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National Mortgage Settlement Monitor Updates Consumer Relief Status
On May 21, the National Mortgage Settlement Monitor, Joseph Smith, released updated consumer relief activities data submitted by the mortgage servicers subject to the Settlement. The update reflects relief activities during the period March 1, 2012 through March 31, 2013, and includes a breakout of data for the first quarter of 2013. A fact sheet highlights numerous aspects of the data, including that 621,712 borrowers have benefited from some type of consumer relief totaling $50.63 billion, which, on average, represents about $81,437 per borrower. The Monitor did not issue a full report on the data because he is focused on testing the 2012 year-end consumer relief claims of four banks. The Monitor expects to release the results of the testing in the coming weeks. In June, he also plans to submit the first required report regarding the banks' compliance with the Settlement’s servicing standards.
CFPB Debuts Mortgage Rule Videos, Spanish Language Website
On May 15, the CFPB announced a YouTube playlist, which includes seven videos that provide information about the mortgage rules the CFPB published earlier this year. The CFPB stated that the purpose of the videos is to provide an overview of the rules in a plain language format for use by a broad array of industry constituents, but cautioned that the videos are not a substitute for the rules themselves. Also on May 15, the CFPB announced a Spanish language website, with mobile capability, that provides access to CFPB resources, including information about how to submit a consumer complaint and answers to consumers’ frequently asked questions.
Freddie Mac Allows Early Streamlined Modifications; Fannie Mae Issues Streamlined Modification FAQs
On May 13, Freddie Mac announced in Bulletin Number 2013-7 that servicers can immediately begin offering modifications under the streamlined modifications initiative announced by the FHFA in March. The Bulletin states that servicers must generate the terms of each trial period plan using their own proprietary system or third-party system until Workout Prospector® becomes available July 15, 2013 to process the terms of a streamlined modification. The Bulletin also revises Freddie Mac’s property valuation requirements for modifications of mortgages secured by manufactured homes and 2- to 4-unit properties, and eliminates the requirement that a property value be obtained for a long-term forbearance plan. On May 7, Fannie Mae published new Frequently Asked Questions intended to help servicers understand and implement the requirements of Servicing Guide Announcement SVC-2013-05, which, beginning July 1, 2013, requires services to offer eligible borrowers who are at least 90 days delinquent on their mortgage a way to lower their monthly payments and modify their mortgage without requiring financial or hardship documentation. The FAQs relate to (i) solicitation, (ii) eligibility requirements/exclusions, (iii) workout hierarchy, (iv) valuations, and (v) servicer requirements.
Ohio Supreme Court Holds Mortgage Servicing Not Subject to Consumer Sales Practices Act
On May 14, the Ohio Supreme Court held in response to two certified questions from a federal district court that the Ohio Consumer Sales Practices Act (CSPA) generally does not apply to mortgage servicers and servicing. Anderson v. Barclay’s Capital Real Estate, Inc., No. 2013-Ohio-1933, 2013 WL 2097556 (Ohio May 14, 2013). Specifically, the court held that residential mortgage servicing is not a “consumer transaction” subject to the CSPA. The court reasoned that mortgage servicing is a contractual agreement between the mortgage servicer and the financial institution that owns both the note and mortgage, and is carried out in the absence of a contract between the borrower and the servicer. Therefore the transaction does not meet an essential element of the statutory definition because it is not a sale, lease, assignment, award by chance, or other transfer of a service to a consumer. The court also held that a residential mortgage servicer is not a “supplier” subject to the CSPA. The statute defines “supplier” to include a seller, lessor, assignor, franchisor, or other person engaged in the business of effecting or soliciting consumer transactions, whether or not the person deals directly with the consumer. Because mortgage servicers are not part of the residential mortgage transaction and do not seek to enter into consumer transactions with borrowers, they are not “suppliers” under the law.
Freddie Mac Introduces Low Activity Fee, Updates Numerous Seller/Servicer Requirements
On May 15, Freddie Mac issued Bulletin Number 2013-8, which includes numerous revisions to requirements for sellers and servicers. According to the Bulletin, beginning January 1, 2014, a seller/servicer will be charged a $7,500 low activity fee if the seller/servicer does not either (i) sell mortgages to Freddie Mac with an aggregate unpaid principal balance greater than $5 million during the immediately preceding calendar year, or (ii) service, or act as a servicing agent for, mortgages for Freddie Mac with an aggregate unpaid principal balance of at least $25 million as of December 31 of the immediately preceding calendar year. In addition, the Bulletin, among other things: (i) requires seller/servicers to comply with the deadlines specified by Freddie Mac when it requests cooperation in a fraud investigation; (ii) notifies sellers and reminds servicers that seller/servicers must direct mortgage insurers providing coverage on mortgages sold to and/or serviced for Freddie Mac to release data to Freddie Mac at Freddie Mac’s request; (iii) updates and revises requirements for Living Trusts and announces that mortgages secured by properties in which the legal and equitable title is held by a land trust will no longer be eligible for purchase under the Guide, unless certain conditions are met; and (iv) prohibits sellers that have guarantor master commitments from taking out fixed-rate cash contracts for the sale of super conforming mortgages.
Federal District Court Denies Certification in Loan Modification Class Action
On April 29, the U.S. District Court for the Central District of California refused to certify a class seeking to challenge a mortgage servicer’s loan modification practices. Campusano v. BAC Home Loans Servicing, LP, No. 11-4609, slip op. (C.D. Cal. Apr. 29, 2013). The named borrowers allege that their mortgage servicer breached agreements to modify mortgage loans by failing to timely implement the terms of the modification agreements and claim that the servicer’s failures are pervasive and appropriate for class treatment. The court held that the class lacked commonality and typicality because the borrowers failed to demonstrate that their modification agreements were the only ones used by the servicer and that all such agreements contained identical provisions pertaining to effective dates and other material terms. The court also held that the borrowers failed to demonstrate that (i) differences in contract would be immaterial to the question of whether acceptance of a first payment binds the servicer to the agreement regardless of other contract deficiencies and (ii) the borrowers suffered harm as a result of the servicer’s quality control, validation, and repudiation procedures. The court denied the borrowers’ motion for class certification.
President Obama Nominates New FHFA Director
On May 1, President Obama announced the nomination of Representative Mel Watt (D-NC) to serve as Director of the FHFA. Mr. Watt has represented portions of Charlotte and other North Carolina communities since 1993 and currently is a member of the House Committees on Financial Services and Judiciary. He would replace FHFA Acting Director Edward DeMarco, who federal and state Democratic policymakers and housing groups have called on to be replaced, in part based on his decision to not direct Fannie Mae and Freddie Mac to engage in broad principal reduction programs. On the same day as the President’s announcement, the Congressional Budget Office released a report that examined three options for Fannie Mae and Freddie Mac to use principal forgiveness, which the CBO finds would be likely to (i) result in small savings to the government, (ii) slightly reduce mortgage foreclosure and delinquency rates, and (iii) slightly boost overall economic growth.
Fannie Mae Announces Miscellaneous Servicing Policy Changes
On May 1, Fannie Mae issued Servicing Guide Announcement SVC-2013-10, which includes numerous servicing policy changes. The announcement informs servicers that they must (i) conduct regular testing of compliance with applicable laws in all jurisdictions in which they service mortgage loans for Fannie Mae, (ii) provide test results to senior management and, upon request, to Fannie Mae, and (iii) maintain evidence of any corrective actions. For eMortgages, the Announcement explains that servicers must obtain special approval to service such mortgages by contacting their Servicing Consultant, Portfolio Manager, or Fannie Mae’s National Servicing Organization’s Servicing Solutions Center. The Announcement also (i) provides new requirements for repayments of escrow deficits and shortages for all conventional loan modifications, (ii) requires servicers to obtain the results of property valuation order requests for the purposes of bidding instructions through HomeSaver Solutions® Network within 7 to 10 calendar days from the date the servicer submits the request, (iii) clarifies delinquency management and default prevention policies outlined in SVC-2012-18, (iv) removes Guide language regarding temporary possession of mortgage notes, and (v) incorporates a recent change to Moody’s rating system.
CFPB Proposes Changes to Qualified Mortgage and Mortgage Servicing Rules
On April 19, the CFPB proposed a rule to amend and clarify certain provisions of its final qualified mortgage rule and final mortgage servicing rule. The proposal addresses (i) preemption issues with regard to Regulation X’s servicing provisions, (ii) the small servicer exemption from certain of the new servicing standards, (iii) the use of government-sponsored enterprise and federal agency purchase, guarantee, or insurance eligibility for determining qualified mortgage status, and (iv) the determination of debt and income for purposes of originating qualified mortgages. With regard to small servicers, the proposal would clarify which mortgage loans to consider in determining small servicer status and the application of the small servicer exemption to servicer/affiliate and master servicer/subservicer relationships. It would exclude from consideration mortgage loans voluntarily serviced for an unaffiliated entity without remuneration, reverse mortgages, and mortgage loans secured by a consumer’s interest in timeshare plans. With regard to debt-to-income ratio assessments for purposes of offering qualified mortgages, the rule would amend language related to employment record and income, obtaining business credit reports and other issues related to self-employed borrowers, and the treatment of Social Security and rental income.
Minnesota Supreme Court Affirms that Foreclosing Parties Must Record Mortgage Assignments Prior to Initiating Foreclosure by Advertisement
On April 17, the Minnesota Supreme Court affirmed an intermediate appellate court ruling that held (i) a strict compliance standard applies to Minnesota’s foreclosure by advertisement process, and (ii) a foreclosure by advertisement is void where the foreclosing party fails to record all mortgage assignments prior to initiating the foreclosure process. Ruiz v. 1st Fidelity Loan Servicing, LLC, No. A11-1081, 2013 WL 1629192 (Minn. Apr. 17, 2013). The case arose after an assignment correcting the name of the assignee was recorded on the same day that the assignee (i) published the first notice of foreclosure sale, and (ii) recorded a notice of pendency of foreclosure. After the assignee foreclosed on the property, the mortgagor brought an action in Minnesota District Court seeking to void the foreclosure by arguing that foreclosing parties must comply strictly with Minnesota’s foreclosure by advertisement process. The district court granted summary judgment in the assignee’s favor, concluding, among other things, that a substantial-compliance standard, rather than a strict compliance standard, applies to Minnesota’s foreclosure by advertisement process. The Minnesota Court of Appeals reversed the district court on appeal, holding instead that a strict compliance standard applies to Minnesota’s foreclosure by advertisement process. On further appeal, the state supreme court analyzed the statutory language containing Minnesota’s foreclosure by advertisement process and determined that the plain language of the statute unambiguously requires all mortgage assignments to be recorded before a foreclosing party has a right to engage in the process of foreclosure by advertisement. As a result, the court determined that the assignee’s foreclosure was void and that the case should be remanded to the district court for further proceedings.