, including a trial loan modification, or other loss mitigation option, the written notice shall provide the borrower with clear and understandable written information explaining the material terms, costs, and risks of the loss mitigation option offered.
If the mortgage servicer determines that the borrower cannot be approved for a loan modification or other requested loss mitigation option, the written notice shall state with specificity:
(1) The reasons for the determination;
(2) Procedures, deadlines, and contact information for a person at the mortgage servicer for reconsideration, dispute, or appeal of the determination; and
(3) Any other loss mitigation option for which the borrower may be considered.
In addition, the written notice shall include the following statement, in boldface type and in print no smaller than the largest print used elsewhere in the main body of the written notice: “If you believe your loss mitigation option request has been wrongly denied, you may file a complaint with the state division of financial institutions at [insert current division telephone number] or [insert current division website address for consumer complaints]“.
- Staff awareness of loss mitigation programs, HUD approved counselors – Section 454M-5.5(f), HRS, provides that a mortgage servicer shall take reasonable steps to ensure that the mortgage servicer’s staff is aware of programs designed to assist borrowers to avoid foreclosure or resolve delinquency. The mortgage servicer shall make available to borrowers who are at least sixty days delinquent or who the mortgage servicer has reason to believe are experiencing a financial hardship and are in imminent risk of default, a list of government approved not-for-profit housing counselors in the borrower’s geographic area, as listed on the website of the United States Department of Housing and Urban Development.
- Borrower access to loss mitigation staff – Section 454M-5.5(g), HRS, provides that a mortgage servicer shall maintain and make available to borrowers and borrowers’ authorized representatives current contact information to communicate and negotiate with the mortgage servicer’s designated loss mitigation option staff who are authorized to discuss and negotiate loss mitigation options. The contact information shall include all toll-free telephone numbers for direct communication with a loss mitigation option staff person, fax numbers for receipt of documents, and electronic mail addresses.
- Borrower access to loss mitigation supervisor – Section 454M-5.5(h), HRS, provides that the mortgage servicer shall establish and maintain a process through which borrowers may bring disagreements to a supervisory level where a separate review of the borrower’s eligibility or qualification for a loss mitigation option can be performed.
- Borrower waiver of legal claims and defenses prohibited – Section 454M-5.5(h), HRS, provides that a mortgage servicer shall not require a borrower to waive legal claims and defenses as a condition of a loan modification, forbearance, or repayment plan.
- Servicer delay does not count against borrower time limits – Section 454M-5.5(i), HRS, provides that delay caused by the mortgage servicer shall not be counted in calculating the passage of time where a HAMP, proprietary, or other loan modification program specifies:
(1) A time limit for a borrower action or response, including appealing or disputing a denial of a request for a loss mitigation option under Section 454M-5.5(e), HRS, or providing documents;
(2) A time after which a document is considered stale or too old to use; or
(3) A time during which a mortgage servicer is barred from taking certain action adverse to the borrower, including taking steps toward foreclosure or referring the borrower’s account to foreclosure.
Examples of delay caused by the mortgage servicer include the mortgage servicer’s failure to timely send a communication or request to the borrower, duplicative or piecemeal document requests delaying completion of a file, and failure to identify additional documents needed to complete a borrower’s loan modification application. The mortgage servicer shall reasonably extend the applicable period and promptly inform the borrower in writing of the specific extension period. Section 454M-5.5(i), HRS.
- Servicer may offer or accept an alternative loss mitigation option – Section 454M-5.5(j), HRS, clarifies that Section 454M-5.5, HRS, does not prevent a mortgage servicer from offering or accepting alternative loss mitigation options, including other modification programs offered by the mortgage servicer, a short sale, a deed-in-lieu of foreclosure, or forbearance, if the borrower requests such an alternative, is not eligible for or does not qualify for a loan modification under HAMP, or rejects the mortgage servicer’s loss mitigation option proposal.
- Servicer shall avoid double tracking – Section 454M-5.5(k), HRS, provides that a mortgage servicer shall avoid taking steps to foreclose or to refer a borrower to foreclosure if the borrower has requested and is being considered for a loss mitigation option or if the borrower is in a trial or permanent loan modification and is not more than thirty days in default under the loan modification agreement.
- Servicer to ensure attorney and agent compliance with Hawaii foreclosure law – Section 454M-5.5(l), HRS, provides that a mortgage servicer shall ensure that the mortgage servicer and the mortgage servicer’s attorneys and agents comply with the requirements of Chapter 667, HRS , on Foreclosures.
 *The section within Chapter 454M, HRS, will be determined by the Revisor of Statutes.