Arizona State Representative proposes legislation requiring mortgage companies to attempt loan modification prior to moving to forelcosure

Representative Michele Reagan has sponsored HB2626, which would force mortgage companies to try to renegotiate a loan before they may start foreclosure proceedings. While this is a good first step, it is beyond this writer why, if stopping foreclosures on primary residences will help stop the economic free-fall, this legislation only covers primary residences. A foreclosure is a foreclosure. It impacts property values, the credit markets, our macro-economy the same regardless of why the home was bought or for what purpose. In these times, though, something is better than nothing. The language of the bill is below.

REFERENCE TITLE: deeds of trust; foreclosure procedures
State of Arizona

House of Representatives

Forty-ninth Legislature

Second Regular Session

2010

HB 2626

Introduced by

Representatives Reagan, Mason, Meza: Campbell CH, Driggs, Jones, Konopnicki, McLain, Tobin

AN ACT

AMENDING TITLE 33, CHAPTER 6.1, ARTICLE 1, ARIZONA REVISED STATUTES, BY ADDING SECTIONS 33‑807.01 AND 33-807.02; RELATING TO DEEDS OF TRUST.

Be it enacted by the Legislature of the State of Arizona:

Section 1. Title 33, chapter 6.1, article 1, Arizona Revised Statutes, is amended by adding sections 33-807.01 and 33-807.02, to read:

33-807.01. Notice of trustee’s sale conditions; exceptions

A. FOR A PROPERTY WITH A FIRST DEED OF TRUST RECORDED ON OR AFTER JANUARY 1, 2003 THROUGH DECEMBER 31, 2008, IF THE BORROWER OCCUPIES THE PROPERTY AS THE BORROWER’S PRINCIPAL RESIDENCE, BEFORE A TRUSTEE MAY GIVE NOTICE OF A TRUSTEE’S SALE FOR THE PROPERTY PURSUANT TO SECTION 33‑808, THE LENDER MUST ATTEMPT TO CONTACT THE BORROWER TO EXPLORE OPTIONS TO AVOID FORECLOSURE AT LEAST THIRTY DAYS BEFORE THE NOTICE IS RECORDED.

B. THE TRUSTEE SHALL NOTIFY THE BORROWER IN WRITING ABOUT THE REQUIREMENTS PRESCRIBED IN SUBSECTION A OF THIS SECTION.

C. THE TRUSTEE AND THE MOST SENIOR MANAGEMENT PERSON IN THIS STATE WHO IS EMPLOYED BY THE LENDER MUST CERTIFY IN A WRITTEN DOCUMENT UNDER OATH THAT THEY COMPLIED WITH THIS SECTION. THE DOCUMENT MUST BE RECORDED IN THE COUNTY IN WHICH THE PROPERTY IS LOCATED IN ORDER TO HAVE A COMPLETE AND VALID TRUSTEE SALE TRANSACTION.

D. THIS SECTION DOES NOT APPLY TO LOANS MADE, PURCHASED OR SERVICED BY:

1. A STATE OR LOCAL PUBLIC HOUSING AGENCY OR AUTHORITY.

2. LOANS THAT ARE COLLATERAL FOR SECURITIES PURCHASED BY AN AGENCY OR AUTHORITY DESCRIBED IN PARAGRAPH 1.

33-807.02. Loan modification programs; exemption from notice of sale provisions; reports; definitions

A. ON THE SUPERINTENDENT’S ORDER, THE LOANS SERVICED BY A MORTGAGE LOAN SERVICER THAT HAS IMPLEMENTED A COMPREHENSIVE LOAN MODIFICATION PROGRAM THAT MEETS THE REQUIREMENTS OF THIS SECTION ARE EXEMPT FROM SECTION 33‑807.01. A COMPREHENSIVE LOAN MODIFICATION PROGRAM SHALL DO ALL OF THE FOLLOWING:

1. INTEND TO KEEP BORROWERS WHOSE PRINCIPAL RESIDENCES ARE HOMES LOCATED IN THIS STATE IN THOSE HOMES WHEN THE ANTICIPATED RECOVERY UNDER THE LOAN MODIFICATION OR WORKOUT PLAN EXCEEDS THE ANTICIPATED RECOVERY THROUGH FORECLOSURE ON A NET PRESENT VALUE BASIS.

2. TARGET A RATIO OF THE BORROWER’S HOUSING RELATED DEBT TO THE BORROWER’S GROSS INCOME OF THIRTY‑EIGHT PER CENT OR LESS ON AN AGGREGATE BASIS IN THE PROGRAM.

3. COMBINE ANY OF THE FOLLOWING FEATURES:

(a) AN INTEREST RATE REDUCTION AS NEEDED FOR A FIXED TERM OF AT LEAST FIVE YEARS.

(b) AN EXTENSION OF THE AMORTIZATION PERIOD FOR THE LOAN TERM TO NO MORE THAN FORTY YEARS AFTER THE ORIGINAL DATE OF THE LOAN.

(c) DEFERRAL OF SOME PORTION OF THE PRINCIPAL AMOUNT OF THE UNPAID PRINCIPAL BALANCE UNTIL MATURITY OF THE LOAN.

(d) REDUCTION OF PRINCIPAL.

(e) COMPLIANCE WITH A FEDERALLY MANDATED LOAN MODIFICATION PROGRAM.

(f) OTHER FACTORS THAT THE SUPERINTENDENT DETERMINES ARE APPROPRIATE. IN DETERMINING THOSE FACTORS, THE SUPERINTENDENT MAY CONSIDER EFFORTS IMPLEMENTED IN OTHER JURISDICTIONS THAT HAVE RESULTED IN A REDUCTION IN FORECLOSURES.

4. SEEK TO ACHIEVE LONG‑TERM SUSTAINABILITY FOR THE BORROWER.

B. A MORTGAGE LOAN SERVICER MAY APPLY TO THE SUPERINTENDENT FOR AN ORDER EXEMPTING LOANS THAT IT SERVICES FROM SECTION 33‑807.01. IF THE MORTGAGE LOAN SERVICER ELECTS TO APPLY FOR AN ORDER, THE APPLICATION SHALL BE IN THE FORM AND MANNER DETERMINED BY THE SUPERINTENDENT.

C. ON RECEIPT OF AN INITIAL APPLICATION FOR EXEMPTION UNDER THIS SECTION, THE SUPERINTENDENT SHALL IMMEDIATELY NOTIFY THE APPLICANT OF THE DATE OF RECEIPT OF THE APPLICATION AND SHALL ISSUE A TEMPORARY ORDER, EFFECTIVE FROM THAT DATE OF RECEIPT, EXEMPTING THE MORTGAGE LOAN SERVICER FROM SECTION 33‑807.01, SUBSECTION A. THE TEMPORARY ORDER SHALL REMAIN IN EFFECT UNTIL A FINAL ORDER HAS BEEN ISSUED BY THE SUPERINTENDENT PURSUANT TO SUBSECTION D OF THIS SECTION. IF THE INITIAL APPLICATION FOR EXEMPTION IS DENIED PURSUANT TO SUBSECTION D OF THIS SECTION, THE TEMPORARY ORDER SHALL REMAIN IN EFFECT FOR THIRTY DAYS AFTER THE DATE OF DENIAL.

D. WITHIN THIRTY DAYS AFTER RECEIPT OF AN INITIAL OR REVISED APPLICATION, THE SUPERINTENDENT SHALL MAKE A FINAL DETERMINATION ON WHETHER THE APPLICATION MEETS THE CRITERIA PRESCRIBED IN SUBSECTION A OF THIS SECTION. IF AFTER REVIEW OF THE APPLICATION, THE SUPERINTENDENT CONCLUDES THAT THE MORTGAGE LOAN SERVICER HAS A COMPREHENSIVE LOAN MODIFICATION PROGRAM THAT MEETS THE REQUIREMENTS OF SUBSECTION A OF THIS SECTION, THE SUPERINTENDENT SHALL ISSUE A FINAL ORDER EXEMPTING THE MORTGAGE LOAN SERVICER FROM THE REQUIREMENTS OF SECTION 33-807.01, SUBSECTION A, THE SUPERINTENDENT SHALL ISSUE A FINAL ORDER EXEMPTING THE MORTGAGE LOAN SERVICER FROM THE REQUIREMENTS OF SECTION 33‑807.01. IF THE SUPERINTENDENT CONCLUDES THAT THE LOAN MODIFICATION PROGRAM DOES NOT MEET THE REQUIREMENTS OF SUBSECTION A OF THIS SECTION, THE APPLICATION FOR EXEMPTION SHALL BE DENIED AND A FINAL ORDER SHALL NOT BE ISSUED.

E. A MORTGAGE LOAN SERVICER MAY SUBMIT A REVISED APPLICATION IF ITS APPLICATION FOR EXEMPTION IS DENIED.

F. THE SUPERINTENDENT MAY REVOKE A FINAL ORDER ON REASONABLE NOTICE AND AN OPPORTUNITY FOR A HEARING IF THE MORTGAGE LOAN SERVICER HAS SUBMITTED A MATERIALLY FALSE OR MISLEADING APPLICATION OR IF THE APPROVED LOAN MODIFICATION PROGRAM HAS BEEN MATERIALLY ALTERED FROM THE LOAN MODIFICATION PROGRAM ON WHICH THE EXEMPTION WAS BASED. A REVOCATION BY THE SUPERINTENDENT SHALL NOT BE RETROACTIVE.

G. NO LATER THAN TEN DAYS AFTER THE EFFECTIVE DATE OF THIS SECTION, THE SUPERINTENDENT SHALL ADOPT EMERGENCY AND FINAL RULES TO CLARIFY THE APPLICATION OF THIS SECTION AND SECTION 33‑807.01, INCLUDING THE APPLICATION FORM FOR MORTGAGE LOAN SERVICERS AND REQUIREMENTS REGARDING THE REPORTING OF LOAN MODIFICATION DATA BY MORTGAGE LOAN SERVICERS.

H. THREE MONTHS AFTER THE FIRST EXEMPTION IS ORDERED BY THE SUPERINTENDENT PURSUANT TO THIS SECTION, THE SUPERINTENDENT SHALL SUBMIT A REPORT REGARDING THE DETAILS OF THE ACTIONS TAKEN TO IMPLEMENT THIS SECTION AND THE NUMBERS OF APPLICATIONS RECEIVED AND ORDERS ISSUED TO THE GOVERNOR, THE PRESIDENT OF THE SENATE AND THE SPEAKER OF THE HOUSE OF REPRESENTATIVES AND SHALL PROVIDE A COPY OF THIS REPORT TO THE SECRETARY OF STATE. THE SUPERINTENDENT SHALL SUBMIT AN ADDITIONAL REPORT SIX MONTHS AFTER THE SUBMISSION OF THE FIRST REPORT AND EVERY SIX MONTHS THEREAFTER. WITHIN EXISTING RESOURCES, THE SUPERINTENDENT SHALL COLLECT FROM SOME OR ALL MORTGAGE LOAN SERVICERS DATA RELATING TO LOAN MODIFICATIONS ACCOMPLISHED PURSUANT TO THIS SECTION AND SHALL MAKE THE DATA AVAILABLE ON THE DEPARTMENT OF FINANCIAL INSTITUTION’S WEBSITE AT LEAST QUARTERLY.

I. THE SUPERINTENDENT SHALL MAINTAIN ON THE DEPARTMENT OF FINANCIAL INSTITUTION’S WEBSITE A PUBLICLY AVAILABLE LIST DISCLOSING THE FINAL ORDERS GRANTING EXEMPTIONS, THE DATE OF EACH ORDER AND A LINK TO WEBSITES DESCRIBING THE LOAN MODIFICATION PROGRAMS.

J. UNTIL JANUARY 1, 2011, THE SUPERINTENDENT MAY CONTRACT FOR GOODS AND SERVICES NECESSARY TO IMPLEMENT THIS SECTION AND SECTION 33‑807.01. THE SUPERINTENDENT IS EXEMPT FROM TITLE 41, CHAPTER 23 FOR CONTRACTING UNDER THIS SUBSECTION. NOT LESS THAN THIRTY DAYS BEFORE AWARDING ANY CONTRACT UNDER THIS SECTION, THE SUPERINTENDENT SHALL PROVIDE THE PENDING CONTRACT DOCUMENTS TO THE JOINT LEGISLATIVE BUDGET COMMITTEE.

K. ANY PERSON WHO VIOLATES THIS SECTION OR SECTION 33‑807.01 IS DEEMED TO HAVE VIOLATED THE LAWS RELATING TO THE PERSON’S LICENSE.

L. NOTHING IN THIS SECTION OR SECTION 33‑807.01 REQUIRES A SERVICER TO VIOLATE CONTRACTUAL AGREEMENTS FOR INVESTOR‑OWNED LOANS OR PROVIDE A MODIFICATION TO A BORROWER WHO IS NOT WILLING OR ABLE TO PAY UNDER THE MODIFICATION.

M. THE SUBMISSION OF AN APPLICATION FOR AN EXEMPTION UNDER THIS SECTION, THE RELIANCE ON THE EXEMPTION OR THE PROVISION TO THE SUPERINTENDENT OF DATA RELATED TO THE LOAN MODIFICATION PROGRAM DOES NOT CONFER ON THE SUPERINTENDENT AUTHORITY OVER A FEDERALLY CHARTERED FINANCIAL INSTITUTION. THIS SECTION DOES NOT AFFECT THE AUTHORITY OF THE SUPERINTENDENT OVER A FEDERALLY CHARTERED FINANCIAL INSTITUTION PURSUANT TO FEDERAL LAW.

N. FOR THE PURPOSES OF THIS SECTION:

1. ”HOUSING RELATED DEBT” MEANS DEBT THAT INCLUDES LOAN PRINCIPAL, INTEREST, PROPERTY TAXES, HAZARD INSURANCE, FLOOD INSURANCE, MORTGAGE INSURANCE AND HOMEOWNERS’ ASSOCIATION FEES.

2. ”MORTGAGE LOAN SERVICER” MEANS A PERSON THAT RECEIVES OR HAS THE RIGHT TO RECEIVE INSTALLMENT PAYMENTS OF PRINCIPAL, INTEREST OR OTHER AMOUNTS PLACED IN ESCROW, PURSUANT TO THE TERMS OF A DEED OF TRUST AND THAT PERFORMS SERVICES RELATING TO THAT RECEIPT OR ENFORCEMENT AS THE HOLDER OF THE NOTE OR ON BEHALF OF THE HOLDER OF THE NOTE EVIDENCING THAT LOAN.

3. ”SUPERINTENDENT” MEANS THE SUPERINTENDENT OF THE DEPARTMENT OF FINANCIAL INSTITUTIONS.

Pressure mounting to begin to address negative equity

Almost weekly new articles are coming out regarding the need for the lenders/servicers to address principal reduction.  Below is the latest.

http://www.dsnews.com/articles/ratings-agency-says-rising-redefaults-will-prompt-more-principal-reductions-2010-01-26

Hello world!

How Long Before They Get It?

We have been saying for 6 months that until the lenders/servicers begin to address the issues with negative equity that  we won’t see even an inkling of a true recovery because until the foreclosure crisis is abated, confidence in the credit markets will not return.  Until credit confidence returns, there will be no recovery.  So all of this silliness about healthcare reform, cap-n-trade and all the other nonsense the Obama administration has devoted their time to has done nothing but put us 1 year further into this crisis with no end in sight.

It’s about the homeowner!  It’s about the consumer!  It’s about real families, real children, real futures.  And just in case any of you are paying attention, anyone see the absurd bonuses that the banks are handing out and those on Wall Street are receiving?  I hate to sound like a Populist, but when it walks, talks and quacks…you have to call it like you see it.  While I’m a free-market, supply-side guy, I also don’t appreciate being lied to and treated as if I’m stupid, which is exactly what the bankers and politicians have been doing to us.  What was Judge Judy’s book called?  “Don’t Pee on My Leg and Tell Me It’s Raining!”  That’s what’s happening in this housing crisis.  The people in these banks who are taking these bonuses and refusing to work out real mortgage modificationsand address principal reduction are the same people who took Billions of our tax-payer dollars to keep their jobs.  They wouldn’t have a job if it weren’t for our money and yet they continue to keep the same practices and do the same unethical things for the almighty dollar.  It’s not free-market economics.  It’s Greed and, notwithstanding Gordon Gecko’s opinion, Greed Is Not Good!  Last time I checked is was one of the 7 deadly sins.  Unchecked free-markets will always tyranize the middle and lower classes because those in power are unchecked and they will always act in their best interest alone.  Sound familiar?

We need real men and women to engage in the political process, write your Representatives, your Senators and demand accountability and real reform in the banking and mortgage sectors.  We’re all in this together – Unless of course you’re a bank executive or politician.  They don’t seem to have to play by the same rules as the rest of us.

**The opinions expressed are those of the writer’s alone and are not endorsed nor represent those of the law firm, Mueller, Drury and Lawrence, PLLC.**