How do you handle the death of a primary mortgagor?
Tackling an issue you've seen more than once if you service mortgage loans.
Does this sound familiar?
A borrower passes away leaving a home to his only surviving daughter, valued at $445- with a $300- mortgage balance. The daughter already has a home (and mortgage), but her father's place has emotional significance, and she'd like to keep it. But can she afford it?
What are the lender's obligations in this case? Are we required to do an Ability-to-Repay analysis? Would we be required to see if she qualifies for a modification or other loss mitigation option?
Regulators are becoming hyper-concerned with helping the daughter in this example. With that in mind, we think there are two compliance-related things that are helpful to know (if you happen to have a primary borrower pass away):
#1- ATR Rule Does Not Apply to Successor-in-Interest
The Ability-to-Repay Rule does not apply to a transaction where a "successor" assumes a mortgage. Note: A "successor" is someone who acquires the property automatically upon someone else's death or divorce. The CFPB specifically came out and said this back in an interpretive Rule in July, basically saying they didn't want lenders to be hesitant to help a loved one keep a family home:
"Losing a loved one should not mean also losing your home. Today's interpretive rule makes it clear that when family members inherit property, they can take over the mortgage without jumping through unnecessary hoops,"said CFPB Director Richard Cordray.
(Personally, I like the part about "unnecessary hoops.")
Why does this matter at all? Under the ATR Rule, the Bank cannot make a loan to a person who does not appear to be able to afford it. If the ATR Rule applied to successors- the Bank would be in the difficult position of having to decide whether the daughter, who recently lost her father, has the ability to repay the mortgage on a property that he left to her in his will. The daughter's income and debts would need to be documented and verified, and she may suffer from Bank policies related to the ATR Rule, such as adherence to a 43% DTI ceiling.
#2- Successor-in-Interest Entitled to Loss Mitigation Options
Additionally, the successor-in-interest (the daughter, in our example) is entitled to the same loss mitigation options as the primary mortgagor would have been. The lender cannot deny the request on the argument the daughter is not a party to the transaction. In other words, if the daughter seeks a modification of the existing mortgage as part of trying to keep the home, the lender cannot refuse to modify the mortgage on the grounds that the daughter is not a party to the existing obligation and therefore cannot enter into a modification agreement.
Note: If you're a large enough servicer (5,000 loans or more), you already know about #2 and many other rules related to servicing and successors-in-interest.
In other news:
Three people sentenced for $50 million mortgage fraud in Florida (where, as some of you may know, I'm barred as an attorney ... that's barred to be, not barred from, by the way)
The FFIEC has released its very helpful manual on BSA/AML, which you can find here.
"America now owes China so much money that every fortune cookie note begins with, 'This is an attempt to collect a debt..." -- Comedian John Roman
Not that this is any news flash perhaps, but I found this to provide a unique perspective: A study at Washington University claims that new research may "have interesting implications for how we go about choosing romantic partners." Summed up in a sentence, the research suggests that a conscientious spouse (whether also working or not, or male or female) has a bigger impact on your workplace performance than many other factors. Why? I'll let them explain:
First, through a process known as outsourcing, the working spouse may come to rely on his or her partner to handle more of the day-to- day household chores, such as paying bills, buying groceries and raising children. Workers also may be likely to emulate some of the good habits of their conscientious spouses, bringing traits such as diligence and reliability to bear on their own workplace challenges. Finally, having a spouse that keeps your personal life running smoothly may simply reduce stress and make it easier to maintain a productive work-life balance.
And this same theory applies through "mutual outsourcing" where both spouses are working.
"What do we need to do today to make the challenge we're currently facing the best thing that ever happened to our company?"
- John Spillane
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