NEW YORK – New York Attorney General Letitia James has announced a groundbreaking settlement with Caliber Home Loans, Inc. that will provide 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 protections for Caliber’s New York customers in the future as they continue to battle the economic fallout from the coronavirus disease 2019 (COVID-19) public health crisis.
“As COVID-19 continues to impair our state’s economy, mortgage servicers and investors should know that we will always prioritize home ownership for New Yorkers over profits for predatory lenders,” said Attorney General James. “This settlement shows that mortgage servicers can satisfy their financial responsibilities without ripping away the homes of innocent New Yorkers, and that 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.”
Attorney General James’ settlement comes after a detailed 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. But, instead of providing affordable and sustainable 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 unfair practice resulted in a payment shock that created an unacceptable risk of redefault for these homeowners. Even as homeowners pleaded for long-term, sustainable modifications, Caliber continued to deceptively peddle these unsustainable modifications.
This settlement with Caliber mandates that all of its current customers in New York with an interest-only or short-term modification automatically be evaluated for the “NY Principal Reduction Modification.” This modification targets a monthly mortgage payment equal to their current interest-only payment, but that would now be inclusive of principal, interest, taxes, and insurance. Caliber would provide this modification by reducing the interest rate to 3.75 percent 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” — meaning that their mortgage amount is more than what their house is worth — 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 Homeowner Protection Program in the Office of the Attorney General for advice.
Those New York homeowners without an interest-only or short-term modification will also benefit from today’s settlement, as Caliber will be required to evaluate New York homeowners for two additional sustainable and affordable modifications going forward. Both of these options 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 percent lower than the current monthly payment by lowering the homeowner’s interest rate to 3.75 percent 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 percent of the homeowner’s gross monthly income by lowering the interest rate to 3.75 percent 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.
“We thank Attorney General James for reaching this welcomed settlement with Caliber Home Loans and delivering this much-needed relief and transparency to homeowners who have been suffering with interest only loans for far too long,” said Angella Davidson, program director, Neighborhood Housing Services of Brooklyn. “We are hopeful that this trend-setting decision will provide a roadmap for the servicing industry.”
“By refusing to offer truly affordable mortgage modifications, Caliber preyed upon homeowners, many of whom were members of Black communities devastated by decades of discriminatory lending,” said Chris Fasano, senior staff attorney of the Foreclosure Prevention Project, Mobilization for Justice. “The principal forgiveness required by this agreement forces Caliber to hold up its end of the bargain and actually help stabilize homeownership among these communities, as well as treat homeowners uniformly and fairly by offering a standard set of modification options. With this settlement, homeowners can finally hold Caliber to account.”
In addition to the important fiscal relief for consumers, Attorney General James also secured much needed transparency in Caliber’s loan modification programs. Under this provision of the settlement, Caliber will be required to provide New York State housing counselors and legal service providers a detailed description of the different mortgage modification programs available to New York homeowners, broken down by loan owner. Caliber will also provide an escalation contact to these advocates, who will be accessible even if the homeowner has been sued in foreclosure.
This matter was handled by Assistant Attorneys General Mark Ladov and Elizabeth M. Lynch of the Consumer Frauds and Protection Bureau, under the supervision of Bureau Chief Jane M. Azia and Deputy Bureau Chief Laura J. Levine, as well as Special Counsel for Economic Justice Steven Glassman. Senior Data Analyst Akram Hasanov and former Data Analyst William Greenberg provided additional support, under the supervision of Jonathan Werberg, Director of the Research and Analytics Department. The Consumer Frauds and Protection Bureau is a part of the Division for Economic Justice, overseen by Chief Deputy Attorney General Chris D’Angelo and First Deputy Attorney General Jennifer Levy.