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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.
HUD and Banking Regulators Offer Borrower and Institution Relief Following Hurricane Sandy
Recently, HUD has made a series of announcements regarding housing relief for individuals displaced by Hurricane Sandy. For example, on October 30 HUD granted a 90-day moratorium on foreclosures and forbearance on foreclosures of FHA-insured mortgages. Similar announcements have followed for victims in New York, Connecticut, and Rhode Island. Also on October 30, the Federal Reserve Board, the OCC, and the FDIC issued a statement on supervisory practices impacted by the hurricane. For example, the regulators stated that “prudent efforts to adjust or alter terms on existing loans in affected areas should not be subject to examiner criticism.”
Fannie Mae and Freddie Mac Issue Disaster Assistance Reminders for Servicers, Announce Disaster Policy Changes for Sellers
On October 31, Fannie Mae issued a servicing notice to remind servicers that they may temporarily suspend or reduce mortgage payments for up to ninety days for borrowers whose income is affected by a disaster or for borrowers within federally declared disaster areas. The notice also lists the steps a servicer providing relief measures must take once it becomes aware that a property has incurred damage as a result of a disaster. On November 1, Fannie Mae issued Selling Guide Announcement SEL-2012-12, which establishes a permanent selling policy for mortgages impacted by a disaster. This policy replaces Fannie Mae’s traditional approach of issuing Lender Letters for each disaster. Under the new policy, for mortgage loans other than DU Refi Plus and Refi Plus, lenders must take prudent and reasonable actions to determine whether the condition of the property may have materially changed since the effective date of the appraisal report, and whether an additional inspection or appraisal is necessary. The Announcement identifies specific criteria lenders should use when determining if a mortgage can be delivered without additional action. Fannie Mae will not require a property secured by a DU Refi Plus or Refi Plus mortgage to undergo an additional inspection and/or new appraisal following a disaster, and will not require that a property damaged as a result of a disaster be repaired prior to delivery as long as the loan meets the property insurance requirements described in the Selling Guide.
On October 30, Freddie Mac announced that its full menu of relief policies for borrowers affected by disaster is being extended to homeowners whose homes were damaged or destroyed by Hurricane Sandy and are located in jurisdictions that the President has declared to be Major Disaster Areas and where he has made federal Individual Assistance programs available to affected individuals and households. Freddie Mac encouraged servicers to help affected borrowers with Freddie Mac loans by (i) suspending foreclosure and eviction proceedings for up to 12 months, (ii) waiving assessments of penalties or late fees against borrowers with disaster-damaged homes, and (iii) not reporting forbearance or delinquencies caused by the disaster to the nation's credit bureaus. On November 2, Freddie Mac issued Single-Family Seller/Servicer Guide Bulletin 2012-24 to revise selling requirements for properties damaged as a result of a disaster. The Bulletin explains that, on a temporary basis for mortgages secured by properties located in eligible Disaster Areas impacted by Hurricane Sandy, required property valuation and underwriting documentation must be dated no more than 180 days before the note date. For Relief Refinance Mortgages, sellers are not required to determine if an additional property inspection or a new appraisal is necessary after an initial property valuation has been relied upon, provided that the mortgage meets property insurance requirements.
Fannie Mae Announces Miscellaneous Servicing Policy Changes
On September 5, Fannie Mae issued Servicing Guide Announcement SVC-2012-20, which updates special investor reporting requirements to provide new guidance regarding reporting a foreclosure for a modified mortgage loan with principal forbearance. The Announcement also provides new contact information for servicers to use when a borrower or servicer of a first-lien mortgage requests information relating to a HomeSaver Advance Note.
Fannie Mae and Freddie Mac Update Servicing Requirements
On June 13, Freddie Mac published Bulletin 2012-13, which updates multiple servicing requirements in the Single-Family Seller/Servicer Guide. With regard to the state foreclosure timeline, the Bulletin (i) adds several circumstances in which the timeline will be extended for all foreclosure sales completed on or after January 1, 2012, (ii) revises the calculation for compensatory fees associated with exceeding a state foreclosure timeline, and (iii) alters the compensatory fee appeal process. With regard to certain operational procedures, the Bulletin (i) adds a time frame for reimbursement of taxes that were incurred and paid to a taxing authority for non-real estate owned expenses, (ii) allows wire transfers for REO-related remittances, and (iii) clarifies the time frame for submitting modification agreements to document custodians. The Bulletin also makes changes to the Guide related to unemployment forbearance, the quality right party contract performance standard, fraud prevention and reporting, and MERS Rule 14.
Also on June 13, Fannie Mae published Announcement SVC-2012-10, which updates its notice of data breach and incident response policy to require servicers to provide written notice to Fannie Mae of a data breach in addition to any reporting to consumers or state authorities required under applicable state law. A servicer also must request permission to use Fannie Mae’s name if it intends to refer to Fannie Mae in any notices sent to affected borrowers or regulatory agencies. On the same day, Fannie Mae also published Announcement SVC-2012-11, which updates and clarifies for all mortgages with a foreclosure sale date on or after January 1, 2012, (i) the maximum allowable foreclosure time frames for twelve jurisdictions, (ii) compensatory fee assessments and appeals, and (iii) the preferred method of foreclosure in Montana and Nebraska.
Eighth Circuit Holds Oral Promise to Postpone Foreclosure Sale Is Not Enforceable under Minnesota Law
On May 21, the U.S. Court of Appeals for the Eighth Circuit held that an oral promise to postpone a foreclosure sale is not enforceable under the Minnesota Credit Agreement Statute (MCAS). Brisbin v. Aurora Loan Services LLC, No. 11-2218, 2012 WL 1813435 (8th Cir. May 21, 2012). At issue was a provision of the MCAS that prohibits a debtor from "maintain[ing] an action on a credit agreement unless the agreement is in writing, expresses consideration, sets forth the relevant terms and conditions, and is signed by the creditor and the debtor. The borrower alleged that a promise to postpone a foreclosure sale does not fall within the definition of credit agreement because it is not a financial accommodation and, therefore, is not subject to this restriction. Credit agreement is defined in part as an agreement to lend or forbear repayment of money . . . or to make any other financial accommodation. The court rejected the borrower's argument, first noting that financial accommodation includes a financial accommodation in the nature of a forbearance agreement and that "forbearance" includes refraining from enforcing a debt. The court reasoned that because foreclosure is a means of enforcing a debt, a promise to postpone a foreclosure sale falls squarely within the plain meaning of a forbearance agreementtherefore, a promise to postpone a foreclosure sale is a credit agreement under the MCAS. The court also rejected the borrowers arguments that there was a genuine question of material fact as to whether the borrower detrimentally relied on the promise to postpone the sale of her home, as well as whether the borrower triggered the notice of postponement required by the Minnesota foreclosure-by-advertisement statute. The court reasoned that the borrower did not make a concrete statement of how she would have repaid the debt had the foreclosure sale been postponed, and that the foreclosure-by-advertisement statute only applies when a foreclosure sale actually is postponed by the mortgagee, which was inapplicable in this case.
Obama Administration Expands Housing Recovery Plans
On February 1, President Obama unveiled a plan to expand government support for the housing market, including a broad-based refinancing plan. The plan, announced during the President's State of the Union Address, combines changes to existing programs and creation of new initiatives, some of which will require congressional action. First, the President will ask Congress to enact legislation to allow the Federal Housing Administration (FHA) to provide government support for the refinancing of non-Fannie Mae and non-Freddie Mac mortgages. The $5 to $10 billion program would be funded by a fee imposed on the largest financial institutions. For borrowers with Fannie Mae or Freddie Mac loans, the legislation would further streamline existing refinance programs and create incentives for borrowers to accept shorter loan terms to build equity. Second, the administration will continue its work to create new mortgage origination and servicing standards in an effort to create a Homeowner Bill of Rights. Third, the Federal Housing Finance Agency (FHFA) will conduct a pilot program through which it will sell foreclosed properties to be transitioned into rental housing. Finally, the President's upcoming budget will include a national program to put unemployed construction workers back to work refurbishing vacant and foreclosed properties.
The President also highlighted the work of the recently-formed Residential Mortgage-Backed Securities Working Group, and reviewed the success of existing government efforts (e.g., those related to unemployment forbearance). Further, the announcement incorporated a Treasury Department move last week to enhance the Home Affordable Modification Program (HAMP) by (i) extending HAMP's deadline through December 31, 2013, (ii) expanding borrower eligibility for HAMP, and (iii) encouraging use of principal reduction for loans insured or owned by Freddie Mac or Fannie Mae. In response, the FHFA reiterated its opposition to use of principal reduction by Fannie Mae and Freddie Mac.
FHFA Releases Analysis of Principal Forgiveness Loan Modification Option
On January 23, the Federal Housing Finance Agency (FHFA), the entity serving as conservator for Fannie Mae and Freddie Mac, released a letter sent to certain members of Congress describing the internal analyses that resulted in FHFA’s decision not to use principal forgiveness as part of Fannie Mae’s and Freddie Mac’s loan modification programs. In short, the letter and analyses support FHFA’s previous publicly-stated conclusion that FHFA lacks statutory authority to incur the taxpayer losses that would result from the use of principal forgiveness. The letter concludes that “forbearance achieves marginally lower losses for the taxpayer than forgiveness,” but both provide the same more affordable payment for the borrower. The additional costs of principal forgiveness would not be offset by preservation of Fannie Mae and Freddie Mac assets.
Freddie Mac, Fannie Mae Announce Unemployment Forbearance Programs
On January 6, Freddie Mac published Bulletin 2012-2, which allows servicers to offer eligible borrowers a short-term unemployment forbearance period, and the possibility of an extended unemployment forbearance period, if needed. On January 11, Fannie Mae followed with Servicer Guide Announcement SVC-2012-01, implementing a substantially similar program. Under the new programs, servicers may suspend or reduce an eligible borrower’s mortgage payments for a period of six months. With approval from Freddie Mac or Fannie Mae, respectively, servicers also may extend the six-month forbearance period for up to an additional six months, provided that the period does not extend beyond a date that would cause the delinquency to exceed twelve months. Further, following an unemployment forbearance period, a borrower may be re-evaluated for a new Home Affordable Modification Program (HAMP) or non-HAMP trial-period plan if the borrower was complying with the terms of the existing trial plan before obtaining unemployment forbearance. Under the Freddie Mac program, servicers must incorporate unemployment forbearance into their operations by February 1, 2012, but servicers have until March 1, 2012 to comply under the Fannie Mae program.
NJ Supreme Court Applies State Consumer Fraud Act to Post-Foreclosure Judgment Forbearance Agreement
In Gonzalez v. Wilshire Credit Corp., No. 065564 (N.J. Aug. 29, 2011) a unanimous New Jersey Supreme Court held that a post-foreclosure judgment forbearance agreement qualified as a stand-alone extension of credit under the New Jersey Consumer Fraud Act (CFA), which provides a private cause of action to consumers subjected to "any unconscionable commercial practice . . . in connection with the sale or advertisement of any merchandise or real estate, or with the subsequent performance" thereof, including the extension of consumer credit. After obtaining a judgment for foreclosure, the defendant mortgage servicer entered into an agreement with plaintiff mortgagor whereby the defendant agreed to refrain from proceeding with the sheriff's foreclosure sale in exchange for a lump sum, up-front payment and a series of monthly paymentsthat included various fees to reinstate the loan and bring it current. Noting that the CFA, a remedial statute, was intended to be "flexible enough to combat newly packaged forms of fraud," the New Jersey Court ruled that a post-judgment forbearance agreement may be reviewed for unconscionable practices relating to both origination and execution as "a lender or its servicing agent cannot use unconscionable practices" in "fashioning and collecting" any loan. The court rejected the defendant's argument that applying the CFA to work-out agreements would discourage servicers from negotiating such forbearance agreements and lead to increased loss of homes, noting application of the CFA had not chilled extensions of credit in other industries. The court opined that "[t]hose businesses dealing with the public fairly and honestly . . . have nothing to fear" from the CFA. The court, was, however, careful to note that its holding was limited to the applicability of the CFA to post-foreclosure judgment agreements involving stand-alone extensions of credit and did not extend to settlement agreements in general.