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HUD Publishes Mortgagee Letters Regarding Underwriting and Premiums
On February 28, HUD issued Mortgagee Letter 2012-3 to address multiple underwriting changes for case numbers assigned on or after April 1, 2012. These changes include: (i) new documentation for self-employed borrowers for all FHA insured loans except non-credit qualifying streamline refinance loans and Home Equity Conversion Mortgage loans, (ii) new guidance for handling of disputed accounts or public records for all FHA insured loans except non-credit qualifying streamline refinances, and (iii) new definition of family member for the purpose of Identity of Interest Transactions for all FHA insured loans. A second letter, Mortgagee Letter 2012-4, issued on March 6, 2012 details recently announced changes to FHA single family mortgage insurance premiums.
HUD Publishes Mortgagee Review Board Actions
Recently, HUD published a notice of administrative actions taken by the Mortgagee Review Board for the period of February 14, 2011 through July 20, 2011. The notice provides the cause and description of settlement agreements, civil money penalties, withdrawals of FHA approval, suspensions, probations, reprimands, and administrative payments imposed on fifteen mortgagees. The notice also lists six mortgagees that entered into settlement agreements that required each to pay $3,500 in civil money penalties, without admitting fault or liability, for failing to timely comply with HUD's annual recertification requirements.
South Dakota Adds Mortgage Licensing Exemption, Adjusts Register of Deeds Fees
On March 2, South Dakota enacted HB 1229, which exempts certain individuals from the requirement of obtaining a mortgage loan originator license, including attorneys under specified circumstances. On the same day, the state enacted HB 1130, which, among other things, (i) sets a new schedule of fees to be charged by the register of deeds for various services, and (ii) allows an assignment of a mortgage to be recorded as a mortgage under specified conditions. Both bills take effect July 1, 2012.
Oregon Adopts Temporary Servicer Rules, Enacts Law Regarding Affordable Housing Covenants
Recently, Oregon adopted temporary rules that declare certain mortgage servicing practices to be unlawful trade practices. Effective January 27, 2012 through July 24, 2012, it is unfair and deceptive for a mortgage loan servicer to (i) assess late fees or delinquency charges for payments received by the payment’s due date or within any applicable grace period, (ii) assess or collect default-related fees that the servicer is not legally authorized to collect under the terms of the residential mortgage loan, deed of trust, or mortgage, (iii) fail to follow guidelines issued by the FHFA for loans made or held by government sponsored enterprises for borrowers pursuing an alternative to foreclosure, (iv) misrepresent any material information regarding a loan modification, (v) fail to provide a borrower with notice that the borrower’s request for loan modification has been denied or rejected within ten days of the denial or rejection, but in no event, less than twenty days before a scheduled trustee sale, (vi) fail to comply with certain provisions of RESPA, and (vii) fail to deal with a borrower in good faith.
Oregon also enacted, on February 27, 2012, SB 1535. The law authorizes affordable housing covenants contained in a recorded master form instrument to be incorporated by reference in a short form instrument recorded for a real property transaction. The change is effective immediately and is intended to reduce errors in the recording of affordable housing covenants.
Federal Court in Oregon Finds Noteholder's Agent Cannot Be Beneficiary Under Deed of Trust
On February 29, the U.S. District Court for the District of Oregon held, in James v. Recontrust Co., No. 3:11-cv-00324-ST (D. Or. Feb. 29, 2012), that under Oregon law the “beneficiary” of a deed of trust (as opposed to a mortgage) in that state is the noteholder – i.e., the lender or the lender’s successor – and therefore cannot be the agent of the noteholder, such as an electronic registry system. Oregon law only permits a trustee to conduct a non-judicial foreclosure where all subsequent assignments are recorded in the proper county recorder’s office. In this case, because the note was subsequently assigned without having been recorded (because the electronic registry system was thought at the time to be the beneficiary and therefore that recordation was not required) the court ruled that the non-judicial foreclosure route was prohibited under Oregon’s statutory regime. However, the court did note that Oregon’s judicial foreclosure process remains available in these circumstances.
Freddie Mac Announces Seller/Servicer Guide Updates To Implement Higher G-Fees
On February 29, Freddie Mac issued Bulletin 2012-06, which details Freddie Mac’s implementation of an upcoming increase in required spreads. As previously announced, effective April 1, 2012, Freddie Mac is increasing the required spreads for all products by 10 basis points. For Mortgages sold through the Freddie Mac Selling System Selling System, the 10 basis point increase is being implemented through the use of g-fee add-on functionality, and Freddie Mac has created a new Guide exhibit identifying the 10 basis point increase as the “Payroll Tax Cut Act Gfee Add-On.” Freddie Mac also has made a commensurate change in the pricing Sellers receive for Mortgages sold under the cash program. For all other delivery paths and executions, the 10 basis point increase will be reflected in the pricing provided to sellers.
Fannie Mae Announces Multiple Selling Guide Updates
On February 28, Fannie Mae issued Announcement SEL-2012-02, which describes Selling Guide updates related to the Project Eligibility Review Services (PERS), premium pricing recapture, and the maximum buyup of the mortgage backed securities (MBS) guaranty fees. Regarding PERS, effective April 1, 2012, Fannie Mae is increasing the base fee, eliminating the waiver for projects that require a mandatory review, and eliminating the maximum project review fee limit. The announcement also outlines other PERS fee structure changes. Additionally, the Selling Guide updates a remedy available to Fannie Mae when it has identified a lender as having unusual prepayment behavior. Effective immediately, Fannie Mae will be allowed to request reimbursement for any premium paid in connection with the purchase of a mortgage that is paid in full within 120 days from the whole loan purchase date or from the MBS issue date. Finally, for loans delivered on or after May 28, 2012 with MBS issue dates on or after June 1, 2012, Fannie Mae is increasing the maximum buyup of the guaranty fee of 25 basis points for fixed-rate loans and certain ARMs.
Federal Reserve Board Releases Mortgage Servicing Action Plans
On February 27, the Federal Reserve Board (FRB) released final action plans to be implemented by nine financial institutions to correct alleged deficiencies in residential mortgage loan servicing and foreclosure procedures. The FRB also announced that it expects to release plans for additional institutions soon. The plans are required by consent orders issued by the FRB in April 2011, and describe how the institutions will alter their servicing and foreclosure procedures by, among other things, (i) providing each borrower the name of a primary point of contact at the servicer; (ii) establishing limits on foreclosures where loan modifications have been approved; (iii) establishing robust, third-party vendor controls, including local foreclosure counsel; and (iv) strengthening compliance programs. The announcement also included the release of engagement letters between certain servicers and the third-party vendors hired to conduct reviews of foreclosures processed in 2009 and 2010. Those reviews, also required by the April 2011 orders, will determine whether borrowers suffered a financial injury that the institutions will be required to remedy. The release of the action plans follows the agreement by five of the servicers to pay a combined $766.5 million in penalties to the FRB as part of the $25 billion multi-party servicing settlement.
FHA Increases Mortgage Insurance Premiums
On February 27, the Federal Housing Administration (FHA) announced that it is increasing its annual mortgage insurance premiums and upfront premiums in two phases. First, for loans with case numbers assigned on or after April 1, 2012 the FHA is increasing by 10 basis points the annual mortgage insurance premium, and is increasing upfront insurance premiums by 75 basis points. Subsequently, for loans with case numbers assigned on or after June 1, 2012 that exceed $625,500, the FHA is increasing the annual premium by an additional 0.25 percent. The changes are designed to encourage the return of private capital to the residential mortgage market while supplementing the FHAs Mutual Mortgage Insurance Fund, which has fallen below the congressionally mandated two percent reserve threshold. At least one report recently suggested that based on current home price and default projections the fund will become insolvent without action. The increased premiums are projected to contribute more than $1 billion to the FHA's mortgage insurance fund, and on average will cost new home buyers $5 per month.
New Jersey Supreme Court Holds That Foreclosures Can Proceed Despite Notice Defects
On February 27, the New Jersey Supreme Court held in U.S. Bank, N.A. v. Guillaume, No. 068176, 2012 WL 603307 (N.J. Feb. 27, 2012), that state trial courts are not required to dismiss foreclosure actions if there are defects in the notice of foreclosure, and affirmed the denial of the borrowers motion to vacate a default judgment of foreclosure. The decision overturned an August ruling from a New Jersey appeals court, Bank of New York v. Laks, 422 N.J. Super. 201 (App. Div. 2011), holding that dismissal was mandatory if a notice did not strictly comply with the requirements of the New Jersey Fair Foreclosure Act. In Guillaume, the borrowers sought to avoid foreclosure in part because the Notice of Intention to Foreclose identified only the servicers name and contact information and not the name and address of the lender. At the trial level, the court gave the lender an opportunity to cure the defects in the Notice in lieu of dismissal. A panel of the New Jersey Appellate Division affirmed the trial court outcome based on its analysis that listing the name of the loan servicer rather than the name of the lender substantially complied with the statutory requirements. The New Jersey Supreme Court disagreed and held that the Fair Foreclosure Act requires that a Notice of Intention to Foreclose include the name and address of the actual lender, in addition to contact information for any loan servicer with responsibility to collect payments and negotiate resolution of a dispute between the lender and homeowner. Nonetheless the New Jersey Supreme Court determined that dismissal without prejudice was not the exclusive remedy for service of a defective notice and upheld the trial's court authority to craft an appropriate remedy for notice defects. The New Jersey Supreme Court also rejected the homeowners argument that their original lender's $120 fee overcharge was a TILA violation that entitled them to rescission and held that courts adjudicating TILA claims have discretion to deny rescission if the homeowner cannot tender the full amount due on the loan.