Insights

For at least a year now, media reports have circulated about borrowers’ struggles in reaching their mortgage servicer by phone or otherwise, getting their documents to someone who can make a decision before foreclosure, and receiving inconsistent responses when they did reach someone on the phone. Consumer groups have been calling for a single point of contact, and servicers, understandably, have resisted due to concerns about a single person’s ability to quickly respond to borrower’s needs and concerns about personnel changes.

Back in early March, when the Attorneys General proposed Settlement Term Sheet (sent to several large banks) was made public, it was clear that the states intended to push the industry toward implementing the single point of contact for all borrowers in default. But there was still resistance and hope that such a requirement would not be imposed.

Then came the Interagency Review of Foreclosure Policies and Practices, released along with the Consent Orders between the banking agencies and 14 bank servicers. According to the Review, bank servicers subject to the consent orders must dedicate resources for communicating with borrowers (single point of contact) to ensure the following:

• effective coordination of communication with borrowers related to foreclosure, loss mitigation, and loan modification activities;
• that communications are timely and appropriate and designed to avoid borrower confusion;
• continuity in the handling of borrower cases during the loan modification and foreclosure processes;
• reasonable and good faith efforts, consistent with applicable law and contracts, to engage in loss mitigation efforts and foreclosure prevention for delinquent loans where appropriate; and
• that decisions concerning loss mitigation or loan modifications will be made and communicated to borrowers in a timely manner.

Now, we have the new “single point of contact” requirement imposed by Treasury in Supplemental Directive 11-04 (SD 11-04) released on May 18, 2011. Servicers who are participating in Making Home Affordable Programs (HAMP, HAUP and HAFA) and who had a Program Participation Cap of $75,000,000 or more, as of May 18, 2011, must now establish and implement a single point of contact for certain borrowers. Servicers not falling within the Cap were strongly encouraged to do the same.

This new requirement is probably the most significant change to the MHA Program since it began. It will undoubtedly impose policy changes, and staffing and other administrative burdens on an already strained industry.

SD 11-04 introduces a new concept to the program – the “relationship manager” - who must be an employee of the servicer who will be responsible for managing the borrower relationship. The relationship will extend throughout the entire delinquency or imminent default process, including the time after the loan is referred to foreclosure if loss mitigation options fail.

Servicers will need to assign a relationship manager (no later than September 1, 2011) to a delinquent borrower or borrower who requests consideration under imminent default “immediately upon the successful establishment of Right Party Contact with the borrower and determination that the servicer will consider the borrower for HAMP, HAUP, or HAFA.”

The tasks of the relationship manager are significant. Within five business days of the assignment, the relationship manager must send a written notice to the borrower, which must include a toll-free number and at least one other way the borrower can directly contact the manager, as well as the preferred means by which the borrower should deliver documents to the servicer.

The relationship manager must coordinate the servicer’s actions to resolve delinquencies or imminent default, including (of course, without limitation), communicating options for resolving the delinquency or imminent default, coordinating maintenance and tracking of documents, being knowledgeable about the borrower’s situation and status throughout the entire process, and coordinating with other personnel (in-house and third party) responsible for ensuring that the borrower who is not eligible for MHA programs is considered for other available proprietary loss mitigation options.

The relationship manager will also be the person responsible for certifying by email or in writing, that all available loss mitigation alternatives have been exhausted and a non-foreclosure outcome could not be reached, before the servicer may permit a foreclosure to proceed. To support the certification, the relationship manager will need access to all current information and personnel to be informed about the status of the activities, as well as “direct and immediate access to personnel with the authority to stop foreclosure proceedings” when necessary to comply with MHA.

A relationship manager must be involved when there is a servicing transfer as well as when a case is escalated to address the borrower’s inquiries or disputes. Treasury does not intend for the relationship manager to change the servicer’s requirements for managing escalated cases – but the relationship manager will need to be involved in the escalated case to get it resolved.

SD 11-04 stops short of imposing staffing and caseload requirements, instead leaving it to each servicer to determine what will be needed to satisfy the requirements.

Not surprisingly, servicers will need to include in their internal quality assurance plans the appropriate assessments of relationship manager activities. The SD includes a list of minimum requirements that should be assessed including:

• Timing of communications about relationship manager assignment and changes
• Relationship manager access to information
• Relationship manager training
• Relationship manager coordination of documents and information to and from borrowers
• Relationship manager access to individuals who can stop foreclosures
• Organizational structure and staffing levels so that the relationship manager can carry out responsibilities
• Relationship manager input on pre-foreclosure certification
• Relationship manager communications in the event of servicing transfers
• Relationship manager notification when cases are escalated.

The SD makes yet more changes to the Handbook (a mere 16 days after the newest version was released). We all hoped it would be the last. Who knows what MHA change might be next?

The text of the SD 11-04 can be found at https://www.hmpadmin.com/portal/programs/docs/hamp_servicer/sd1104.pdf.

Lisa C. DeLessio is a partner in the Maryland office of Hudson Cook, LLP. Lisa can be reached at 410-865-5437 or by email at ldelessio@hudco.com.