InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
State Law Update: Colorado Protects Pending Modifications on Transferred Mortgage Loans
On March 15, Colorado enacted HB 1017, which requires a loan servicer to whom servicing rights for a residential mortgage have been sold or transferred to honor or continue processing any pending loan modification, as long as the borrower’s acceptance of the loan modification occurs prior to the sale or transfer of servicing rights. The bill also requires that, at the time of transfer, the prior servicer must disclose any pending loan modifications to the new servicer. The new provisions took effect immediately and apply to all modification offers made on or after March 15, 2013.
Report Blames Servicers for California Foreclosure Problems
Recently, a collection of community advocacy organizations released a report that attacks mortgage servicers for their handling of foreclosures in California. The report argues that foreclosures decrease the value of the foreclosed home, result in residual property value losses in the surrounding neighborhood, and rob governments of tax revenue as a result of the property depreciation. The report also reviews foreclosures in seven California jurisdictions and claims that foreclosure practices disproportionately impact minority neighborhoods. The groups advocate for servicers to halt foreclosures until they (i) commit to a broad principal reduction program and (ii) report data on principal reduction, short sales, and foreclosures by race, income, and zip code.
FHFA OIG Issues Report on Servicers' Borrower Complaint Handling
Today, the FHFA Office of Inspector General (OIG) issued a report on servicers’ handling of borrower complaints, following an audit to assess FHFA’s oversight of Freddie Mac’s controls over servicers’ handling of escalated cases. Under the Servicing Alignment Initiative (SAI), servicers are required to track the escalated cases they receive - specifically defined to include any of five categories of complaints - and resolve those cases within 30 days. In addition, Freddie Mac’s Servicing Guide requires servicers to report monthly on escalated cases status, including when received and how resolved. According to the report, the audit revealed that (i) most of Freddie Mac’s servicers are not complying with reporting requirements for escalated cases, (ii) Freddie Mac’s oversight of servicer compliance has been inadequate, and (iii) the FHFA did not identify the foregoing problems through its own examination of Freddie Mac’s implementation of the SAI. In response, the OIG recommends that FHFA (i) ensure that Freddie Mac requires its servicers to report, timely resolve, and accurately categorize escalated cases, (ii) ensure that Freddie Mac enhances its oversight of its servicers through testing servicer performance and establishing fines for noncompliance, and (iii) improve its oversight of Freddie Mac by developing and implementing examination guidance related to testing the implementation of directives. Following receipt of the report, House Oversight Committee Ranking Member Cummings (D-MD) called for a hearing on borrower complaint handling by servicers.
Senator Seeks DOJ Investigation of Default Servicing Practices
On March 8, Senator Ron Wyden (D-OR) released a letter to Attorney General Eric Holder advising the DOJ about claims made to the Senator’s office by a “long-time professional in the mortgage industry” that banks and mortgage servicers have engaged in a “systematic effort” to double bill borrowers for certain foreclosure-related fees. The letter identifies a major default service provider with whom other banks and servicers allegedly have been complicit in establishing a fraudulent fee structure that increased foreclosure rates and led directly to other servicing problems, including robosigning. Senator Wyden offers that in addition to being potentially fraudulent, the practices described may violate the False Claims Act. The letter explains that Fannie Mae and Freddie Mac, which currently operate under government conservatorship, are improperly being asked to pay fees that the servicers also are passing on to borrowers. The letter, a copy of which also was sent to the federal housing and banking agencies, seeks a DOJ investigation into these allegations, or a report from the DOJ about any investigation conducted to date. The Senator also (i) seeks guidance from the DOJ about actions Congress can take with regard to foreclosure billing transparency, including a “RESPA-like policy,” (ii) asks whether Fannie Mae’s and Freddie Mac’s policies regarding certain of the fees at issue should be implemented industry-wide, and (iii) requests an investigation of competition in the title industry and alleged pricing and market manipulation practices.
New York Investigates Post-Sandy Mortgage Servicing Practices
On March 7, New York Governor Andrew Cuomo announced that the New York Department of Financial Services (DFS) is investigating certain bank and servicer practices related to Hurricane Sandy relief. Specifically, the DFS is looking into complaints that homeowners impacted by Hurricane Sandy and allowed to forgo mortgage payments are now being burdened by requests to make up all past payments in an immediate lump sum amount. In November and December of 2012, the DFS reached agreements with major banks and servicers for borrowers who were struggling to make mortgage payments after Hurricane Sandy. Under the agreement, the banks and servicers agreed to offer forbearance on mortgage payments to certain homeowners for three to six months without a lump sum balloon payment at the end of such period. The DFS is now receiving reports that homeowners at the end of their forbearance period are being asked for these lump sum payments. In addition, some homeowners are receiving pre-foreclosure notices based on missed payments during the forbearance period. The DFS sent letters to banks and servicers that seek by March 12, 2013 information on (i) the number of homeowners who asked for and received forbearance, (ii) lenders’ forbearance-related policies and practices, (iii) how the institutions implemented forbearances internally, and (iv) whether and under what circumstances they would consider offering forgiveness of principal and interest payments for up to 12 months post-storm.
Fannie Announces Hazard Insurance Change for Vacant Properties
On March 6, Fannie Mae issued Servicing Guide Announcement SVC-2013-04, which requires servicers to cancel hazard insurance coverage (for both borrower and lender-placed policies) within 14 calendar days after a property appears on the Vacancy Report in HomeTracker. The policy took effect immediately and applies to all loans where the foreclosure sale occurred or will occur on or after October 1, 2012. For properties foreclosed after that date that have hazard insurance coverage still in place, the servicer must cancel the insurance by March 20, 2013. Fannie Mae also reminded servicers that if a policy is cancelled prematurely and damages are found, the servicer will be required to make Fannie Mae whole for any losses or fees relating to the property damages.
Federal Reserve Board and OCC Release Amended Foreclosure Consent Orders
On February 28, the Federal Reserve Board and the OCC jointly released amendments to their enforcement actions against multiple mortgage servicers to resolve allegations that the servicers engaged in improper mortgage servicing and foreclosure processing practices. The amendments resolve consent orders issued in April 2011 by memorializing several recent agreements in principle that provide for $3.6 billion in cash payments and $5.7 billion in other assistance, such as loan modifications and forgiveness of deficiency judgments, to 4.2 million borrowers whose homes were in foreclosure in 2009 or 2010. For the participating servicers, the amendments also replace the requirements related to the Independent Foreclosure Review process set out under the original consent orders. The servicers are also required to undertake loss mitigation efforts focused on foreclosure prevention, and will continue to be monitored by examiners for implementation of corrective actions to address alleged deficient servicing and foreclosure practices.
Fannie Mae Updates Property Transfer Policies for Exempt Transactions
On February 27, Fannie Mae issued Lender Letter LL-2013-04, clarifying servicers’ obligations in connection with the transfer of ownership of a property securing a mortgage loan when the due-on-sale or due-on-transfer provision is not enforceable because the transfer is considered an exempt transaction. For such exempt transactions, servicers must implement policies and procedures to promptly identify and communicate with the new owner, and must allow the new owner to continue making mortgage payments and pursue an assumption of the mortgage loan as well as a foreclosure prevention alternative, if applicable. In addition, for delinquent mortgage loans that are exempt transactions, if the new owner is unable to bring the mortgage loan current but may be able to resolve the delinquency with a foreclosure prevention alternative and assume the mortgage loan, the servicer must collect a Borrower Response Package from the new owner, evaluate the request as if it were a borrower, and submit a recommendation to Fannie Mae if the servicer determines a foreclosure prevention alternative is appropriate. Finally, servicers are reminded that, in the case of an exempt transaction, before finalizing any permanent modification entered into in conjunction with an assumption for an MBS Pool mortgage loan, the mortgage loan must be (i) in a continuous state of delinquency for at least four consecutive monthly payment dates (or at least eight consecutive payment dates in the case of a biweekly mortgage loan) without a full cure of the delinquency, and (ii) removed from the MBS pool.
Servicers Granted Broad Discretion in Effort to Accelerate Release of Sandy Insurance Funds
On February 26, New York Governor Andrew Cuomo announced that Fannie Mae, through Lender Letter LL-2013-03, and Freddie Mac, through Bulletin 2013-4, implemented new rules to accelerate the release of insurance proceeds to homeowners affected by Hurricane Sandy by reducing restrictions on how banks and mortgage servicers may release insurance money. Effective immediately, for borrowers who were current on their payments before Sandy and have less than 80 percent damage to their homes, Fannie Mae and Freddie Mac servicers have broad discretion to disburse insurance proceeds. The New York Department of Financial Services urged banks and mortgage servicers to immediately adjust their policies and begin using the new discretion to release insurance funds to covered borrowers.
Fannie Mae Announces Servicing Policy Changes
On February 22, Fannie Mae issued Servicing Guide Announcement SVC-2013-02, reminding servicers that when they deposit undisbursed insurance loss draft funds into an interest-bearing account, the account must be for the borrower’s benefit and, regardless of the mortgage loan’s delinquency status, the servicer must comply with applicable laws regarding the disbursement of interest earned to the borrower. The announcement also introduced a new form for use when referring a borrower to Fannie Mae for the exit option that allows a three-month transition with no rent payment required, and updated the form to be used when referring a borrower for the exit option that allows up to a twelve-month lease with a market rent payment. On February 27, Fannie Mae issued Servicing Guide Announcement SVC-2013-03, describing servicing policy changes and updates to (i) private flood insurance, (ii) termination of applicable force-placed insurance, and (iii) special remittance type codes. The private flood insurance change follows a related announcement, SEL-2013-02, which, among other things, informed sellers that Fannie Mae must accept flood insurance from private providers as an alternative to National Flood Insurance Program policies. The insurance-related policies are effective immediately, and servicers must report using the new codes for applicable special remittances on or after April 1, 2013.