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CFPB Creates HMDA and ECOA Safe Harbor for New Fannie/Freddie Application Form
On September 29, the CFPB published an Approval Action in the Federal Register that provides a safe harbor under the Equal Credit Opportunity Act (ECOA) and Regulation B for lenders who use the revised Uniform Residential Loan Application (URLA) form issued by Fannie Mae and Freddie Mac in August 2016. The Bureau’s Approval Action states that it has “determined that the relevant language in the 2016 URLA is in compliance with” Regulation B’s requirements for whether, and how, a creditor may seek information about an applicant’s race, color, religion, national origin, sex, marital status, and income sources, and information about an applicant’s spouse or former spouse.
The Bureau’s Approval Action also offers flexibility for lenders who must collect and report information about mortgage applicants’ ethnicity and race under the Home Mortgage Disclosure Act (HMDA), implemented by Regulation C. On October 28, 2015, the Bureau amended Regulation C to require covered lenders to offer applicants the opportunity to self-identify using disaggregated categories of ethnicity and race, effective January 1, 2018. The CFPB notes in the Federal Register notice that before January 1, 2108, asking applicants to self-identify using the disaggregated categories would not have been allowed under Regulation B’s restrictions on seeking information about an applicant’s ethnicity, race and other characteristics. The Approval Action gives lenders the option of using the disaggregated categories of ethnicity and race for applications taken in 2017 without violating Regulation B. It states that if a lender opts to collect information using the disaggregated categories in 2017, for applications that see final action before January 1, 2018, the lender must report the data to the Bureau using only the current aggregate categories for ethnicity and race. If a lender takes final action in 2018 or later on an application received in 2017, it may choose to report the data using either the current aggregate or the new disaggregated categories.
GSEs Release Redesigned Uniform Residential Loan Application
On August 23, Fannie Mae and Freddie Mac (GSEs) published a redesigned Uniform Residential Loan Application (URLA), the first substantial update to the standardized form used by borrowers applying for a residential loan in more than 20 years. The GSEs also released a redesigned Uniform Loan Application Dataset (ULAD) Mapping Document, used to “ensure consistency of data delivery.” The GSEs revised the URLA and ULAD by (i) redesigning the format to support better efficiency and more accurate data collection; (ii) including new and updated fields intended to “[c]apture loan application details that reflect today’s mortgage lending business and support both the GSEs’ and government requirements”; (iii) simplifying instructions; and (iv) incorporating revised HMDA demographic questions. The GSEs released FAQs about the redesigned URLA and ULAD, which will be available for lender use beginning January 1, 2018. Among other things, the FAQs note that (i) the GSEs will continue to support the URLA in paper form; and (ii) updates to the published documents may be required as a result of the CFPB’s review of the redesigned URLA in connection with the Regulation B safe harbor.
FHFA Announces New Refinance Offering for High LTV Borrowers; Extends HARP through September 2017
On August 25, FHFA announced that the GSEs will implement a new refinancing offering for borrowers having high LTVs who meet certain criteria. The new offering contains a number of similarities to the Home Affordable Refinance Program (HARP), including not subjecting eligible borrowers to a minimum credit score, not establishing a maximum debt-to-income ratio or maximum LTV, and often not requiring an appraisal. Dissimilarities from HARP include not imposing eligibility cut-off dates and allowing borrowers to use the offering more than once to refinance their mortgage. Borrowers will not have access to the new offering until October 2017. As such, the FHFA directed the GSEs to extend HARP through September 30, 2017, ensuring that “high LTV borrowers who are eligible for HARP will not be without a refinance option while the new refinance offering is being implemented."
FHFA Releases Update Regarding the GSEs' Single Security and Common Securitization Platform
On July 7, the FHFA released an update entitled An Update: An Implementation of the Single Security and the Common Securitization Platform (the Update) regarding Fannie Mae’s and Freddie Mac’s (collectively, the GSEs) joint venture – Common Securitization Solutions (CSS) – to develop and implement a Common Securitization Platform (CSP). As part of a multi-year initiative beginning as early as February 2012, the FHFA has been developing and reporting on the principles and functions for a new securitization platform that supports single-family residential mortgage-backed securitization activities guaranteed by the GSEs. FHFA’s recently issued Update outlines the CSS’s progress made to date, describes expected upcoming milestones, and summarizes the various phases of required testing for Release 1 and Release 2 of the CSP. Importantly, Release 1 will allow Freddie Mac to use the CSP and its Data Acceptance, Issuance Support, and Bond Administration modules to “perform activities related to its current single-class, fixed-rate securities—Participation Certifications (PCs) and Giant PCs—and certain activities related to the underlying mortgage loans (such as tracking unpaid principal balances).” Release 2 will allow both GSEs to use the CSP’s Data Acceptance, Issuance Support, Disclosure, and Bond Administration modules to “perform activities related to their current fixed-rate securities, both single- and multi-class; to issue Single Securities, including commingled resecuritizations; and to perform activities related to the underlying loans,” as well as to allow the GSEs to use the CSP “to issue and administer certain non-TBA mortgage securities, including Fannie Mae securities backed by adjustable rate mortgages.” According to the Update, the Single Security features of the CSP described in the FHFA’s May 2015 update have not been altered and are final. The Single Security features are fundamentally the same as those of the current Fannie Mae MBS and include: (i) payment delay of 55 days; (ii) certain pooling prefixes; (iii) mortgage coupon pooling requirements; (iv) minimum pool submission amounts; (v) general loan requirements such as first lien position, good title, and non-delinquent status; and (vi) seasoning requirements. As outlined in FHFA’s December 2015 publication of the 2016 Scorecard for Fannie Mae, Freddie Mac, and Common Securitization Solutions, the GSEs are expected to implement Release 1 in 2016 and Release 2 in 2018.
Florida Fourth District Court of Appeals Rules in Bank's Favor in Foreclosure Action Based on an eNote
On April 20, a Florida District Court of Appeals issued an opinion affirming a lower court’s final judgment in favor of a bank (Bank) in a foreclosure action against borrowers who signed a mortgage note electronically (eNote). Rivera v. Wells Fargo Bank, N.A., No. 4D14-2273 (Fla. App. April 20, 2016). In the proceedings below, the Bank had presented a sworn certificate of authentication which articulated, among other things, the Bank’s role as servicer of the eNote for Fannie Mae, and describing the Bank’s practices and systems used for the receipt and storage of authoritative copies of electronic records and for protecting electronic records against alteration. The Bank also provided evidence from the same system records and the records of MERSCORP, Inc., as provided for in the terms of the eNote itself, showing that the eNote was last transferred to Fannie Mae and that the authoritative copy of the eNote was maintained in the Bank’s systems as Fannie Mae’s custodian. On appeal, the borrowers challenged the adequacy of the Bank’s demonstration that the eNote had properly transferred to Fannie Mae, thus challenging the Bank’s standing to enforce the eNote and foreclose the mortgage as Fannie Mae’s authorized representative. Applying the Florida enactment of the Uniform Electronic Transaction Act (UETA) and relying on the evidence provided in the certificate of authentication, the court held that the Bank presented competent evidence proving that Fannie Mae owned the eNote and had authorized the Bank to pursue the foreclosure. The court noted that under the UETA, the person with control of a “transferable record” has the same rights as a holder and went on to hold that the eNote is a "transferable record" within the meaning of the UETA because it is an electronic record that would be a note if it were in writing, and its issuer expressly agreed on its face that it was a transferable record. The court observed that the Bank established that its records system stored the eNote in “such a manner that a single authoritative copy of the e-note exists which is unique, identifiable, and unalterable” and that the “authoritative copy, introduced into evidence by the [B]ank as Fannie Mae's designated custodian, identified Fannie Mae as the entity to which the transferable record was most recently transferred.” The court concluded that because the Bank proved that Fannie Mae had control of the eNote, and that the Bank was Fannie Mae's designated custodian, the Bank had standing to foreclose and affirmed the judgment of the lower court.
GAO Report: Regulatory Oversight of Nonbank Servicers Could Be Stronger
On April 11, the Government Accountability Office (GAO) released a report titled, “Nonbank Mortgage Servicers: Existing Regulatory Oversight Could Be Strengthened.” The report analyzes data on the mortgage servicing market from June 2006 through June 2015 from Fannie Mae and Freddie Mac (collectively, the Enterprises), the Federal Reserve, and Ginnie Mae, as well as academic studies and research conducted by industry organizations, federal agencies, and others since the financial crisis. The report focuses in particular on the role of nonbank servicers in servicing privately securitized nonprime loans. According to the report, the percentage of mortgage loans serviced by nonbank servicers – which, according to market participants, tend to service more delinquent loans than banks – increased significantly from the first quarter of 2012 through the second quarter of 2015, but still account for less than a quarter of the overall mortgage servicing market. Concerns regarding the regulatory oversight of nonbank servicers are highlighted in the report, which comments on (i) the CFPB’s direct role in overseeing nonbank servicers’ compliance with federal consumer financial laws; (ii) state regulators’ various prudential and operational requirements for nonbank servicers; and (iii) Ginnie Mae and the Enterprises’ monitoring of nonbank servicer activities to manage risk exposure. According to the report, issues related to nonbank servicers’ “aggressive growth and insufficient infrastructure have resulted in harm to consumers, have exposed counterparties to operational and reputational risks and ... complicated servicing transfers between institutions.” Based on the findings summarized in the report, the GAO recommends that (i) Congress consider giving FHFA the authority to examine third parties doing business with the Enterprises; and (ii) the CFPB collect additional data regarding the identity and number of nonbank servicers.
Ninth Circuit: Fannie and Freddie Are Not Government Agents for FCA Purposes
Recently, the U.S. Court of Appeals for the Ninth Circuit affirmed the District Court of Nevada’s ruling that, for the purposes of the False Claims Act (FCA), 31 U.S.C § 3729(b)(2)(A)(i), Fannie Mae and Freddie Mac are not instrumentalities or officers, employees, or agents of the federal government. U.S. ex rel. Adams v. Aurora Loan Servs., Inc., No. 14-15031 (9th Cir. Feb. 22, 2016). In this case, the plaintiffs alleged that several lenders and loan servicers (collectively, defendants) made certain false certifications to Fannie and Freddie in connection with the purchase and sale of loans. Plaintiffs argued that the False Claims Act applies to claims made to Fannie and Freddie because they are agencies or instrumentalities of the federal government under one of the two definitions of a “claim” in the Act. The Ninth Circuit held that Fannie and Freddie are not federal instrumentalities for FCA purposes of the first definition of a “claim,” notwithstanding the government’s conservatorship. Likewise, the court confirmed that because Fannie Mae and Freddie Mac are private companies, albeit subject to the government’s conservatorship, claims made to the companies were not made to an officer, employee or agent of the federal government. The court observed that plaintiffs did not make an argument under the second definition of claim under the FCA, which defines a claim as a request or demand made upon non-government third parties under certain conditions, and therefore expressed no opinion on whether such a claim could have been brought.
Fannie Mae Updates Servicing Guide; GSEs Update the Uniform Closing Dataset
On November 25, Fannie Mae issued Servicing Guide Announcement SVC-2015-14 to reveal recent updates to the Servicing Guide. Specifically, Fannie Mae updated guidance relating to 10 areas, including but not limited to: (i) the Remittance of Property (Hazard) Insurance Loss Proceeds for Short Sales; (ii) Pledge of Servicing Rights and Transfers of Interest in Servicing Compensation; (iii) Timeline Requirements for HAMP Expanded “Pay for Performance” Incentive Notices; (iv) Early Delinquency Counseling Requirements; and (v) the removal of the Borrower Notification Sample Letter Exhibit.
In separate November 17 announcements, Fannie Mae and Freddie Mac (collectively the GSEs) revealed updates to the Uniform Closing Dataset, developed as part of the Uniform Mortgage Data Program to facilitate lender submission of the Closing Disclosure Form under the new TILA/RESPA regulations. The updates revise Appendix A: Closing Disclosure Mapping to the MISMO and Appendix H: UCD Delivery Specification and include: (i) newly added data points; (ii) changes to conditionality for several data points; (iii) changes/additions to the enumerated values; and (iv) updates to conditionality details.
Fannie Mae Announces New Tools for Lenders
On October 19, Fannie Mae announced four changes: (i) the availability of trended credit data, which may allow a more thorough analysis of borrowers’ credit history; (ii) the availability of nontraditional credit history in Desktop Underwriter; (iii) a new tool, Fannie Mae Connect, which provides a self-service reporting and data analytics portal for customers and business partners; and (iv) the ability to validate a borrower’s income in Desktop Underwriter using data provided by Equifax’s The Work Number®. These changes follow Fannie Mae’s April notification regarding the integration of Collateral Underwriter, an appraisal and analysis application, with Desktop Underwriter and EarlyCheck – an integration intended to help lenders more effectively manage risk, underwrite strong loans, and build their businesses.
Fannie Mae and Freddie Mac Issue Guidelines for Mortgage Repurchases
On October 7, under the direction of the FHFA, Fannie Mae and Freddie Mac jointly issued new guidelines clarifying how the GSEs will categorize origination defects, how lenders can correct the defects, and allows for various remedies, including requiring lenders to repurchase a loan for mortgages containing “significant defects.” The framework, Selling Representations and Warranties Framework – Origination Defects and Remedies, expands on 2012 and 2014 announcements, sets forth new parameters for when lenders must cover the losses on mortgage loans that are identified as having one or more defects, and categorizes defects in three ways: (i) findings; (ii) price-adjusted loans; and (iii) significant defects. According to the guidelines, loan defects categorized as “findings” would not require lenders to correct or “remedy” the loan. Loan defects categorized as “price-adjusted loans” would require lenders to pay applicable loan-level price adjustment fees. Lastly, for loans under the “significant defects” category, lenders must repurchase the loan unless the GSE offers the lender a repurchase alternative. The lender is permitted to appeal “significant defects” findings and the possible outcomes are (i) rescission or close out, as applicable, of the remedy request; (ii) agreement on a repurchase alternative; or (iii) fulfillment of the remedy request. The new guidelines are effective January 1, 2016.