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Federal Reserve Board Releases Mortgage Servicing Action Plans
On February 27, the Federal Reserve Board (FRB) released final action plans to be implemented by nine financial institutions to correct alleged deficiencies in residential mortgage loan servicing and foreclosure procedures. The FRB also announced that it expects to release plans for additional institutions soon. The plans are required by consent orders issued by the FRB in April 2011, and describe how the institutions will alter their servicing and foreclosure procedures by, among other things, (i) providing each borrower the name of a primary point of contact at the servicer; (ii) establishing limits on foreclosures where loan modifications have been approved; (iii) establishing robust, third-party vendor controls, including local foreclosure counsel; and (iv) strengthening compliance programs. The announcement also included the release of engagement letters between certain servicers and the third-party vendors hired to conduct reviews of foreclosures processed in 2009 and 2010. Those reviews, also required by the April 2011 orders, will determine whether borrowers suffered a financial injury that the institutions will be required to remedy. The release of the action plans follows the agreement by five of the servicers to pay a combined $766.5 million in penalties to the FRB as part of the $25 billion multi-party servicing settlement.
New Jersey Supreme Court Holds That Foreclosures Can Proceed Despite Notice Defects
On February 27, the New Jersey Supreme Court held in U.S. Bank, N.A. v. Guillaume, No. 068176, 2012 WL 603307 (N.J. Feb. 27, 2012), that state trial courts are not required to dismiss foreclosure actions if there are defects in the notice of foreclosure, and affirmed the denial of the borrowers motion to vacate a default judgment of foreclosure. The decision overturned an August ruling from a New Jersey appeals court, Bank of New York v. Laks, 422 N.J. Super. 201 (App. Div. 2011), holding that dismissal was mandatory if a notice did not strictly comply with the requirements of the New Jersey Fair Foreclosure Act. In Guillaume, the borrowers sought to avoid foreclosure in part because the Notice of Intention to Foreclose identified only the servicers name and contact information and not the name and address of the lender. At the trial level, the court gave the lender an opportunity to cure the defects in the Notice in lieu of dismissal. A panel of the New Jersey Appellate Division affirmed the trial court outcome based on its analysis that listing the name of the loan servicer rather than the name of the lender substantially complied with the statutory requirements. The New Jersey Supreme Court disagreed and held that the Fair Foreclosure Act requires that a Notice of Intention to Foreclose include the name and address of the actual lender, in addition to contact information for any loan servicer with responsibility to collect payments and negotiate resolution of a dispute between the lender and homeowner. Nonetheless the New Jersey Supreme Court determined that dismissal without prejudice was not the exclusive remedy for service of a defective notice and upheld the trial's court authority to craft an appropriate remedy for notice defects. The New Jersey Supreme Court also rejected the homeowners argument that their original lender's $120 fee overcharge was a TILA violation that entitled them to rescission and held that courts adjudicating TILA claims have discretion to deny rescission if the homeowner cannot tender the full amount due on the loan.
Nevada Supreme Court Rules MERS Mortgage Assignments Are Valid
On February 24, the Nevada Supreme Court held, in two separate cases, that a Mortgage Electronic Registration System (MERS)-generated mortgage assignment did not invalidate a foreclosure. Davis v. U.S. Bank, N.A., No. 56306, 2012 WL 642544 (Nev. Feb. 24, 2012); Volkes v. BAC Home Loans Servicing, No. 57304, 2012 WL 642673 (Nev. Feb. 24, 2012). In both cases, the court upheld the lower courts’ decisions allowing foreclosure certificates to be issued following unsuccessful foreclosure mediation. Appellants had argued that MERS is a sham entity, and therefore any MERS-generated assignments are necessarily invalid. Noting that courts in Nevada and other states have “repeatedly” recognized that MERS serves a legitimate business purpose, the Nevada Supreme Court rejected appellants’ arguments that their assignments were invalid merely because they were generated by MERS.
CFPB Issues Draft Monthly Mortgage Statement, Outlines Future Mortgage Servicing Rules
On February 13, the CFPB released a draft model monthly mortgage statement designed to help implement Dodd-Frank Act amendments to the Truth in Lending Act that require such statements. The CFPB acknowledges that many financial institutions already provide monthly statements to borrowers. However, the Dodd-Frank Act requires specific information to be provided in regular statements, including (i) the principal amount, (ii) the current interest rate, (iii) the interest rate reset date, (iv) a description of late or prepayment fees, (v) housing counselor information, (vi) certain contact information, and (vii) other information prescribed by CFPB regulations. The CFPB has been testing the draft model statement with consumers and now is seeking broader public comment though its website. After this informal comment period ends, the CFPB will proceed to a formal rulemaking through which it will set the requirements for monthly statements and provide a model form for use in complying with the new rules. Institutions will have some flexibility to adjust the model. One day prior, CFPB Director Richard Cordray published an op-ed in which he outlined additional agency efforts regarding mortgage servicing, including future rules that would restrict the use of force-placed insurance and require additional disclosures relating to hybrid adjustable rate-mortgages.
Federal Reserve Releases Mortgage Servicing Monetary Sanction Orders
On February 13, the Federal Reserve Board (FRB) released the consent orders requiring five major mortgage servicing companies to pay a combined $766.5 million in monetary sanctions. The consent orders were entered in connection with the $25 billion multi-party mortgage servicing settlement announced on February 9, and that total settlement amount includes the FRB sanctions.
Freddie Mac Releases Detailed Procedures for Tracking Expenses
On February 15, Freddie Mac published Single Family Seller/Servicer Guide Bulletin 2012-5 to implement new requirements related to the City of Chicago’s Vacant Property Ordinance. As previously reported, the FHFA sued Chicago over the ordinance, which requires lenders to register vacant properties and pay a $500 registration fee per property. Whether the property has been foreclosed upon or not, the ordinance also imposes maintenance and other obligations on lenders and their agents (including servicers, Fannie Mae, and Freddie Mac), and includes fines for non-compliance. The Bulletin, which follows up on a December 12 industry notice, establishes procedures for tracking and submitting expenses incurred pursuant to the ordinance and directs servicers to make required payments “under protest.” The Bulletin also eliminates the requirement for servicers to obtain prior consent from Freddie Mac to decline an application for a Mortgage assumption and reinforces the requirement that the servicer, for itself and on behalf of Freddie Mac, must waive all rights to seek deficiencies for short payoffs and deed-in-lieu of foreclosure transactions on Freddie Mac mortgages that have closed in accordance with the Guide.
Fannie Mae Discontinues National Monthly Median Cost of Funds Index and Revises Delinquency Status Code Descriptions
On February 15, Fannie Mae issued a notice to servicers advising that, effective March 15, 2012, servicers must use the Federal Cost of Funds Index published by Freddie Mac instead of the National Monthly Median Cost of Funds Index for adjustable rate mortgages. Also on February 15, Fannie Mae issued a servicing notice to clarify the descriptions of certain mandatory effective or completion date requirements for delinquency status codes announced in June 2011.
Freddie Mac Updates Selling Guide Regarding Guaranteed Rural Housing and Newly Constructed Homes, Advises Sellers Regarding SEC Disclosures
On February 10, Freddie Mac issued Bulletin 2012-4 with updates to the Single Family Seller/Servicer Guide regarding mortgages for newly constructed homes and mortgages under the Rural Housing Service’s Guaranteed Rural Housing (GRH) loan program. Effective immediately, the terms “Newly Built Home Mortgage” and “Mortgages for Newly Constructed Homes” have been removed from the Guide as unnecessary in light of other changes. With respect to nonassumable GRH mortgages, effective as to settlements on or after June 1, 2012, such loans must be sold to Freddie Mac with recourse and with Freddie Mac’s written approval in the Purchase Documents, but a minimum Indicator Score of 620 is no longer required.
On the same day, Freddie Mac advised all sellers that it had filed its initial report pursuant to a new SEC rule requiring public disclosure of information regarding asset-backed securities loan repurchase requests, including the identity of the originator. It will continue to disclose such information in quarterly reports to the SEC beginning in May 2012.
Missouri AG Announces "Robosigning" Indictment
On February 7, Missouri Attorney General Chris Koster announced that a grand jury had returned a 136-count indictment against DOCX, LLC, and its founder, for alleged “robosigning” by forgery and false declarations with regard to mortgage documents. The indictment alleges that the signatures on 68 notarized deeds of release submitted to one county recorder were forged and constituted false declarations. If convicted, the founder could face up to seven years in prison per count, and the company could be fined up $10,000 for each forgery and $2,000 for each false declaration.
Federal and State Officials Announce Mortgage Servicing Settlement
On February 9, U.S. Attorney General Eric Holder, HUD Secretary Shaun Donovan, Iowa Attorney General Tom Miller, and several other state and federal officials jointly announced an approximately $25 billion agreement in principle between the federal government, 49 state attorneys general and the five largest mortgage servicers to settle various mortgage servicing and foreclosure related issues. Oklahoma Attorney General E. Scott Pruitt later announced an "independent mortgage settlement" between Oklahoma and the five servicers. The national-level agreement - with Bank of America, JP Morgan Chase, Wells Fargo, Citigroup, and Ally Financial (the servicers) - was the culmination of several state and federal investigations and extended negotiations between the parties. The settlement's terms require a commitment of approximately $20 billion in financial relief for homeowners. In addition, the servicers will pay $5 billion in cash to the state and federal governments, including $1.5 billion to establish a Borrower Payment Fund that will provide payments to qualifying borrowers whose homes were sold or foreclosed on between January 1, 2008 and December 31, 2011. The $25 billion agreement includes more than $766.5 million in monetary sanctions assessed by the Federal Reserve Board. An additional $394 million of penalties from the Office of Comptroller of the Currency are held in abeyance provided four of the servicers make payments and take other actions under the settlement with a value equal to at least the penalty amounts assessed for each servicer by the OCC. In addition to the financial compensation offered in the settlement, the servicers will conduct future business under new servicing standards, which include (i) restrictions on the default management process known as "dual tracking", (ii) a requirement for the institutions to provide a single point of contact for borrowers, (iii) specific protections for military service members beyond those provided by the federal Servicemembers Civil Relief Act, (iv) obligations concerning disclosures and practices related to force-placed insurance, and (v) limitations on servicing fees. The standards also require the servicers to establish (i) updated foreclosure and bankruptcy documentation processes, (ii) enhanced servicer oversight of third party vendors, and (iii) adherence to a new set of loan modification timelines. The terms of the agreement will be filed as a consent judgment in the U.S. District Court for the District of Columbia. Their fulfillment, over the three-year term of the settlement, will be overseen by an independent monitor, North Carolina Commissioner of Banks Joseph A. Smith. In order to ensure timely dissemination of the settlement's terms to those who may be eligible for financial relief, the parties have established a "National Mortgage Settlement" web site, which provides "Servicing Standards Highlights" and outlines key aspects of the servicing settlement. The materials provided by the federal and state officials in announcing the settlement agreement note that the agreement left numerous issues unresolved and does not preclude (i) criminal claims, (ii) securities claims and claims related to the use of an electronic mortgage registry, (iii) loan origination claims in connection with FHA-insured loans, except those covered specifically by this settlement, and (iv) borrower claims. For additional information concerning some of the state-level recoveries and issues the state attorneys general have reserved for potential future action please see California's announcement here and New York's announcement here. Buckley LLP advises clients regarding mortgage servicing issues and conducted a webinar on servicing developments, including a review of the OCC's April, 2011 Consent Orders and related servicing guidance. If you have any questions about the settlement or servicing issues in general please contact a member of our Mortgage Servicing Team.