Mortgage

Why servicers must watch New York’s post-forbearance workouts closely

Why servicers must watch New York’s post-forbearance workouts closely
Written by Publishing Team

As waves of borrowers advance to mitigate losses after forbearance in 2022, Empire State employees will have to navigate an especially complex set of state policies in a politically charged and uncertain environment.

A crackdown recently announced by New York Attorney General Letitia James is likely to lead to strict enforcement of loss mitigation rules; Foreclosure activity that has been banned until mid-January could see significant growth. The recent rise in Omicron in the state’s largest metropolitan area further complicates matters, as the state legislature may push to extend the foreclosure ban.

“Since a lot of the state’s foreclosure activity comes from the New York City metro area, how fast [it] Rick Sharga, executive vice president of Atom Data Solutions affiliate RealtyTrac, noted in an email that increases will depend in large part on the city’s economic recovery.

So while relatively strong Equity levels The moratorium has made the net number of zombie properties in the state’s unusual foreclosure pipeline more manageable than before the epidemic, with shrinking from 2,226 drugs to nearly 2,000, this backlog of treatment could grow significantly in the next year, as the long-term tolerance for difficulties expires.

“Some people will be in a negative position for stocks after taking the missed payments into account,” Frank Nothaft, chief economist at CoreLogic, said in an interview. “Unfortunately, many businesses, jobs or lost family members and some families will be forced to sell.”

While NPL numbers have fallen from their pandemic peak, New York is still higher than those in other states, according to CoreLogic’s latest monthly report. New York’s 90-day late payment rate of 4.2% in September was down from 6.6% a year earlier, but it was one of the two highest in the country, only matched by Louisiana.

Ultimately, the silver lining to this cloud could emerge if foreclosures or other alternatives free up some home inventory for other buyers, but since the state’s judicial process typically takes a few years, immediate loss mitigation rules will take priority for New York retainers going to next year.

These are deceptive not only because they are unique to the state but because they are open to interpretation, and are one of several sets of directions that servants may have.

While New York does not attempt to replace things like the government’s relevant loan guidance, it does establish private mortgage policies somewhat similar to the former, but not necessarily in line with investor or Federal bank rules of service.

“There is a big problem there, who is subject to these laws?” Larry Platt, a mortgage industry attorney at Meyer Brown, said in an interview. “The same law indicates that an entity that owns a home loan where the borrower’s principal place of residence is in New York, but … New York cannot legislate things like how a federally leased bank decides to accept repayment of the loan.”

The Empire State’s loss mitigation rules have a goal similar to those set by some other entities related to the federal government: to avoid forcing borrowers in distress related to the pandemic to pay everything at once in order to return the mortgage after forcing.

However, New York does not offer the kind of detailed waterfall for decision-making regarding private mortgages as the federal agencies do. Instead, it forces providers to choose certain options such as extending the mortgage term or processing interest-free balloon payments to the end based on criteria that may be open to interpretation.

Platt said New York requires the service provider to make a “reasonable and good faith effort” to provide an appropriate loss mitigation option, and says it must be consistent with guidance such as the service agreement in doing so. It also says mortgage companies have a duty to structure an adjustment that is “reasonably affordable and sustainable” for borrowers and consider alternatives if the risk of default is imminent.

In other words, New York’s service rules are somewhat similar to those of the federal agencies, “but they are more aggressive in that duty or obligation to come up with a choice,” Platt said.

“There are a lot of interesting legal questions about that, such as whether you can force a loan owner to change their terms to avoid foreclosure,” he added. “And will they come and guess again that the loss mitigation options available to private investors are not good enough?”

Platt said it’s possible other states could set similar rules given that they often end up looking for jurisdictions acting on their own, such as New York and California, for guidance.

The most global issue that New York and other countries have to address is the distribution of Homeowners Assistance Fund money. Explaining how Empire State rules affect this may be one of the biggest questions in New York.

James recently instructed service workers to apply HAF funds after other types of loss mitigation were exhausted, but there may be many explanations for how these funds are used in line with states. Platt said. This issue, like the question of how any foreclosures that are actually implemented, is a topic that will become more pressing in the future.

When pandemic-era loans finally enter foreclosure, workers will also face some new case law that has surfaced in Byzantine legal proceedings in New York over the past year. Because of the inactivity of the market, servants and lenders may lack a wide awareness of them.

Among those rulings is a July 28 ruling in VFS Lending JV II LLC v. Krasinski, which can be used to delay or prevent foreclosures on non-traditional loans that lenders have priced above standard rates to offset their risk, according to Christopher Gorman, partner at Abrams Finsterman.

In this case, the Appeals Division of the New York Supreme Court invalidated a lender’s foreclosure lawsuits based on allegations by the borrower that the implicated mortgagee intentionally violated certain provisions of the banking law involving high-cost home loans.

Gorman wrote in a report about the implications of the decision in the case.

The decision is expected to have wider implications for foreclosures over other high-cost home loans as foreclosures return in these loan times in New York.

“Lenders in foreclosure cases involving loans covered by certain provisions of state banking law should expect Krasinski to be cited as a basis for a discovery request from lenders, and against summary judgment requests from lenders, for years to come,” Gorman said in the report.

It may be rare for the courts to eventually revoke a loan on the basis of this case. However, if a consumer challenges the foreclosure on this basis, the lender will likely face delays in the foreclosure process because the case places the burden of proof on the lender or service provider to prove compliance with the Banking Act, Gorman said in an interview.

“There’s been so much price hikes in homes that there’s less potential for foreclosures,” Platt said. “However, there’s going to be a lot of what I call tributaries in New York about foreclosures when the loans get there.”

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