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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.
HUD Updates FHA Flood Zone Guidance, Issues Lender Insurance Program Guidance
On April 11, HUD issued Mortgagee Letter 2013-11, which amends prior guidance related to the origination and servicing of FHA-insured loans in declared disaster areas. The letter stresses that prior guidance requiring a moratorium on foreclosures of properties in disaster areas for 90 days applies to the initiation of foreclosures and foreclosures already in process. The letter outlines steps servicers should take to determine the appropriate course of action for each borrower, including a review of individual facts and circumstances to determine whether to offer forbearance and other loss mitigation alternatives. The letter details such loss mitigation options and servicer requirements. The policy changes took effect immediately.
On April 9, HUD issued Mortgagee Letter 2013-10 to explain enhancements to the Lender Insurance program that allows high-performing mortgagees to conduct pre-endorsement reviews and insure loans. Those enhancements were implemented by a January 2012 HUD rule. The letter summarizes changes made by that rule, reviews mortgagee eligibility requirements for participation in the Lender Insurance program, and outlines the initial application process. Among other things, the letter also discusses the conditions under which a mortgagee’s lender insurance authority can be terminated or suspended and explains how mortgages with such authority are subject to a revised indemnification policy.
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.
New York Warns Payday Loan Debt Collectors
On February 22, the New York Department of Financial Services (DFS) sent letters to all debt collectors in the state to remind them that it is illegal to attempt to collect a debt on a payday loan made in New York, even if such loans were made on the Internet. Under New York law, nonbank lenders and state-charted banks are prohibited from making loans or forbearances under $250,000 at an interest rate of 16 percent or higher. Any loans made in violation of those limitations are void and cannot be collected by a debt collector. The DFS claims that “[l]enders attempt to skirt New York’s prohibition on payday lending by offering loans over the Internet, hoping to avoid prosecution.” The DS states that, regardless of the method used to make the loan, payday loans made in New York are not valid debts and cannot lawfully be collected.
Freddie Mac Issues Numerous Loss Mitigation Policy Updates
On February 15, Freddie Mac issued Bulletin 2013-3, which provides a series of updates and revisions to its loss mitigation policies. The Bulletin reminds servicers of their obligations with regard to various transfers of property even where the only remaining borrower is a trust, and provides additional details about these obligations. Following Fannie Mae’s announcement last week, Freddie Mac similarly revised certain state foreclosure timelines and policies regarding compensatory fee calculations and reimbursement for property inspections. Effective for mortgages that become delinquent as of June 1, 2013, Freddie Mac will no longer provide a list of states in which servicers are required to preserve Freddie Mac’s right to pursue a deficiency. Instead, in all instances where additional attorney fees/costs will not be incurred above the approved expense limits, servicers must preserve Freddie Mac’s right to pursue a deficiency so that Freddie Mac may decide on a case-by-case basis whether to pursue the deficiency. The Bulletin also notifies servicers that Freddie Mac is eliminating a requirement announced in Bulletin 2012-17 that, for servicers participating in state modification programs, the modification include partial principal forbearance. Finally, the Bulletin also (i) revises Guide Form 710, Uniform Borrower Assistance Form, and medical hardship documentation requirement; (ii) revises requirements related to the verification of alimony, child support and separate maintenance income; (iii) expands the Freddie Mac Service Loans application process to enable servicers to obtain a property value and minimum net proceeds for borrowers being considered for a standard short sales and are less than 31 days delinquent; and (iv) updates the Guide to reflect that the Home Affordable Foreclosure Alternatives initiative is no longer an option in the loss mitigation evaluation hierarchy.
House Democrats Urge President Obama to Nominate FHFA Director
On February 7, 45 Democratic Members of the House of Representatives sent a letter to President Obama requesting he nominate a permanent director for the FHFA to replace Acting Director Edward DeMarco. The Members object to the FHFA’s decision not to direct Fannie Mae and Freddie Mac to offer principal reduction assistance to troubled borrowers. The FHFA and Mr. DeMarco believe that principal forgiveness does not improve foreclosure avoidance while reducing costs to taxpayers relative to existing policies. In their letter, the Members argue that the FHFA’s decision under Mr. DeMarco is contrary to the intent of the federal law that created the FHFA as conservator. Further, the Members charge that Mr. DeMarco’s stated reasoning has been contradicted by the FHFA’s own data, which indicates that principal reduction loan modifications could save U.S. taxpayers billions of dollars compared to both allowing underwater homes to go into foreclosure, and the FHFA’s preferred alternative of principal forbearance. In support of their position that a new director is needed to properly implement congressional directives meant to support the housing market, the Members also cite (i) the FHFA’s decision not to allow the implementation of a principle forgiveness pilot program, and (ii) recently proposed increased state-level guarantee fees charged by Fannie Mae and Freddie Mac in certain states.
Freddie Mac Supplements Storm Relief Guidance
On December 18, Freddie Mac updated its disaster relief policies through Bulletin 2012-29 (Bulletin). Effective immediately, but only temporarily, servicers must perform one interior disaster-related property inspection for delinquent mortgages secured by properties in eligible disaster areas that have been identified as abandoned as of, or prior to the date of the area being declared an eligible disaster area. Freddie Mac will reimburse servicers up to $20 per property for the additional costs associated with completing the interior inspections. For mortgages secured by properties located in eligible disaster areas, which were reported as current in the most recent reporting cycle just prior to the area being declared an eligible disaster area, Freddie Mac will reimburse servicers up to $10 per property for one exterior property inspection related to the disaster. The Bulletin also provides instructions regarding forbearance plans for borrowers who are or were in approved or active trial period plans and whose property or places of employment are located in an eligible Hurricane Sandy disaster area.
National Mortgage Settlement Monitor Issues Progress Report
On November 19, Joseph Smith, Jr., the Monitor of the national mortgage settlement, released a report on the consumer relief activities of the five banks that are parties to the settlement. Between March 1, 2012 and September 30, 2012, those banks extended more than $26 billion in relief to more than 300,000 borrowers. The relief provided by the banks, discussed in detail in the report includes (i) first and second lien modifications, (ii) enhanced borrower transitional funds, (iii) facilitation of short sales, (iv) deficiency waivers, (v) forbearance for unemployed borrowers, (vi) anti-blight activities, (vii) benefits for members of the armed services and (viii) refinancing programs. The report also provides an update regarding the status of implementation of the mortgage servicing standards required by the settlement, noting that as of September 25, 2012, the Monitor and the banks had agreed to a series of work plans that will guide reviews of each banks’ compliance with the new standards.
Fannie Mae, Freddie Mac Announce Additional Storm Relief Measures
On November 9, Fannie Mae and Freddie Mac announced that effective immediately servicers can suspend for 90 days evictions and foreclosures involving borrowers affected by Hurricane Sandy in order to assess the borrowers’ situations. In addition, next week Fannie Mae and Freddie Mac will issue guidance to servicers to expand the options they can offer to homeowners impacted by the hurricane. Under the new Fannie Mae guidance, servicers will be authorized to (i) extend forbearance for up to 12 months, where appropriate, (ii) provide loan modifications, once the homeowner is able to resume monthly mortgage payments, (iii) waive any late payment charges, (iv) suspend credit reporting for any homeowner for whom relief is granted, and (v) delay the initiation of any foreclosure action to determine the condition of the property and the borrower’s employment and income status. Freddie Mac’s policy changes will authorize servicers to (i) automatically suspend for 90 days evictions and foreclosure sales for borrowers with homes secured by Freddie Mac owned-or guaranteed mortgages and located in eligible disaster areas, (ii) verbally grant 90-day forbearances to all borrowers in eligible disaster areas, including borrowers with mortgages modified under HAMP or who are currently in a HAMP or Standard Modification Trial Period Plan, and (iii) expedite the distribution of insurance proceeds on storm damage claims. Additionally, Freddie Mac will maintain pricing that was in place at the time of the storm for mortgages that are secured by homes in eligible disaster areas and delivered through Freddie Mac's bulk guarantor channel.
State Banks and Servicers Provide Post-Hurricane Mortgage Relief in New York
On November 7, New York Governor Andrew Cuomo announced that several major state-chartered banks and mortgage servicers are offering a range of relief for borrowers impacted by Hurricane Sandy. While the particular relief may vary by institution and borrower circumstances, the following types of relief generally are being offered: (i) 90-day postponement of foreclosures and evictions, (ii) 90-day waiver of late fees on mortgage payments, including online payments, (iii) 90-day or more forbearance on mortgage payments where the borrower has been impacted by the storm and is seeking relief, (iv) waiver of interest where a refinancing transaction has been closed, but not funded, (v) late payment relief for borrowers in a trial modification, and (vi) suspension of notification to credit bureaus if borrowers make late payments. Additionally, a state order prohibiting the termination, cancellation, or non-renewal of homeowners’ insurance policies for 30 days started October 26, which means servicers cannot force place insurance on any homeowner who had insurance in effect as of that date.