On July 5, 3 new laws took effect in Michigan. These laws are designed to encourage mortgage companies to work out loan modifications with people falling behind on their mortgage payments who are facing foreclosure.
Under these laws, a mortgage company is required to give the person who is facing foreclosure the name and phone number of a real person who has the authority to modify their loan. The company is required to include this in the notice they send to them telling them that they are starting to foreclose.
The mortgage company also has to send them a list of approved housing counselors. The person facing foreclosure can have one of these counselors go with them to a meeting with the representative from the mortgage company.
The purpose of the meeting is to work out a loan modification. When the person facing foreclosure requests the meeting, the foreclosure is put on hold for 90 days.
The monthly payment in a loan modification can be no more than 38% of the person’s gross monthly income. The steps to be taken to bring the payment down to that level are specified.
If the person facing foreclosure qualifies for a modification and if the mortgage company refuses to agree to modify the loan, the mortgage company will have to go through a lengthy and costly process to finalize the foreclosure.
These laws only apply to those cases where the foreclosure action starts on or after July 5. Michigan felt that the Making Home Affordable Modification program already covered people facing foreclosure who had Fannie Mae, Freddie Mac, FHA and VA loans. So these loans are exempt from the new laws.
Most large mortgage companies are chartered by the federal government. Normally they only have to abide by laws and regulations of the federal government. They are not bound by state laws. The legislators in Michigan wrote the laws in a specific way so that they would apply to all mortgage companies and that none could get around the provisions of the new laws.
So what does this mean for a Michigan resident who is facing foreclosure?
In effect they have the right to mediation. At the meeting on the loan modification they can have their housing counselor present. The housing counselor will help to negotiate the modification for them.
One major concern is that people facing foreclosure may not follow through and request a meeting with the representative of their mortgage company. It has been found in other states that many people facing foreclosure don’t open the letters from their mortgage company. In addition many believe that they will lose their home through foreclosure and that there is nothing they can do to prevent it. So they do nothing.
A second concern that has come up is that there are probably not enough housing counselors to handle the volume of cases that is expected. This will have to be monitored.
The impact of these new laws won’t be known until the end of this year or early next year. It looks like this is a great step in helping people save their homes from foreclosure. However if people facing foreclosure doesn’t request a meeting or if there are not enough counselors, the success rate may be far lower than expected.
Much Success,
Mark Elkins
