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Freddie Mac Updates Disaster Assistance, Other Servicing Policies
On August 15, Freddie Mac issued Bulletin 2013-15, which updates and revises many of its servicing requirements, including those related to assistance for borrowers impacted by an eligible disaster. With respect to such impacted borrowers, the Bulletin provides updated requirements related to (i) property protection activities, such as ascertaining the extent of the damage, and, if necessary, securing abandoned properties, (ii) managing the delinquency of a borrower whose mortgaged premises or place of employment was impacted by a disaster, (iii) the addition of the new Disaster Relief Modification for Borrowers who were current or less than 31 days delinquent at the time of a disaster, (iv) streamlined modifications for borrowers who were current or less than 31 days delinquent at the time of a disaster, (v) Trial Period Plan eligibility requirements, (vi) insurance loss settlements, and (vi) credit reporting. The Bulletin also instructs servicers to follow applicable state laws when handling Freddie Mac default legal matters (e.g. foreclosure) and adds a new Guide chapter about when servicers should take advantage of state procedures that allow for quickly completing foreclosures. Further, the Bulletin (i) revises requirements for servicemembers and their dependents, (ii) revises property inspection requirements, (iii) revises requirements for the reimbursement of attorney fees and costs related to contested foreclosures and mediation, expenses incurred for title work, and condominium, homeowners association and Planned Unit Development assessments in super lien states, (iv) permanently extends the submission time frame for 104SF claims from 30 days to 45 days, and (v) updates unemployment forbearance requirements.
Fannie Mae Updates Servicer Disaster Assistance Policies
On August 7, Fannie Mae issued Servicing Guide Announcement SVC-2013-16, which updates assistance policies for borrowers affected by earthquakes, floods, hurricanes, or other catastrophes caused by a person or event beyond the borrower’s control. The announcement provides a table of new pre-approved forbearance terms for borrowers affected by a disaster. Fannie Mae reminds servicers that while they have discretion to determine the appropriate duration of forbearance, any forbearance that exceeds the set terms must be approved in writing by Fannie Mae. The announcement also (i) updates requirements for insurance claim settlements, (ii) requires that income documentation be no more than 180 days old at the time of the post-disaster foreclosure prevention alternative evaluation, (iii) directs servicers to suspend credit reporting for a disaster-impacted borrower during a repayment plan or Trial Period Plan if the borrower is making the required payments, (iv) reduces eligibility requirements for streamlined modifications for borrowers completing a disaster-related forbearance plan in a FEMA-declared disaster area, (v) introduces a new modification, the Cap and Extended Modification for Disaster Relief, and (vi) addresses escrow analysis requirements prior to offering a Trial Period Plan for certain disaster-related modifications. All of these policy changes took effect immediately.
California Federal District Court Grants Class Certification in HAMP Litigation
On August 5, the U.S. District Court for the Northern District of California certified a class of borrowers who allege that a mortgage servicer wrongly rejected mortgage modification applications and improperly initiated foreclosure proceedings. Gaudin v. Saxon Mortg. Svcs., Inc., No. 11-1663, 2013 WL 4029043 (N.D. Cal. Aug. 5, 2013). The named plaintiff contends that a trial modification plan provided by her servicer constituted a binding contract that required the servicer to evaluate the borrower under the Home Affordable Modification Program and, if all conditions of the trial plan were satisfied, offer the borrower a permanent modification. According to the borrower, the servicer later, without cause, refused to offer a permanent modification and breached the contract, thereby violating California’s Rosenthal Act and Unfair Competition Law. On the borrower’s motion for class certification, the court held that the case presents significant common questions of law and fact concerning the nature and scope of the trial plan, and that the borrower’s alleged injury is similar to, if not precisely the same as, the potential class because the servicer’s issuance and countersigning of the trial plans constitute a single course of conduct. The court rejected the servicer’s argument that the borrower’s claims are subject to unique defenses because the servicer will argue that the borrower misrepresented her income, explaining that a defendant cannot defeat typicality if it intends to raise similar arguments in response to all class members.
New York Codifies Pre-Foreclosure Filing Requirement
On July 31, New York Governor Andrew Cuomo signed AB 5582, which seeks to reduce the number of incomplete foreclosure cases that are filed, but stalled, awaiting information needed to move the cases to mandatory settlement conferences. To do so, the bill requires a foreclosure attorney who is filing a foreclosure complaint involving a home loan to sign and file a “certificate of merit” with the complaint, stating that, to the best of the attorney’s knowledge, information and belief, there is a reasonable basis for the commencement of such action and that the plaintiff is currently the creditor entitled to enforce the applicable mortgage documents. The attorney also must attach to the complaint or the certificate copies of the relevant debt instruments and any instruments of modification, extension, consolidation, and assignment. The new law allows for the filing of supplemental affidavits where the debt instrument is lost. The new requirements take effect August 30, 2013. This law follows State Attorney General Eric Schneiderman’s enforcement effort to address similar problems – he sued at least one financial institution for allegedly failing to timely file requests for judicial intervention which would trigger court-supervised foreclosure settlement conferences.
Fannie Mae, Freddie Mac Alter Servicing Incentives
This week, Fannie Mae (SVC-2013-15) and Freddie Mac (Bulletin 2013-14) announced that they are altering certain servicing incentives. Effective for all collection periods with a start date on or after August 1, 2013, the two entities are eliminating the complete Borrower Response Package and Delinquency improvement performance standard and the related incentive and compensatory fee structure. Servicers still must collect the package when required to do so by the enterprises’ respective guides. In addition, for mortgages with HAMP modification effective dates on or after April 1, 2014, the entities are increasing the servicer incentive by $500 if the modification is completed in accordance with the Guide.
Federal Reserve Board Announces Additional Foreclosure Review Settlement
On July 26, the Federal Reserve Board released an amended consent order with one of the several financial institutions that entered into a consent order in April 2011 to resolve allegations that the institutions engaged in improper mortgage servicing and foreclosure processing practices. The agreement follows numerous others released earlier this year. Under this latest agreement the institution will pay roughly $230 million, including $32 million to satisfy its obligation to provide loss-mitigation assistance since it no longer owns a significant residential mortgaging portfolio. Together, all the amended consent orders will provide approximately 4.4 million borrowers a total of more than $3.8 billion in cash compensation while an additional $5.8 billion will be provided by the servicers in commitments for loss-mitigation assistance, such as loan modifications and forgiveness of deficiency judgments. For the participating servicers, the amendments also replace the requirements related to the Independent Foreclosure Review process set out under the original consent orders.
Eleventh Circuit Affirms TILA's Safe Harbor Exception Applies to Servicer Seeking to Foreclose
On July 29, the U.S. Court of Appeals for the Eleventh Circuit held that a mortgage servicer moving to foreclose on borrowers pursuant to an assignment from the lender’s nominee was exempt from TILA’s debt ownership disclosure requirements. Reed v. Chase Home Fin., LLC, No. 12-15755, 2013 WL 3868079 (11th Cir. Jul. 29, 2013). The borrowers argued that the assignment made the servicer the new owner of the debt and triggered the servicer’s obligation under TILA to inform the borrowers of a change in debt ownership. The court agreed with the servicer and the district court, holding that the servicer was exempt from the disclosure requirements because it was operating under an assignment made solely for “administrative convenience,” based on the plain meaning of those terms, which are not defined in the statute. The court held that because the servicer was operating within the administrative convenience safe harbor, it was allowed to service the loan – including by seeking to foreclose on the home – without making any additional disclosure. The court affirmed the district court’s grant of summary judgment in favor of the servicer.
California City Sets Ultimatum for Eminent Domain Action
On July 29, the California city of Richmond reportedly sent letters to the owners and servicers of the mortgages on 626 homes in the city, informing those entities that if they do not accept the city’s offer to purchase the mortgages, the city will employ its eminent domain powers to seize the mortgages. The city is demanding to buy both current and delinquent loans, and the first pool of 626 loans does not include any homes with large second mortgages. It intends to write down the principal of the purchased mortgages in an effort to avoid additional foreclosures, and then sell the loans to new investors. If the city follows through on its ultimatum, it would be the first locality to use eminent domain in this way. Several other localities have considered or are considering such action, including North Las Vegas, Nevada, which recently announced its intent to assess the potential use of eminent domain.
Senate Banking Leaders Offer Bipartisan FHA Reform Bill
On July 15, Senate Banking Committee Chairman Tim Johnson (D-SD) and Ranking Member Mike Crapo (R-ID) released a discussion draft of a bill intended to improve the solvency of the FHA’s Mutual Mortgage Insurance Fund (MMI Fund). As with legislation recently passed by the House, the bill would allow HUD to manage its HECM program through mortgagee letters. Unlike the House bill, this draft further would require that, whenever HUD issues a HECM mortgagee letter, it also initiate a proposed rulemaking that addresses the subject of the mortgagee letter. The bill also would require that, for a mortgage to be eligible for insurance under the HECM program, the mortgage must contain terms and provisions for ensuring property maintenance, establishing escrow accounts, performing financial assessments, or limiting the amount of any payment made available under the mortgage.
In addition, the bill includes changes to the broader FHA insurance program, including provisions similar to those in a bill passed by the House last year with overwhelming bipartisan support. It would, for example, (i) set a minimum annual mortgage insurance premium of at least 55 basis points and increase existing up-front and annual premium caps by 50 basis points, (ii) direct HUD to establish underwriting standards using criteria similar to the CFPB’s criteria for Qualified Mortgages, and (iii) require that the MMI Fund achieve a capital reserve ratio of 3% within 10 years of enactment and establish escalating reporting requirements and program evaluations that take effect immediately if the capital ratio falls below required levels. Further, the bill would, among other things, (i) enhance HUD’s ability to seek indemnification from FHA-approved mortgagees approved to originate loans under the lender insurance program or the direct endorsement program, (ii) expand the criteria HUD uses to compare mortgagee performance and to allow HUD to terminate a mortgagee’s approval on a national basis, and (iii) require HUD to develop a single resource guide for lenders and servicers regarding the requirements, policies, processes, and procedures that apply to loans insured by FHA.
The committee has scheduled a legislative hearing on the bill for July 24, 2013.
CFPB Publishes Mortgage Rules Readiness Guide
On July 8, the CFPB published a guide intended to help financial institutions prepare to comply with the various mortgage-related rules the CFPB promulgated in January 2013, some of which it continues to revise. The guide briefly describes each of the rules and provides (i) a readiness questionnaire, (ii) frequently asked questions, and (iii) a list of other resources available to companies seeking to come into compliance with the new rules. The readiness questionnaire covers (i) implementation plans, (ii) policies and procedures, (iii) training, (iv) audit/quality control, (v) consumer complaints, and (vi) vendor management.