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FHFA Announces First Properties Available for Sale in REO Pilot Program
On February 27, the Federal Housing Finance Agency opened for sale the first pool of foreclosed properties currently owned by Fannie Mae to be sold to private firms under the condition that the firms will manage the properties as rental properties for a specified period of time. This first transaction is part of a recently announced pilot program designed to shift the management of certain foreclosed properties to private entities in an effort to reduce taxpayer losses and stabilize neighborhoods and home values. Interested investors must apply to become pre-qualified in order to bid on the pools of properties. At the start, the properties for sale will be located in the hardest-hit markets including, Atlanta, Chicago, Las Vegas, Los Angeles, Phoenix, and parts of Florida.
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.
Feds Announce Mortgage-Related False Claims Act Settlement
On February 24, HUD and the U.S. Attorney for the Southern District of New York announced that they had obtained from Flagstar Bank FSB an admission that the bank submitted false certifications to HUD when seeking government insurance for residential mortgages in violation of the False Claims Act. As part of a settlement agreement the bank also agreed to pay $132.8 million in damages and penalties, and reform its businesses practices. This is the second recent settlement of mortgage-related violations of the False Claims Act following the largest such settlement in history, announced as part of the multi-party settlement with five mortgage servicing companies. That agreement included a $1 billion settlement of False Claims Act allegations against Bank of America with regard to Countrywide loans. In all of the cases federal authorities alleged, among other things, that a financial institution participating in the FHA‘s Direct Lender Program repeatedly and falsely endorsed loans for FHA insurance that did not comply with underwriting requirements. The loans therefore should not have been eligible for government insurance, yet the federal insurance fund was unnecessarily impaired when those borrowers defaulted.
HUD Publishes Revised Proposal for Limiting Seller Concessions
On February 23, HUD published for comment a revised proposal for reducing seller concessions that supplants its initial July 15, 2010 issuance. In its previous issuance, HUD had proposed, as one of its initiatives to reduce risk to its insurance fund, reducing the cap on seller conditions from six percent of the lesser of the sales price or appraised value to three percent. In response to the significant public comment on its July proposal, HUD is now proposing to reduce the amount of seller concessions permitted as offsets to three percent or $6,000, whichever is greater, although the offsets would not be permitted to exceed the borrower’s actual costs. To address future increases to closing costs, the $6,000 cap would be indexed to increase at the same rate as the FHA national loan limit floor. HUD also proposes limiting acceptable uses of seller concession to payments toward borrower closing costs, prepaid items, discount points, the FHA Up Front Mortgage Insurance Premium, and an Interest Rate Buydown. Comments on this revised proposal are due March 26, 2012.
FHFA Takes Initiative on Idled Housing Finance Reform
On February 21, the Federal Housing Finance Agency (FHFA) submitted a strategic plan outlining the next phase of its conservatorship of Fannie Mae and Freddie Mac (the Enterprises). FHFA’s plan is in part a response to requests from lawmakers, including requests made during a December 2011 hearing. FHFA states that it will seek to build a new infrastructure for the secondary mortgage market, contract the Enterprises’ current market dominance, and maintain the Enterprises’ roles in foreclosure prevention activities and refinance initiatives. FHFA also outlines the legal authority under which it plans to act.
Until Congress can enact broader housing finance reform, FHFA envisions moving the Enterprises into a single open-architecture securitization platform that could become a type of public utility that would outlast the Enterprises. This move would also be accompanied by uniform standards for underwriting, disclosures, and servicing, and a robust and standard pooling and servicing agreement. FHFA will also contract Enterprise operations by (i) working to shift mortgage credit risk to private investors through some combination of increasing the g-fee, establishing loss sharing arrangements, and/or expanding reliance on mortgage insurance; (ii) directing the Enterprises to conduct a market analysis of the viability of their multifamily operations without government guarantees; and (iii) considering whether to retain each Enterprise's capital markets expertise to manage portfolios, or to hire a third-party investment firm to manage the portfolios. Finally, the FHFA asserts that it will maintain foreclosure prevention efforts and credit availability by (i) continuing existing programs such as the Servicing Alignment Initiative, HARP, and REO disposition initiatives; (ii) aligning and making policies for representations and warranties more transparent, in conjunction with the ongoing Uniform Mortgage Data Program; and (iii) pursuing lawsuits alleging securities law violations in private-label mortgage-backed securities purchased by the Enterprises.
The FHFA paper notes that these strategic goals and plans are consistent with each of the housing finance reform options identified in a February 2011 Obama administration report to Congress, as well as "leading legislative proposals." However, the paper also reminds legislators that fully addressing the Enterprises and the federal government's role in the secondary mortgage market will require congressional action, which should not be impaired by the FHFA's immediate pursuit of its strategic goals. For additional details on the strategic plan, please click here.
New York State Appeals Panel Reinstates Foreclosure Action, Reversing Justice Known for Tossing Out Foreclosure Motions
On February 14, a panel of judges in the Appellate Division, Second Department of the New York State Supreme Court reinstated the foreclosure action at issue in Aurora Loan Services, LLC v. Sookoo, 2012 WL 503663 (N.Y. App. Div. Feb. 14, 2012). The borrower defaulted on her mortgage loan and did not later appear in the foreclosure action or answer the complaint. The plaintiff, the holder of the mortgage and note, moved for an order of reference appointing a referee to compute the amount due. Brooklyn New York State Supreme Court Justice Aaron Schack, sua sponte, directed the dismissal of the complaint with prejudice and cancelled the notice of pendency based upon the plaintiff’s failure to provide the loan origination documents as required by the judge’s earlier order dated March 31, 2009. Reversing the decision, the unanimous panel wrote that Justice Schack "erred in, sua sponte, directing the dismissal of the complaint with prejudice and the cancellation of the notice of pendency.” The panel remitted the matter for proceedings before a different justice, deeming it “appropriate” “under the circumstances of this case.” Justice Schack is known for his staunch stance against banks pursuing foreclosure actions and this is not the first instance in which he has been reversed in a foreclosure action (see, for example, US Bank, N.A. v. Guichardo, 90 A.D.3d 1032 (N.Y. App. Div. 2011)).
CFPB Convenes Small Business Mortgage Panel and Updates Mortgage Disclosure Prototypes
On February 21, the CFPB announced the formation of a small business panel to provide feedback on the Bureau’s mortgage disclosure form initiatives, as required under the Small Business Regulatory Enforcement Fairness Act. That law requires that federal agencies gather small business input to help the agencies fulfill the related legal requirement that regulations avoid significant economic impact on a substantial number of small firms. The panel will provide feedback on small business compliance burdens related to the CFPB’s proposed mortgage disclosures and related proposed regulations. The CFPB’s announcement included the release of several documents that will be shared with the panel, including a detailed overview of the mortgage disclosure proposals under consideration, a fact sheet summarizing the review process, and an outline of questions the panel will address. In a related blog post, the CFPB also sought public comment on the proposals to be considered by the small business panel. The formation of the panel follows the CFPB’s recent release of another round of prototype integrated mortgage disclosures. After several rounds of previous testing, the CFPB provides in this most recent release a prototype loan estimate and settlement disclosure. At this stage, the CFPB no longer is offering multiple versions to compare, but is still testing the prototypes in person while seeking broader public feedback online. The CFPB promises that this is the last round of testing before it turns to crafting a proposed rule.
Fannie Mae Advises Sellers Regarding SEC Disclosures
On February 21, Fannie Mae advised all sellers that on February 9, 2012 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.
HUD Suspends Mortgage Insurance Program for Military Impacted Areas
On February 16, HUD published a final rule to suspend, effective March 19, 2012, the Federal Housing Administration’s mortgage insurance program for military impacted areas. The program is being halted because it is underutilized and borrower needs can be served under comparable terms and conditions through HUD’s primary single-family mortgage insurance program.
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.