Mortgage Foreclosure Issues For Seniors
The Residential Mortgage Foreclosure Diversion Pilot Program and Its Impact on Seniors
In April 2008, in response to an alarming increase in the number of residential mortgage foreclosures filed and sheriff sales of homes scheduled, the Philadelphia Court of Common Pleas issued a General Court Regulation which authorized the Court to implement a new case management program, the Residential Mortgage Foreclosure Diversion Pilot Program.
This program was envisioned as an early intervention program to allow homeowners opportunities to avoid foreclosure by means of various federal, state and local programs to facilitate loan work-out and/or reinstatement, if possible.
The process began with postponement of the cases on the April 2008 and May 2008 Mortgage Foreclosure Sheriff Sale list. Residential homeowners were to be identified so conciliation conferences, presided over by the Court, could occur, bringing defendants and lenders/servicers’ representatives face to face. Participation by lenders was not mandatory, however. A task force of housing counselors, public interest lawyers and agencies, and volunteer attorneys got to work shaping the program to make it function as envisioned, working out the snags and filling in the operational details.
Philadelphia was able to put the new program into operation quickly in part because the City had created and funded a housing counselor network that was already assisting residents facing housing issues. When the court administration implemented the new diversion case management program, there was a foundation of grass roots level service providers already in place.
The economy continued to deteriorate. In February 2009, President Obama announced the Homeowner Affordability and Stability Plan to help homeowners restructure or refinance their mortgages to avoid foreclosure. In March, 2009, the U.S. Treasury Department issued uniform guidance for loan modifications across the mortgage industry, in order to implement the Home Affordable Modification Program (HMP).
The goal of HMP was for mortgage servicers to work with borrowers to attain sustainable monthly mortgage payments. The teeth in this program was the Servicer Participation Agreement for all loans other than those guaranteed by Fannie Mae or Freddie Mac. The participating servicers were to use “reasonable efforts” to effect modifications under the HMP.
In Philadelphia County, we were fortunate to have been ahead of the curve in addressing the problem of mortgage foreclosure. The HMP fit neatly with the Foreclosure Diversion Program that was underway and becoming regularized, but the devil is always in the details. Now the Court and participants seek to bring the federal legislation into play as part of the ongoing conciliation process.
SeniorLAW Center, as the only local independent non-profit serving the legal needs of senior citizens, has been working closely with the Task Force from the beginning, bringing the special skills necessary for representing the elderly. A “senior protocol” was recently implemented by SeniorLAW Center and the housing counselors to identify and direct frail and homebound seniors threatened with losing their homes to immediate legal and counseling assistance. These clients often face physical challenges, diminished mental capacity and lack of financial sophistication, on top of low and stagnant levels of income.
One of the first problems that had to be addressed was making sure that the notices from the Court regarding the conciliation program were being read and understood, that seniors called the special Hotline set up and applied for housing counseling, and that they were able to participate fully in the required activities. Since this process involved providing full financial documentation, as well as meetings with counselors and attendance at court conciliation sessions, it was especially burdensome for the frail and homebound.
Another problem that had to be addressed was inadequate income. Like many Americans, seniors borrowed money and gave mortgages with terms they did not fully comprehend. Some were victims of predatory lending practices by mortgage companies no longer in business, some just had poor understanding of potential trouble presented by mortgages with adjustable rates and balloon payments.
Some seniors with sufficient income to pay their mortgage got into trouble when they were targets of unfair marketing by the mortgage industry. SeniorLaw Center recently assisted a senior who had been making her $262.45 mortgage payment on time for several years. Her trouble began when the mortgage servicer sold her various insurance policies which added $131.38 in premium charges to her monthly statement. Included among these insurance products were three catastrophic accident policies; two credit monitoring policies and natural disaster insurance. These policies, which would pay only 50% of the stated benefit, since the senior was over the age of 70, also included coverage for her “spouse and dependent children.” The senior was a widow with no dependent children. However, the most objectionable sale made by the servicer was a home warranty which did not cover her Pennsylvania property. After we advocated for our senior client, the company canceled the insurances and credited her account for the amounts paid, once again making the payment affordable.
Some seniors faced the sudden loss of household income due to death of a spouse or another family member whose income was part of the affordability calculation. In the time prior to HMP, borrowers had no clout to bring down mortgage payments or otherwise adjust loan terms. Now under the federal HMP, servicers are required to follow a prescribed modification inquiry and succession of steps to bring the borrowers’ monthly mortgage payment ratio of gross income to monthly payment to 31%.
Prior to the recent crisis, when seniors faced mortgage foreclosure, there were limited options available to them. Refinancing their debt was often not possible due to poor credit history, age and limited income. Borrowing against the equity in their home with a reverse mortgage was one option to allow seniors to remain in their home. However with declining property values, there may no longer be enough equity for seniors, especially “younger” seniors, to pay off other liens such as PGW and real estate tax arrears. The reverse mortgage option also eliminates the choice of using low-income repayment agreements that would otherwise be available.
While HMP has helped to adjust the balance of power between the borrowers and lenders, the Treasury program lacks the necessary transparency and accountability needed to make the participating lenders and services negotiate and modify mortgages long term. The federal government is aware of the problem and has promised to provide greater incentives to lenders to modify mortgages. With court supervision, some lenders have been persuaded to reduce the amount of indebtedness, extend the period of the loan and reduce the interest rate in order to make the deal work and reduce the monthly payment. We hope that with further revisions by the Treasury a greater percentage of loans will be permanently modified.