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HUD Issues Guidance Regarding Occupied Conveyance Procedures
On March 16, HUD issued Mortgagee Letter 2012-6 to provide updated guidance for complying with the Protecting Tenants at Foreclosure Act of 2009 (PTFA). The Mortgagee Letter revises the information required in a Notice to Occupant of Pending Acquisition and provides updated sample letters and forms. The Mortgagee Letter also provides guidance regarding (i) reasonable diligence in obtaining possession of the property under PTFA, (ii) rent collection under bona fide leases and tenancies, and (iii) reimbursement for preservation and protection costs due to PTFA compliance.
Utah Limits Time for Deficiency Actions Following a Short Sale
On March 8, Utah enacted Senate Bill 42 to limit the time within which lenders can bring an action to recover a deficiency following a short sale. Lenders now have only three months following a short sale to file a deficiency action against a borrower to recover the balance of the debt. Prior to passage of SB 42, lenders had six years to bring such actions. This law became effective March 8, 2012.
Freddie Mac Publishes Revisions to Selling Requirements
On March 15, Freddie Mac published Single-Family Seller/Servicer Guide Bulletin 2012-8, which (i) updates mortgage eligibility and credit underwriting requirements Borrower Funds and Mortgage Credit Certificates for Borrower qualification, (ii) revises Forms 16SF and 1107SF regarding warehouse lender agreements and facilities, (iii) eliminates certain requirements for document custodians on Form 1034A, and (iv) updates certain delivery requirements under the Uniform Loan Delivery Dataset and clarifies delivery requirements for certain refinances under HARP.
FHFA Issues Final Rule on Private Transfer Fees
On March 15, the Federal Housing Finance Agency (FHFA) issued a final rule to limit the ability of Fannie Mae, Freddie Mac and the Federal Home Loan Banks to deal in mortgages on properties encumbered by certain types of private transfer fee covenants and in certain types of related securities. The rule generally applies, with some exceptions, only prospectively to private transfer fee covenants created on or after the date of publication of the proposed rule, Feb. 8, 2011, and regulated entities must comply with the rule by July 16, 2012. The final rule largely mirrors the proposed rule, though the FHFA did make some changes in response to comments. For example, as described more fully in Section IV of the final rule, (i) certain changes ensure that the rule clearly restricts any activity dealing in mortgages on property encumbered by private transfer fee covenant, (ii) the exception for fees imposed by a court judgment, order or decree was removed, and (iii) the rule now will not apply to private transfer fee covenants imposed pursuant to a litigation settlement agreement or an agreement approved by a government body before February 8, 2011.
Multiple States Reach Separate Settlements with Mortgage Servicers
On March 13, several major mortgage services notified the U.S. District Court for the District of Columbia that they have settled multiple suits brought by certain State Attorneys General (AGs). That court is tasked with approving or denying the multi-party servicer settlement between federal and state officials and the five largest residential mortgage servicers filed on March 12. The notice is intended to provide the court with “a more complete understanding of the terms of the proposed [Settlement] and related litigation.” According to the notice, the servicers have reached agreements with the California, Delaware, Florida, Massachusetts, and New York AGs to resolve certain claims of those states that were preserved under the multi-party agreement. For example, New York settled for $25 million its lawsuit against all of the servicers and MERSCORP, Inc. The notice filed with the court also states that Bank of America is in the process of resolving litigation brought by the AGs of Arizona, Nevada, and Washington.
HUD Issues Mortgagee Letter Regarding FHA Refinance of Negative Equity Borrowers
On March 13, HUD issued Mortgagee Letter 2012-5, which amends and updates Mortgagee Letter 2010-23 regarding FHA’s Refinance of Borrowers in Negative Equity Positions. Effective immediately, the Mortgagee Letter offers program enhancements to (i) broaden the eligibility for FHA Short Refinance Trial Payment Plans, (ii) offer an additional option for first lien holders to extinguish second lien debt, (iii) increase the allowable housing debt-to-income ratio for loans that receive a “refer” risk calculation, and (iv) extend the program expiration date to cover all loans closed on or before December 31, 2014.
Freddie Mac Updates Multiple Servicing Requirements
On March 13, Freddie Mac issued Bulletin 2012-7 providing several updates to its Single-Family Seller/Servicer Guide. Effective immediately, Freddie Mac has revised the definition of “REO rollback” to include additional circumstances beyond bankruptcy petition filings and is requiring servicers to communicate an “REO rollback” through a new REO Rollback Request mailbox. Freddie Mac also announced in the Bulletin that (i) new and revised compensatory fees related to research and construction, “REO rollback”, and reporting noncompliance will be instituted under the Servicing Success Program; (ii) submission of requested file documentation that a servicer initially failed to provide under the Servicer Success File Review does not constitute an appeal; and (iii) upcoming enhancements to the Servicing Success Program will treat standard modification mortgages in the same manner as HAMP mortgages.
Federal Appeals Court Holds Borrower Can Sue Servicer For Promised HAMP Modification
On March 7, the U.S. Court of Appeals for the Seventh Circuit held that a mortgage borrower could proceed with a class action suit against the servicer of her loan for its failure to offer a permanent loan modification under the federal Home Affordable Mortgage Program (HAMP). Wigod v. Wells Fargo Bank, N.A., No. 11-1423, 2012 WL 727646 (7th Cir. Mar. 7, 2012). In Wigod, the loan servicer and borrower entered into a Trial Period Plan (TPP) under HAMP; the servicer stated in the TPP that if the borrower complied with the TPP for four months, the servicer would offer the borrower a permanent HAMP modification. The borrower alleged that she complied with the TPP, but the servicer denied her a permanent HAMP modification. The borrower filed a class action on behalf of all similarly situated borrowers of the servicer who had entered into and complied with a TPP but were nevertheless denied a permanent modification. The District Court for the Northern District of Illinois granted the servicers motion for summary judgment, but the Seventh Circuit reversed on four of the seven counts. Judge Hamiltons opinion for the Circuit Court held thatwhile the borrower may not have been able to state a cause of action for a breach of HAMP directlythe borrower properly pled claims for breach of contract and promissory estoppel based on the servicers promise to offer a permanent modification in the TPP. The Circuit Court also held that the borrower sufficiently stated claims for fraudulent misrepresentation and for violation of the Illinois Consumer Fraud and Deceptive Business Practices Act. Finally, the Circuit Court held that these state law claims were not preempted by federal law.
Seventh Circuit Rejects Class Certification for RESPA Section 8 Action
On March 6, the United States Court of Appeals for the Seventh Circuit concluded that borrower claims against a title insurance company for alleged kickbacks and fee splitting, in violation of Section 8 of the Real Estate Settlement Procedures Act (RESPA), were not appropriate for class treatment because an individual determination of liability would be required for each class member. Howland v. First American Title Ins. Co., Nos. 11-1816, 11-1817, 2012 WL 695636 (7th Cir. Mar. 6, 2012). The case involves the sale of title insurance in Illinois by First American Title Insurance Company. First American typically sells title insurance to borrowers by contracting with the borrower’s real estate attorney to conduct a title examination. As part of that contract, First American provides the real estate attorney with a substantial amount of information about the property, including a summary sheet that includes legal description of the property, the last known grantee, and any open liens. The borrowers alleged that this summary sheet was itself a preliminary title examination. Because much of the title examination work was provided by First American to the attorney as title agent, the borrower sought to certify a class based on two related alleged violations of RESPA: (i) that the fees charged were excessive and unreasonable given the small amount of work performed and (ii) that the attorney title agents were paid to compensate for referrals and not actual services. The court concluded class certification was not appropriate in this instance. It held that while kickbacks and referral fees to the real estate attorney title agents based on compensation for nominal or duplicative services were banned by Section 8 of RESPA, “the existence or the amount of the kickback in these cases generally requires an individual analysis of each alleged kickback to compare the services performed with the payment made.” Furthermore, the court found that claims attorney title agents were being overcompensated for a pro forma clearance of the title based on the title company’s property summary sheet required a specific case-by-case inquiry. The court concluded that “RESPA Section 8 kickback claims premised on an unreasonably high compensation for services actually performed are inherently unsuitable for class action treatment.”
Multi-Party Mortgage Servicing Settlement Filed in Court
On March 12, federal and state officials filed documents in the United States District Court for the District of Columbia formalizing a previously announced settlement (the Settlement) of various government probes into alleged mortgage-related violations by the five largest residential mortgage servicers (collectively the Servicers). The Settlement resolves investigations and inquiries by numerous federal regulators and 49 state Attorneys General (AGs). The federal agencies that have signed on to the settlement include: the Department of Justice, the Department of Housing and Urban Development, the Department of Treasury, the Department of Agriculture, the Department of Veterans Affairs, the Federal Trade Commission, the Consumer Financial Protection Bureau, and the U.S. Trustee. With the filing of a consolidated complaint and a separate consent judgment for each Servicer, the details of the Settlement have been made available, including its provisions regarding: (i) restitution and other relief, (ii) new servicing standards, (iii) the scope of its releases, and (iv) implementation and enforcement. For a detailed analysis of the Settlement, please see BuckleySandler LLP’s recent Special Alert.