Becoming A Tribal Partner

In Defaults and

Foreclosure

PURPOSE OF SESSION

1. To begin the discussion of whether Tribes & TDHEs should get involved when there’s a default on tribal lands.

2. Helping tribes understand the importance of being proactive in defaults and foreclosures

3. To give Tribes and TDHEs the tools they need to make an informed decision.

Why Become Involved?

• Statistics on loans on tribal trust lands• VA• USDA• Section 184• Fannie Mae

• Prevent vacant homes that are subject to vandalism

• Reduce homelessness (resulting from foreclosure)• Turn a foreclosed home into a homeownership

opportunity for another tribal member• To protect the integrity of the home loan process

for future Native borrowers• It is an exercise of sovereignty

Tribal Mortgage Code as a Condition for participation in Government Direct, Guarantee, and Insurance Programs

Common Reasons for Default?

• Temporary Loss of Income

• Permanent Loss of Income

• Health Issues

• Communication Issues around loan requirements

• Overextension with other debt

Definitions?• Mortgage Default-borrower has failed to make a loan payment or perform an obligation under the

terms of the loan

• Mortgage Delinquency- Generally, a mortgage is considered delinquent or late when a scheduled payment is not made on or before the due date. For example, if you have a monthly mortgage payment that is due on the 15th of each month, if payment is not received or applied by the 15th, then the mortgage is considered delinquent or late on the 16th.

• Loan Servicing -This involves processing payments, sending statements, managing the escrow/impound account, providing collection services on delinquent loans, ensuring that insurance and property taxes are made on the property, handling pay-offs and assumptions,...

• Loss Mitigation-is typically a process in which lenders work with borrowers to mitigate, or arrive at an agreement to resolve, past-due mortgage payments.

• Forbearance-An agreement made between a mortgage lender and delinquent borrower in which the lender agrees not to exercise its legal right to foreclose on a mortgage and the borrower agrees to a mortgage plan that will, over a certain time period, bring the borrower current on his or her payments.

• First Legal Action-when the foreclosure procedure under applicable tribal or state law requires commencement of a court action or proceeding,

• Foreclosure-the action of taking possession of a mortgaged property when the mortgagor fails to keep up their mortgage payments.

Homeless Family

ForeclosureHome Loan

Failure toCure DefaultDefault

Preventing Default at the Onset

• Planning/Strategy by the Tribe regarding how to address defaults

• Homebuyer education and Counseling

• Making it a requirement

• Pre purchase

• Post purchase

• Loan provisions requiring communication with Tribe/TDHE or counseling agency when borrower becomes delinquent

• Mitigation agreements between lenders & tribes/TDHEs

• Early intervention by Tribe/TDHE/ Counseling agency (Day 16)

The Default and Foreclosure Process

• Live contact not later than the 36th Day of Borrower’s Default

• Written notice 45th day of Borrower’s Default including Loss Mitigation Application, also occupancy inspection

• Notification of Lender Determination regarding all Loss Mitigation Options available

• Lender sends notice to tribe at day 60 (2 missed payments)

• Tribe 1st Right of Refusal at 120 days from date of default (have 60 days to respond) at appraised value or other purchase price

• If servicer determines all loss mitigation options fail, servicer may proceed with 1st

Legal at 180 days in default

• Valuation of home

• Loan acceleration

• Foreclosure and sale of home

• Judgmento Deficiency judgment

o How do lenders treat deficiency judgments?

Options for Assisting the Homeowner to Retain the Home

Typical Loss Mitigation Options (Workout)

• Forbearance (payment suspension, reduction of payments) 3-6 months

• Loan modification-permanent change to (interest rate, capitalization of delinquent prinicipal, interest or escrow items, extension of time available to repayment the loan, or re-amortization of the balance due.

• Reinstatement

Options If the Homeowner cannot afford the Home

Tools Used by Lenders to Help a Defaulting Borrower (Foreclosure Alternatives)

• Assumption of loan by new borrower (family member, IHA, other borrower

• Pre foreclosure Sale/Short sale

• Deed in lieu of foreclosure• Incentive Payments/Cash for keys

• Other

As a Tribal Entity what can I do with the home?

• Sell to another tribal member (preferably family member of defaulting borrower)

• TDHE – add to housing inventory & rent lease-purchase

• Sublease to defaulting borrower, another tribal member, or tribal entity

How Do Lenders Value Defaulted Loans?

Agency Valuation Determination

USDA Rural Development

Veterans Administration

HUD 184 Loan Guarantee

Other

Where will the money come from?

• Loan Assumption

• IHBG

• Proceeds of sale, program income, non program income

• Tribal grant or loans

• Home mortgage

• Other grant funds

Notice and Hi Touch Servicing

Competency: Possess a strong knowledge in the area of mortgage default and/or

foreclosure intervention counseling, specifically relating to the current industry

practices of loss mitigation to include loan repayment, forbearance, modification,

refinance, loan assumption, short sale, deed-in-lieu, community referrals, and

other remedies available to the homeowner to avoid foreclosure. The counselor

should understand the structure of the primary and secondary markets, the

collection and loss mitigation functions of those entities collecting mortgage

payments, financial management and budgeting, and be familiar with state and

federal regulations regarding the foreclosure process. The counselor should

possess the skills to obtain pertinent client information, analyze financial and

property data and draft a comprehensive written Action Plan (see Exhibit B)

based on the client’s goals outlining the resultant recommendations for

foreclosure avoidance or sale.

National Foreclosure Intervention Specialty Standards

Summary Becoming a Tribal Partner in the Default and Foreclosure Process

• Offer homebuyer counseling and education

• Structure loan documents to allow early delinquency intervention between the IHA/TDHE, housing counseling agency, consumer credit agency

• Ensure regular contact with borrowers

• Develop formal agreement with Federal agencies for asset management property maintenance services

• Plan for worst case (foreclosure) by developing a foreclosure prevention pool, process for decisioning on 1st

Right of Refusal, relocation support for distressed homeowners

RESOURCES

• National Native Homeownership Coalition (NNHC), Center for Indian Country Development, Federal Reserve Bank of Minneapolis

https://minneapolisfed.org/indiancountry/

native-homeownership

• Other