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Fannie Mae and Freddie Mac Implement Numerous Selling Updates, Announce Appraisal Submission Enhancements
On September 14, Freddie Mac issued Bulletin 2012-19, which implements changes to the requirements for Relief Refinance Mortgages announced on July 31, 2012. The Bulletin also notifies sellers that (i) Freddie Mac no longer is purchasing balloon/reset mortgages, (ii) the Selling Guide has been updated to reflect that at least one borrower on a refinance must have held title and resided in the property for the prior twelve months, and (iii) several requirements for the Selling System Servicing Released Sales Process have been updated and revised.
Also on September 14, Fannie Mae announced in Selling Guide Announcement SEL-2012-09 numerous enhancements to the underwriting and documentation policies for Refi Plus and DU Refi Plus loans, including to (i) reduce representation and warranties, (ii) provide an alternative to income verification for certain payment changes, (iii) reduce income and assets documentation, and (iv) provide an alternative qualification method when removing a borrower.
On September 18, Fannie Mae and Freddie Mac announced that the appraisal submission process through the Uniform Collateral Data Portal will be enhanced on October 7, 2012.
Fannie Mae, Freddie Mac Update Guidance on Participation in State Hardest Hit Fund Programs
On September 12, Fannie Mae issued Servicing Guide Lender Letter LL-2012-06, which requires servicers to accept funds provided on behalf of a borrower under a state housing finance agency Hardest Hit Fund (HHF) modification assistance program. This includes funds provided in connection with a loan "recast," or re-amortization. Servicers now are permitted to approve a loan recast for a current or delinquent portfolio loan or loan in an MBS pool. Such loan recasts will not be deemed modifications for purposes of determining eligibility for a subsequent modification. With respect to loan modifications involving a change of terms, such as an interest rate reduction or an extension of the term of the loan, servicers may only apply the modification funds in accordance with existing standard or HAMP modification requirements. These changes are effective immediately.
On September 10, Freddie Mac issued Bulletin 2012-17, which, effective immediately, allows servicers to participate in state housing finance agency HHF modification assistance programs that permit a mortgage to be recast (after applying the state funds to pay arrearages and curtail principal). The bulletin also revises participation requirements for modification assistance programs. In addition, for foreclosure sales conducted on or after November 1, 2012, servicers will now have 450 days for allowable delays due to military indulgence under the Sevicemembers' Civil Relief Act or parallel state laws. Finally, the bulletin announces a technical Servicing Guide change to reflect an increase in the attorney fee limit for foreclosures in Oregon that was implemented earlier this year.
FHFA, Fannie Mae, and Freddie Mac Implement New Representation and Warranty Framework
On September 11, the FHFA announced that Fannie Mae and Freddie Mac (the GSEs) are implementing a new representation and warranty framework for all conventional loans sold or delivered to the GSEs on or after January 1, 2013. As detailed in subsequent announcements from the GSEs, including Fannie Mae Selling Guide Announcement SEL-2012-08, Fannie Mae Lender Letter LL-2012-05, Freddie Mac Bulletin 2012-18, and a Freddie Mac Industry Letter, the new framework is designed to improve the GSE loan review process and to clarify lenders' repurchase exposure. With regard to loan review, under the new framework, (i) GSE reviews will generally be conducted between 30 and 120 days after loan purchase, (ii) the GSEs will have consistent timelines for submission of loan file review requests, (iii) loan file evaluation will be more comprehensive and will leverage data from tools currently used by the GSEs, and (iv) the repurchase request appeals process will be made more transparent. For lenders, the new framework will provide relief from certain repurchase obligations for loans that meet specific payment requirements, including for loans with 36 consecutive months of timely payments and HARP loans with a twelve-month acceptable payment history. Lenders will receive additional detailed information about exclusions from this new representation and warranty relief.
FHFA Outlines Next Steps for Conservatorship, Announces Close of First REO Pilot Purchase
On September 10, FHFA Director Edward DeMarco, in a speech made to an industry conference, provided a progress report on his agency's role as conservator for Fannie Mae and Freddie Mac and outlined several next steps the conservator will take to alter the GSEs' operations in the mortgage market. Further to the FHFA's recent increases of guarantee fees, Mr. DeMarco announced that the FHFA plans to release a paper outlining a pricing approach that would better capture the costs associated with state and local policies by imposing an upfront fee on newly acquired single-family mortgages originated in states where default-related costs are higher than the national average. The FHFA plans to seek public comment on the proposal. In addition, Mr. DeMarco provided an update on the FHFA's work, with Fannie Mae and Freddie Mac, to develop a shared securitization platform. This secondary market infrastructure project, which was announced earlier this year and is expected to take multiple years to build and implement, is being designed not only to serve Fannie Mae and Freddie Mac while in conservatorship, but also a broader multiple-issuer market post-conservatorship. The infrastructure would include new standards for a variety of contractual agreements, including a model pooling and servicing agreement. The FHFA plans to issue a white paper on the platform in October and will seek public input. Also announced as part of the speech, as well as in a separate FHFA release, was the FHFA's completion of the first sale of REO properties in the pilot program through which the FHFA is selling foreclosed properties to be transitioned into rental housing.
FHFA Increases Mortgage Guarantee Fees
On August 31, the FHFA announced that Fannie Mae and Freddie Mac will attempt to bring more private capital into the secondary mortgage market by increasing guarantee fees (g-fees) on single-family mortgages by an average of ten basis points. The increases will be effective on December 1, 2012 for loans exchanged for mortgage-backed securities, and on November 1, 2012 for loans sold for cash. The increases are designed to decrease the difference between g-fees charged to large volume lenders and those charged to small volume lenders, and to reduce cross-subsidies between higher-risk and lower-risk mortgages. With the announcement the FHFA released a report on guarantee fees charged in 2010 and 2011. The FHFA also stated that it soon will seek public comment on a proposal to develop risk-based pricing at the state level.
FHFA Announces New Short Sale Guidelines
On August 21, the FHFA announced new guidelines that align and merge Fannie Mae’s and Freddie Mac’s (the GSEs) short sale programs to facilitate quicker short sale processing. For mortgages owned or guaranteed by the GSEs, the consolidated guidelines, as implemented through Freddie Mac Bulletin 2012-16 and Fannie Mae Announcement SVC-2012-19, (i) reduce or eliminate the documentation borrowers must provide to demonstrate a need for a short sale, (ii) allow servicers to qualify certain borrowers for short sales—for example those based on hardship caused by death, divorce, or disability—without approval from the GSEs, even when the borrower is current, (iii) automatically qualify for short sale servicemembers receiving Permanent Change of Station Orders and borrowers who must relocate more than fifty miles for existing or new employment, (iv) waive the GSEs’ rights to pursue deficiency judgments in certain circumstances, and (v) allow the GSEs to expedite short sales by offering up to $6,000 to second lien holders. These changes take effect on November 1, 2012.
Massachusetts AG Outlines Foreclosure Expectations for Fannie Mae and Freddie Mac
On August 23, Massachusetts Attorney General Martha Coakley sent a letter to FHFA Director Edward DeMarco in which she advised Fannie Mae and Freddie Mac about their obligation to comply with a recently enacted state law that will make it harder to initiate foreclosures. The letter states that like all creditors, Fannie Mae and Freddie Mac are expected to follow the new statutory requirements and generally should “pursue common-sense loan modifications for borrowers” when economically beneficial to borrowers. The letter also asks the FHFA to reconsider its decision to not require Fannie Mae and Freddie Mac to offer principal forgiveness. Also on August 23, the Massachusetts Division of Banks announced that it will hold a public hearing on August 29, 2012 to gather input regarding regulations it is required to develop to implement the state’s new foreclosure law.
Treasury Announces More Steps to Wind Down Fannie Mae and Freddie Mac
On August 17, the U.S. Department of Treasury announced new steps to accelerate the wind down of Fannie Mae’s and Freddie Mac’s (the GSEs) government-backed portfolios. Treasury is modifying its Preferred Stock Purchase Agreements with the FHFA to wind down the GSEs’ portfolios at an annual rate of fifteen percent, moving up the time by which the portfolios must meet the existing $250 billion target. The amended agreements also (i) require that each GSE submit an annual plan on actions to reduce taxpayer exposure to mortgage credit risk and (ii) replace the current ten percent dividend payments to Treasury with a quarterly sweep of every dollar of profit made by each GSE.
FHFA Seeks Comment on Potential Response to Use of Eminent Domain to Restructure Loans
On August 8, the FHFA released a notice commenting on the potential use of eminent domain by localities to restructure mortgages for borrowers who are current but “underwater.” Several localities have stated publicly that they are considering use of their eminent domain authority to seize such loans and sell them to private investors who would restructure the loans to the borrowers' benefit. The FHFA notes “significant concerns” with the potential practice, including that Fannie Mae and Freddie Mac would sustain losses that would ultimately be borne by taxpayers, and mortgage lenders may restrict their lending activities. The FHFA seeks feedback on a series of factors that would inform its potential response to the use of eminent domain, such as the impact on seized mortgages and whether the proposed use of eminent domain is constitutional.
FHFA Decides Fannie Mae and Freddie Mac Will Not Offer Principal Forgiveness; Updates Other Borrower Assistance Efforts
On July 31, FHFA announced that it will not direct Fannie Mae and Freddie Mac to offer principal reduction assistance to troubled borrowers, concluding that a principal forgiveness policy does not “clearly improve foreclosure avoidance while reducing costs to taxpayers relative to the approaches in place today.” The Treasury Department immediately objected, countering that FHFA’s cost concerns could be alleviated with Treasury assistance to pay for additional administrative implementation costs. With its announcement, FHFA released correspondence to members of Congress explaining FHFA’s decision and providing a detailed assessment of the principal forgiveness policy option. FHFA also reported that it is working with Fannie Mae and Freddie Mac on a series of other borrower assistance efforts including (i) an update to Freddie Mac's refinance program to align it with Fannie Mae’s policy for refinancing mortgages with loan-to-value ratios equal to or less than 80%, (ii) new requirements expected in September related to representations and warranties, which will shift the loan quality review closer to the time of loan origination, (iii) a single, aligned short sale program for Fannie Mae and Freddie Mac with more flexible terms, (iv) a new set of adjustments to guarantee fee pricing, expected to be announced in August and to take effect later in the year, and (v) closing on the first set of REO pilot transactions in August.