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Fannie Mae Updates Unemployment Forbearance Policies
On June 4, Fannie Mae issued Servicing Guide Announcement SVC-2014-10, which updates policies related to unemployment forbearance. The announcement states that, effective immediately, a servicer may approve a borrower for the initial unemployment forbearance program provided that (i) the borrower’s mortgage payment is in imminent default or the mortgage loan delinquency is less than or equal to 12 months as of the evaluation date; and (ii) all other applicable eligibility requirements are met. In addition servicers are authorized to approve a compliant unemployment forbearance extension without approval from Fannie Mae. If the loan does not meet the eligibility requirements and the servicer believes, based on the borrower’s circumstances, that unemployment forbearance is appropriate, the servicer must submit a recommendation for approval. The initial unemployment forbearance period that may be offered is the lesser of six months or upon notification from the borrower of employment.
Freddie Mac Announces Numerous Servicing Policy Updates
On June 3, Freddie Mac announced revisions to numerous servicing policies, including policies regarding, among other things, short sales and deeds-in-lieu of foreclosure (DILs), the CFPB’s mortgage servicing rules, and unemployment forbearance. Bulletin 2014-10 advises servicers that for new short sale and DIL evaluations conducted on and after August 1, 2014 (or sooner if a servicer chooses), Freddie Mac will permit a servicemember to qualify for a short sale or DIL provided the mortgaged property is or was previously the borrower’s primary residence. When such a short sale or DIL is approved for a servicemember as provided above, the servicemember will receive the existing benefits afforded to a service member with PCS orders. In addition, for any borrower seeking a short sale or DIL, Freddie Mac is establishing a new lookback period that requires the servicer to review the borrower’s credit report to determine that the borrower did not obtain a new mortgage in the six months preceding the delinquency or in the six months preceding the evaluation of the borrower for a short sale or DIL. In addition, Freddie Mac (i) is now requiring servicers to investigate any inquiries by mortgage creditors that appear on the borrower’s credit report to determine if the borrower obtained a mortgage in the lookback period; and (ii) soon will require the servicer to rely solely upon the results of the cash reserves and promissory note payment capacity formulae to determine when to request a contribution from a borrower who is 31 days or more delinquent. The Bulletin also includes revisions to the following requirements introduced in response to the CFPB’s mortgage servicing rules: (i) trial period payment adjustments after the borrower exercises the right to appeal; (ii) delay in referral to foreclosure or proceeding with the next legal action; (iii) foreclosure sale date timing; and (iv) borrower solicitation letters. Finally, among several other policy revisions, the announcement details unemployment forbearance policy changes similar to those announced by Fannie Mae on June 4, 2014.
Senator Durbin Presses Student Loan Servicers On SCRA; Consumer Group Wants More Student Borrower Information
On May 14, Senator Dick Durbin (D-IL) sent a letter to student loan servicers calling on them to voluntarily establish a liaison for servicemembers with student loan accounts to assist those servicemember with obtaining SCRA protections. On May 12, the National Consumer Law Center sent a letter to Education Secretary Arne Duncan complaining about the Department of Education’s alleged inadequate responses to NCLC inquiries seeking (i) information and data about why borrowers default and incidence of re-default; (ii) information about the Department’s commission and compensation system for servicers and collectors and performance evaluation metrics; (iii) copies of guidance to servicers and collectors; (iv) information about servicer performance broken down by percentage of loans in various stages of delinquency, percentage of borrowers enrolled in income-driven repayment (IDR), retention rates for those enrolled in IDR, re-default rates, and percentage of borrowers in deferments and forbearances; (v) information about collection and servicer complaint systems; and (vi) breakdown of accounts sent to the Department of Treasury for offset, including by type of benefit program and by demographic information including age. The letter also outlines NCLC’s operational concerns, including with regard to loan rehabilitation and affordable repayment, collection agency oversight, and servicing performance metrics.
California Appeals Court Holds Judgment Creditor's Forbearance Fees Not Subject To State Usury Law
On April 25, the California Court of Appeal, First District, held that California’s usury law does not prohibit a judgment creditor from accepting a forbearance fee to delay collecting on a judgment. Bisno v. Kahn, No. A133537, 2014 WL 1647660 (Cal. Ct. App. Apr. 25, 2014). In consolidated cases, the judgment creditors agreed to delay executing on their judgments in exchange for the payment of forbearance fees in addition to statutory post-judgment interest on the unpaid balance of the judgments. The judgment debtors subsequently claimed the forbearance fees are usurious and sought treble damages against the creditors. The court held that because the state’s usury law does not expressly prohibit a party from entering into an agreement to forbear collecting on a judgment, usury liability does not extend to judgment creditors who receive remuneration beyond the statutory interest rate in exchange for a delay in enforcing a judgment. The court added that a forbearance agreement is a contract between the judgment creditor and the judgment debtor that is separate from the judgment to which it applies, and therefore must be enforced in a separate contract action and is subject to standard contractual defenses such as duress and unconscionability.
HUD Finalizes Expansion Of Mortgagee Evaluation System
On December 30, HUD finalized revisions to the system used by the FHA to measure and inform mortgagees of their loss mitigation performance. The revisions, finalized in Mortgagee Letter 2013-46, involve more comprehensive metrics to evaluate mortgagees on their overall performance with regard to delinquent loan servicing, as opposed to the limited review of default reporting of forbearance actions and loss mitigation and foreclosure claims paid under the previous system. The evaluation will be used to determine which mortgagees are eligible for additional incentive payments during the January 1, 2014 through December 31, 2014, calendar year. The final system is substantially similar to the proposed version, with some changes made in response to comments. HUD also updated the final scoring methodology using new default status codes delineated in Mortgagee Letter 2013-15. Also in its responses to comments, HUD agreed that it should improve loss mitigation performance by imposing penalties in individual cases of non-compliance with its loss mitigation requirements, stating that with the implementation of TRS II, HUD will have the granular data required for referral to enforcement divisions for “meaningful consequences to be imposed.”
Freddie Mac Announces Numerous Servicing Policy Changes
On December 18, Freddie Mac announced in Seller/Servicer Guide Bulletin 2013-27 updated and revised policies related to foreclosures and alternatives to foreclosure, and related to lender-placed insurance. With regard to foreclosures, Freddie Mac is requiring that the “Obtain Credit Bid” functionality be used for all foreclosure sales occurring on or after March 17, 2014. In addition, Freddie Mac advised that it will reimburse up to a maximum total of $500 for the initial property registration and the re-registration, and that, upon request, servicers must assist Freddie Mac or its vendors in obtaining case file documentation. With regard to alternatives to foreclosures, Freddie Mac (i) expanded its standard and streamlined modification programs to include mortgages with pre-modification mark-to-market loan-to-value ratios less than 80 percent; (ii) eliminated the option for borrowers to retain adjustable-rate-terms in connection with a Capitalization and Extension Modification for disaster relief; (iii) provided servicers discretion to determine the length of a short-term forbearance plan for mortgages impacted by an eligible disaster; and (iv) revised evaluation criteria for borrower contributions towards a short sale or deed-in-lieu of foreclosure. Finally, the Bulletin states that servicers may no longer receive compensation or incentives from lender-placed insurance carriers, and servicers or their affiliates may not insure or reinsure lender-placed insurance.
CFPB Finalizes "Larger Participant" Rule For Student Loan Servicing, Updates Exam Procedures
On December 3, the CFPB issued a final rule that will allow the Bureau to supervise certain nonbank student loan servicers for the first time. The CFPB already oversees student loan servicing at the largest banks. The new rule will allow the Bureau to also oversee “larger participants” in federal and private loan servicing, defined as any nonbank student loan servicer that handles more than one million borrower accounts. The Bureau estimates that its final rule will allow supervision of the seven largest student loan servicers, responsible for servicing the loans of more than 49 million borrower accounts. The final rule takes effect on March 1, 2014.
Several commenters to the Bureau’s initial proposal requested further clarification of what constitutes an “account.” The final rule, like the proposed rule issued on March 28, 2013, considers each separate stream of fees to which a servicer is entitled for servicing post-secondary education loans with respect to a given student or prior student to be an account. Commenters also requested further clarification of the inclusions and exclusions implicit in this definition. The Bureau declined to make any substantive changes and instead adopted its proposed definitions with only technical changes.
The final rule does adopt several adjustments to the proposed definition of “student loan servicing.” The Bureau changed the proposed definition to address comments related to the use of a lockbox and similar services, agreeing that the function of merely receiving and remitting payments without handling borrowers’ accounts should not itself be considered “student loan servicing” for purposes of the final rule. The final rule also further clarifies that the purpose of an interaction with a borrower is important for determining whether it is “student loan servicing” and that activities to prevent default arising from post-secondary education loans are only included if conducted to facilitate the core servicing activities identified in the definition of “student loan servicing.” In addition, the Bureau adjusted the clause of the definition that addresses periods when payments are not required on the loan to make clear that it intends the clause to apply during all periods when no payment is required on a loan, including, for example, periods of forbearance.
The Bureau did not receive any objections to the proposed method of aggregating accounts of affiliated companies for the purpose of calculating volume and therefore adopts the aggregation method as proposed. The final rule also adopts the proposed threshold of one million accounts for the student loan servicing market, despite numerous comments requesting an alternate threshold for qualifying entities as “larger participants.”
On the same date, the CFPB released updated student loan examination procedures, which the Bureau revised to account for examination of nonbank servicers under the larger participant rule. In addition, the revised procedures prepare examiners to identify potential violations outside of consumer financial service laws applicable to servicers and administered by the CFPB, including potential violations of certain Servicemember Civil Relief Act (SCRA) requirements. The procedures also were revised to emphasize student loan servicing transfer and repayment issues, two issues the CFPB has highlighted as areas of concern over the past year.
New York Targets Lead Generators In Expanded Online Payday Lending Investigation
On December 3, New York Governor Andrew Cuomo announced that the state Department of Financial Services (DFS) sent subpoenas to 16 online “lead generation” companies as part of its expanding investigation into online payday lending. The DFS alleges the target companies are engaged in deceptive or misleading marketing of illegal, online payday loans in New York, and claims lead generation companies offer access to quick cash to encourage consumers to provide sensitive personal information and then sell that information to, among others, payday lenders operating unlawfully in New York. The DFS publicly kicked off an investigation of online payday lending earlier this year when it sent letters to 35 online lenders, including lenders affiliated with Native American Tribes, demanding that they cease and desist offering allegedly illegal payday loans to New York borrowers. Under New York law, it is civil usury for a company to make a loan or forbearance under $250,000 with an interest rate exceeding 16% per year, and a criminal violation to make a loan with an interest rate exceeding 25% per year. The DFS cites as part of the basis for its expanded investigation consumer complaints about false and misleading advertising (including celebrity endorsements), harassing phone calls, suspicious solicitations, privacy breaches, and other issues.
Fannie Mae Announces Servicing Policy Changes
On October 30, Fannie Mae issued Servicing Guide Announcement SVC-2013-22, which describes various servicing policy updates. First, effective on or after February 1, 2014 for condominium insurance policy renewals, Fannie Mae is prohibiting the use of master or blanket insurance policies that cover multiple unaffiliated projects. Second, effective immediately for mortgage loan modifications, Fannie Mae is requiring that principal forbearance is payable upon the earliest of the maturity of the mortgage loan modification, sale or transfer of the property, refinance of the loan, or payoff of the interest-bearing unpaid principal. Third, effective January 1, 2014 for property inspection reimbursements, the Announcement updates the maximum amounts Fannie Mae will reimburse servicers for property inspections, outlines servicer responsibilities related to reimbursement requests, and clarifies the escalated case resolution process. Finally, the Announcement reminds servicers of their obligation to comply with both the Selling Guide and Servicing Guide, and informs servicers that requirements for maintaining eligibility and related fees were recently updated in the Selling Guide.
Freddie Mac, Fannie Mae Offer Guidance Regarding Government Shutdown
On October 8, Freddie Mac issued Bulletin 2013-19 to provide guidance related to the federal government shutdown that began on October 1. Fannie Mae recently issued similar guidance in Lender Letter LL-2013-08. The guidance addresses income verification for new loans to government employees and reminds servicers of forbearance options for borrowers impacted by the shutdown.