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On February 1, Chairman of the Senate Banking, Housing, and Urban Affairs Committee, Mike Crapo (R-ID) released an outline for a sweeping legislative overhaul of the U.S. housing finance system. Most notably, the plan would end the Fannie Mae and Freddie Mac (GSEs) conservatorships, making the GSEs private guarantors while also allowing other nonbank private guarantors to enter the market. Highlights of the proposal include:
- Guarantors. The GSEs would be private companies, competing against other nonbanks for mortgages, subject to a percentage cap. The multifamily arms of the GSEs would be sold and operated as independent guarantors. Consistent with current GSE policy, the eligible mortgages would, among other things, be subject to loan limits set by FHFA and would be required to have an LTV of no more than 80 percent unless the borrower obtains private mortgage insurance.
- Regulation of Guarantors. FHFA, structured as a bi-partisan board of directors, would charter, regulate, and supervise all private guarantors, including the former GSEs. FHFA would be required to create prudential standards that include (i) leverage requirements; (ii) if appropriate, risk-based capital requirements; (iii) liquidity requirements; (iv) overall risk management requirements; (v) resolution plan requirements; (vi) concentration limits; and (vii) stress tests. Guarantors would be allowed to fail.
- Ginnie Mae. Ginnie Mae would operate the mortgage securitization platform and a mortgage insurance fund. Additionally, Ginnie Mae would provide a catastrophic government guarantee to cover tail-end risk, backed by the full-faith and credit of the U.S.
- Transition. In addition to a cap on the percent of all outstanding eligible mortgages, the legislation would require guarantors to be fully capitalized within an unspecified number of years after enactment.
- Affordable housing. Current housing goals and duty-to-serve requirements would be eliminated and replaced with a “Market Access Fund,” which is intended to address the homeownership and rental needs of underserved and low-income communities.
As previously covered by InfoBytes, on January 29, Chairman Crapo released the Senate Banking Committee’s agenda, which also prioritizes housing finance reform.
Massachusetts Attorney General announces $26.8 million settlement with firm for securitization of subprime mortgages
On August 6, the Massachusetts Attorney General announced a settlement with a securities firm related to the allegedly unfair purchase and securitization of residential mortgage loans that were alleged to be presumptively unfair under Massachusetts law. The settlement is a part of the Attorney General’s ongoing review of subprime mortgage securitization practices in the state. The agreement requires the securities firm to pay $26.8 million, which includes a $5 million payment to the state to compensate governmental entities that allegedly suffered harm, “including cities and towns that incurred extra expenses due to foreclosures.” The remaining funds will be made available to eligible homeowners to assist with principal reductions and related loan payments, and to assist those whose homes were subject to foreclosure.
Maryland Court of Appeals holds foreign securitization trusts do not need to be licensed in the state as collection agencies
On August 2, the Maryland Court of Appeals, in a consolidated appeal of four circuit cases, held that foreign statutory trusts are not required to obtain a debt collection agency license under the Maryland Collection Agency Licensing Act (MCALA) before filing foreclosure actions in state circuit courts. The decision results from two cases consolidated before the Court of Special Appeals and two actions appealed directly from circuit court proceedings, in which substitute trustees acting on behalf of two Delaware statutory trusts initiated foreclosure proceedings on homeowners who had defaulted on their mortgage payments. The homeowners challenged the foreclosure actions, arguing that the Delaware statutory trusts acted as collection agencies under MCALA by “obtain[ing] mortgage loans and then collet[ing] mortgage payments through communication and foreclosure actions” without being licensed. The lower courts dismissed all four foreclosure actions, finding the Delaware statutory trusts did not fall under the trust exemption to MCALA and were in the business of collecting consumer debts and therefore, subject to the MCALA licenses requirements, which both trusts had not obtained.
The overarching issue presented in the consolidated appeal was whether the Maryland General Assembly intended a foreign statutory trust, as owner of a delinquent mortgage loan, to obtain a license as a collection agency before directing trustees to initiate foreclosure proceedings. The court concluded that the plain language of MCALA was ambiguous as to the question and therefore, analyzed the legislative history and other similar statutes in order to determine the intent of the 1977 version of the law, as well as the reason the Department of Labor Licensing and Regulation revised the law in 2007 by departmental bill. Ultimately, the appeals court found the lower courts erred in dismissing the foreclosure actions against the homeowners, holding the General Assembly did not intend for MCALA to apply to foreclosure proceedings generally and therefore, foreign statutory trusts are not required to obtain a license under MCALA to initiate foreclosure proceedings.
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