The settlement will apply to Caliber borrowers who were enrolled in interest-only loan modifications, as well as loan customers who are dealing with the economic fallout of COVID-19.
“As COVID-19 continues to impair our state’s economy, mortgage servicers and investors should know that we will always prioritize homeownership for New Yorkers over profits for predatory lenders,” Attorney General James said in a statement. “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.”
Caliber had serviced thousands of mortgages that its owner, Texas-based private equity firm Lone Star Funds, purchased at a discount from several Government-Sponsored Enterprises (GSEs), including Fannie Mae, Freddie Mac and the U.S. Department of Housing and Urban Development. An investigation by Attorney General James’ office revealed that rather than providing affordable, sustainable modifications to loan customers (as required by state mortgage regulations), Caliber prioritized interest-only and short-term modifications after a period of up to five years, creating a risk of redefault for homeowners.
The settlement mandates that all current Caliber customers in New York with an interest-only or short-term modification automatically be evaluated for the “NY Principal Reduction Modification,” which targets a monthly mortgage payment equal to their current interest-only payment, but now includes principal, interest, taxes and insurance. The settlement compels Caliber to provide this modification by dropping the interest rate to 3.75 percent for the life of the loan, extending the term up to 40 years, and if necessary, deferring some of the principal to the end of the mortgage. Caliber will also be required to forgive principal balances of homeowners whose homes are underwater (when a mortgage is more than what the property is worth).
“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,” Chris Fasano, senior staff attorney of the Foreclosure Prevention Project, Mobilization for Justice, said in a statement. “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.”
Caliber has also been compelled to change their modification offer letters to homeowners so that terms are clear and understandable. The loan servicer will also be required to provide New York State housing counselors and legal service providers detailed descriptions of the different mortgage modification programs available to homeowners.