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Fannie Mae and Freddie Mac issue disaster relief policy reminders and updates
On July 18, Fannie Mae, in Lender Letter LL-2018-04, and Freddie Mac, in an industry letter released the same day, reminded servicers of requirements that continue to be in effect for servicing mortgages impacted by eligible disasters. Specifically, Fannie Mae provides information on (i) reimbursements related to insured loss repair inspection costs; (ii) disaster-impacted inspections; (iii) the Extend Modification for Disaster Relief policy—developed in conjunction with Freddie Mac for post-disaster forbearance mortgage loan modifications; and (iv) the disbursement of hazard loss draft proceeds. Freddie Mac also reminds servicers of property inspection reimbursement requirements and changes to insurance loss settlement distributions.
Find continuing InfoBytes coverage on disaster relief here.
5th Circuit rules FHFA structure violates Constitution’s separation of powers
On July 16, in a divided opinion, the U.S. Court of Appeals for the 5th Circuit affirmed in part and reversed in part a lower court’s decision that addressed two claims brought by a group of Fannie Mae and Freddie Mac (government-sponsored entities or GSEs) shareholders: (i) whether the Federal Housing Finance Agency (FHFA) acted within its statutory authority when it adopted a dividend agreement, which requires the GSEs to turn over every quarter “dividends equal to their entire net worth” to the Treasury Department; and (ii) whether the structure of the FHFA is unconstitutional and in violation of the separation of powers. The lower court previously dismissed the shareholder’s statutory claims and granted summary judgment in favor of the Treasury Department and the FHFA on the constitutional claim. In addressing the first claim, the appellate court agreed with the lower court and found the government-sponsored entities’ payments acceptable under the agency’s statutory authority and that the FHFA was lawfully established by Congress through the Housing and Economic Recovery Act of 2008, which places restrains on judicial review. However, the appellate court reversed the lower court’s decision as to the second claim and agreed with shareholders that Congress went too far in insulating the FHFA’s single director from removal by the president for anything other than cause, ruling that the agency’s structure violates Article II of the Constitution. “We hold that Congress insulated the FHFA to the point where the Executive Branch cannot control the FHFA or hold it accountable,” the opinion stated. The divided appellate panel remanded to the lower court for further proceedings.
Earlier this year, in response to a challenge to the CFPB's single-director structure, the U.S. Court of Appeals for the D.C. Circuit en banc upheld the CFPB’s constitutionality in a 7-3 decision (see Buckley Sandler Special Alert). The 5th Circuit is also scheduled to hear a challenge by two Mississippi-based payday loan and check cashing companies to the constitutionality of the CFPB’s single-director structure, in which 14 state Attorney General filed an amici curiae brief encouraging the appellate court to disagree with the en banc decision of the D.C. Circuit. (See previous InfoBytes coverage here and here.)
International bank must maintain $500 million bond securing $806 million RMBS judgment
On July 5, the U.S. District Court for the Southern District of New York issued a memorandum opinion and order stating that an international bank must maintain the $500 million bond it had filed in 2015 to secure $806 million in damages owed to the Federal Housing Finance Agency for selling allegedly faulty residential mortgage-backed securities to Fannie Mae and Freddie Mac. The court had stayed execution of the judgment pending appeal, and the stay expired on July 5, following the Supreme Court’s denial without comment of the bank’s petition for writ of certiorari. (See previous InfoBytes coverage here.) According to the district court opinion and order, the bank maintained that the stay order required the bond to remain in effect only through July 5, even though the bank was not required to pay the final judgment until July 20. The court disagreed, explaining that a “more natural reading of the [s]tay [o]rder and the [b]ond together is that the [b]ond must remain in place until two conditions are met: (1) the stay of execution ends and (2) the [f]inal [j]udgment is satisfied. Condition 1 has now been met, but not condition 2.” The court added that the bank is free to satisfy the final judgment prior to its July 20 due date, at which point the bond could be dissolved prematurely.
Freddie Mac delays implementation of automated subsequent transfers of servicing
On July 6, Freddie Mac released Guide Bulletin 2018-11, which announces a delay in the implementation of the automated Requests for Subsequent Transfers of Servicing (STOS) and intra-servicer portfolio moves. As previously covered by InfoBytes, Freddie Mac Guide Bulletin 2018-6 announced the automation of STOS and intra-servicer portfolio moves, which were originally scheduled to be effective on July 23. Freddie Mac has delayed the implementation date until August 13 and pushed the temporary STOS moratorium period from mid-July to July 30 through August 12.
Supreme Court rejects review of $806 million RMBS judgment
On June 25, the Supreme Court denied without comment an international bank’s petition for writ of certiorari to challenge the $806 million in damages awarded by the Federal Housing Finance Agency (FHFA) for selling allegedly faulty mortgage-backed securities to Fannie Mae and Freddie Mac. As previously covered by InfoBytes, in September 2017, the U.S. Court of Appeals for the 2nd Circuit affirmed the New York District Court’s ruling requiring the $806 million payment. Both lower courts concluded that the marketing prospectus used to sell the mortgage securities to Fannie and Freddie between 2005 and 2007 contained “untrue statements of material fact,” including false statements regarding the underlying loans’ compliance with underwriting standards related to the creditworthiness of borrowers and appraisal value of the properties.
White House proposes to fully privatize GSEs in broad government reorganization plan
On June 21, the White House announced a government reorganization plan titled, “Delivering Government Solutions in the 21st Century: Reform Plan and Reorganization Recommendations.” The plan covers a wide-range of government reorganization proposals, including several related to the federal government’s involvement in mortgage finance. Among other things, the White House is proposing to end the conservatorship of Fannie Mae and Freddie Mac (GSEs) and fully privatize the companies. The plan notes that a “[f]ederal entity with secondary mortgage market experience would be charged with regulatory oversight” of the GSEs, but does not state whether this would be done by the Federal Housing Finance Agency (FHFA), the GSEs current primary regulator. According to the proposal, this structure would ensure the government’s role “is more transparent and accountable to taxpayers,” as HUD would assume the primary responsibility for affordable housing, and the GSEs would solely focus on secondary market liquidity.
Freddie Mac and Fannie Mae release updates to servicing guides
On June 13, Freddie Mac released Guide Bulletin 2018-9, which among other things, updates servicer requirements for short-term, long-term, and unemployment forbearance plans and consolidates the offerings into a single plan. Effective December 1, the streamlined plan will allow servicers to approve forbearance plans lasting up to six months without requiring eligible borrowers to submit a Borrower Response Package. Servicers may also offer consecutive forbearance plans that do not exceed 12 months in total to qualifying borrowers. Separately, the Bulletin includes the introduction of Freddie Mac’s NextJob re-employment services company designed to serve high-needs areas and provide job search skills and training for unemployed or underemployed borrowers who have requested loss mitigation assistance.
On the same day, Fannie Mae updated its Servicing Guide to consolidate and simplify its forbearance policies into a single plan, and encouraged servicers to implement the changes immediately, but no later than December 1. Fannie Mae clarified, however, that forbearance plans “entered into prior to the servicer’s implementation would adhere to existing policy until the expiration of such forbearance plan.” Additional changes to the Servicing Guide include: (i) clarifications to the escrow advances reimbursement policy for real estate taxes and flood/property insurance premiums; and (ii) updates to be implemented by August 1 for when servicers are required to notify Fannie Mae that a mortgage loan has been placed under military indulgence.
FHFA proposes rule on capital requirements for Freddie and Fannie
On June 12, the Federal Housing Finance Agency (FHFA) announced a proposed rulemaking, which implements a regulatory capital framework for Freddie Mac and Fannie Mae (the Enterprises) including (i) a new framework for risk-based capital requirements; and (ii) two alternative approaches to setting minimum leverage capital requirements. Regulatory capital requirements for the Enterprises have been suspended since the Enterprises were placed in conservatorship in September 2008, and these new requirements would continue to be suspended while the Enterprises remain under conservatorship. FHFA stated that the purpose of the rulemaking effort is to develop a risk measurement framework to better evaluate each Enterprise’s business decisions while in conservatorship. As a result, the proposed risk-based capital requirements would “provide a granular assessment of credit risk specific to different mortgage loan categories, as well as market risk, operational risk, and going-concern buffer components.” The two options for minimal leverage capital requirements include (i) requiring the Enterprises to hold capital equal to 2.5 percent of total assets and off-balance sheet guarantees related to securitization activities; and (ii) requiring the Enterprises to hold capital equal to 1.5 percent of trust assets and 4 percent of non-trust assets. Comments on the proposed rulemaking must be submitted within 60 days of publication in the Federal Register.
Fannie Mae and Freddie Mac update high LTV refinance ratio for one-unit, principal residences
On May 22, Fannie Mae issued Lender Letter LL-2018-02, which updates options related to the high loan-to-value (LTV) refinance option released in September 2017 (LL-2017-05). Fannie Mae, at the direction of the Federal Housing Finance Authority and in conjunction with Freddie Mac, increased the minimum refinance LTV ratio from 95.01 percent to 97.01 percent for one-unit, principal residences. Additionally, there are no minimum credit score requirements or a maximum debt-to-income ratio for most high LTV refinances. The Lender Letter also notes that the Loan-Level Price Adjustment Matrix on Fannie Mae’s website is updated to include the high LTV refinances and provides specific loan delivery requirements.
Freddie Mac announced the same LTV ratio change in Guide Bulletin 2018-8. The bulletin also announced, among other things, a “Credit Fee in Price” cap structure, effective on January 1, 2019, for applicable refinance mortgages. According to the bulletin, the pricing cap is designed to balance affordability to the consumer and risk to the lender. The pricing cap structure is related to the LTV ratio of the refinance and occupancy type of the property. Other updates include, (i) clarification of income stability and credit inquiries; (ii) concurrent transfers of servicing; and (iii) investor reporting change initiative.
FHFA and the Enterprises release Language Access Plan
On May 10, Fannie Mae and Freddie Mac (the Enterprises), in conjunction with the Federal Housing Finance Authority (FHFA), released a Language Access Multi-Year Plan (Plan), which identifies potential solutions for the obstacles faced by limited English proficiency (LEP) borrowers in accessing mortgage credit. The Plan was developed based on research and testing conducted in 2016 and 2017 to assist the Enterprises and FHFA in identifying the issues faced by LEP borrowers throughout the mortgage cycle. Key milestones for the Enterprises and FHFA for 2018 and beyond include (i) creating a clearinghouse with centralized resources, such as translated mortgage documents; (ii) establishing a language access working group; (iii) developing a disclosure that accompanies the Preferred Language Question on the Uniform Residential Loan Application (URLA) (previously covered by InfoBytes here); (iv) developing glossaries that include mortgage and real estate terms; (v) in addition to Spanish, translating the URLA into additional languages; and (vi) creating a language access line to provide consumers with assistance expeditiously.