NY Attorney General Reaches $17M Settlement With Caliber Over Loan Mods – NMP Skip to main content

NY Attorney General Reaches $17M Settlement With Caliber Over Loan Mods

Jun 23, 2020
Photo credit: Getty Images/fizkes

New York Attorney General Letitia James announced a settlement with Caliber Home Loans Inc. that provides up to $17 million in mortgage loan forgiveness to current Caliber customers in New York who were placed into unfair, interest-only loan modifications by the company. The settlement will also provide added protection for Caliber’s New York customers in the future.
 
According to settlement, Caliber neither admits nor denies the attorney general's findings. The court filing adds that Caliber agreed to settling the violations "to avoid the time, expense, and distraction of litigation." Caliber representatives could not be reached for comment.
 
"Mortgage servicers and investors should know that we will always prioritize homeownership for New Yorkers over profits for predatory lenders,” said James in a statement. “This settlement shows that mortgage servicers can satisfy their financial responsibilities without ripping away the homes of innocent New Yorkers. There is no need for secrecy behind loan modification programs, which have kept homeowners in the dark about their best options for years. The industry can — and should — be adopting measures that provide sustainable and affordable modifications, as well as more transparent communications with homeowners.” 
 
The settlement comes after an investigation into the deceptive and unfair practices of Caliber’s mortgage modification program. Caliber—which is owned by affiliates of the Texas-based private equity firm Lone Star Funds—serviced thousands of distressed mortgages that Lone Star purchased, at a discount, from various federal government entities, including Fannie Mae, Freddie Mac, and the U.S. Department of Housing and Urban Development. Instead of providing affordable modifications as required by New York State’s mortgage servicing regulations, Caliber prioritized interest-only and short-term modifications that reverted to much higher payments after a period of up to five years. This practice resulted in a payment shock that created the risk of re-default for these homeowners. Even as homeowners requested long-term, sustainable modifications, Caliber continued to offer these interest-only and short-term modifications.
 
The settlement with Caliber mandates that all of its current New York customers with an interest-only or short-term modification automatically be evaluated for the NY Principal Reduction Modification program. This modification targets a monthly mortgage payment equal to their current interest-only payment, but would now be inclusive of principal, interest, taxes and insurance. Caliber would provide this modification by reducing the interest rate to 3.75% for the life of the loan, extending the term up to 40 years, and—where necessary—deferring some of the principal to the end of the mortgage. Homeowners whose homes are underwater would receive additional relief as part of the NY Principal Reduction Modification, as Caliber would be required to forgive principal balances so that the amount of the mortgage equals the market value of the home. Caliber estimates that this potential loan forgiveness for underwater borrowers would be valued at approximately $17 million. Every homeowner eligible for a NY Principal Reduction Modification will also be sent a notice of the modification they are eligible for and how to accept it, as well as will be encouraged to reach out to the attorney general's Homeowner Protection Program for advice.
 
Those New York homeowners without an interest-only or short-term modification will also benefit from the settlement. Caliber will be required to evaluate New York homeowners for two additional sustainable and affordable modifications going forward. Both have similar terms as the NY Principal Reduction Modification, but the pathways to hit certain targets may vary:
 
►NY Pre-approved Modification: This modification sets a target monthly payment that is at least 25% lower than the current monthly payment by lowering the homeowner’s interest rate to 3.75% for the life of the loan, extending the loan term to up to 40 years, and—where necessary—defers some of the principal to the end of the life of the loan.
 
►NY Underwritten Modification: This modification—available to those homeowners who submit an application—sets a target monthly payment that is no more than 31% of the homeowner’s gross monthly income by lowering the interest rate to 3.75% for the life of the loan, extending the loan term to up to 40 years, and—where necessary—defers some of the principal to the end of the life of the loan.
 
Going forward, Caliber will not be allowed to prioritize interest-only modifications for New York customers who need assistance, and will only be able to offer interest-only modifications as a last resort. As a result of the Attorney General James’ investigation, Caliber has changed the modification offer letters the company sends to homeowners to include terms that are clear and understandable.
 
“While Caliber does not agree with certain of the characterizations expressed in the New York Attorney General’s press release, we are pleased to resolve this legacy matter from 2015 on terms which provide relief to severely distressed customers," said Caliber in a statement to National Mortgage Professional magazine. "We are proud of our ability to have helped over 120,000 homeowners stay in their homes during the past 10 years.”
 
Click here for more information on the settlement.

 
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