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Financial Services Law Insights and Observations


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  • New York Issues Emergency Rules Regarding Mortgage Servicing


    On February 1, the New York Department of Financial Services (Department) published in the state Register emergency rules regarding the conduct of mortgage loan servicers in the state. The rules are intended to provide clear guidance to servicers regarding the procedures and standards they should follow with respect to loan delinquencies. For example, the rules establish requirements for (i) handling consumer complaints, (ii) handling loss mitigation, (iii) payment of taxes and insurance, and (iv) crediting payments from borrowers and handling late payments. The rules also describe the recordkeeping requirements and specify certain prohibited practices and conduct, including placing homeowners' insurance on property when the servicer has reason to know that the homeowner has an effective policy. The emergency rules are effective as of January 17, 2012 and expire on April 11, 2012. The Department expects to issue a rulemaking to make these rules permanent.

    Mortgage Servicing Loss Mitigation

  • 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.

    Freddie Mac Fannie Mae Mortgage Origination Mortgage Servicing HAMP / HARP

  • Florida Appeals Court Denies Request to Certify Question Important to State Foreclosure Investigation


    On February 1, the Florida Fourth District Court of Appeal denied Florida Attorney General Pam Bondi's request to certify to the Florida Supreme Court the question of whether the creation of invalid assignments of mortgages by a law firm and subsequent use of such documents to foreclose constitutes an unfair and deceptive practice under Florida law that may be investigated by the Attorney General. In April 2011, the Fourth District ruled that the Attorney General's office did not have authority to subpoena records from one of the law firms under investigation. Because the Attorney General cannot appeal that decision to the Florida Supreme Court, it sought certification of the issue as one of great public importance. With that request now denied, the Attorney General must reassess its pending investigations of law firms alleged to have engaged in foreclosure misconduct.

    Foreclosure State Attorney General

  • Agencies Release Guidance on ALLL Estimation Practices for Junior Liens


    On January 31, the Federal Reserve Board, the Federal Deposit Insurance Corporation, the National Credit Union Administration and the Office of the Comptroller of the Currency (collectively, the agencies), released joint guidance related to allowance for loan and lease losses (ALLL) estimation practices associated with loans and lines of credit secured by junior leans on one- to four-family residential properties. The guidance reiterates, specifically with regard to junior liens, key concepts included in generally accepted accounting principles and existing ALLL supervisory guidance related to the ALLL estimation practices. The agencies provided the guidance to remind regulated financial institutions to monitor all credit quality indicators relevant to credit portfolios and to follow appropriate risk-management principles in managing junior liens.

    FDIC Federal Reserve OCC NCUA

  • Freddie Mac Issues Selling Bulletin Regarding ULDD Update


    On January 31, Freddie Mac issued Bulletin 2012-3 to formally extend the Uniform Loan Delivery Dataset (ULDD) implementation schedule, consistent with an earlier announcement. ULDD mandatory compliance is now required for all loans submitted to Freddie Mac on or after July 23, 2012 (previously March 19, 2012). To provide a transition period, Freddie Mac will update its system for the ULDD data points on April 23, 2012 (previously January 23, 2012). The Bulletin also alerts sellers as to the Single-Family Seller/Servicer Guide updates requiring new ULDD data points for all mortgages with application received dates on or after August 1, 2012 that are delivered on or after November 26, 2012. Lastly, the Bulletin notifies sellers that Appendix A of the Implementation Guide for Loan Delivery Data has been updated to reflect these changes.

    Freddie Mac

  • Fannie Mae Announces Multiple Selling Guide Updates


    On January 31, Fannie Mae issued Selling Guide Announcement SEL-2012-01, which provides updates and changes regarding (i) Construction-to-Permanent Financing; (ii) effective quality control plans, and (iii) other miscellaneous Guide topics. The changes to the Construction-to-Permanent Financing provisions aim to more closely align the policies related to such financing with standard requirements for other refinance transactions. The updates to the requirements for the lender to have an effective quality control plan do not establish any new policies, but seek to clarify requirements for lenders' post-closing quality control process. These and most of the other updates provided in the Announcement are effective immediately.

    Fannie Mae Mortgage Origination

  • HUD Issues Final Rule Regarding Sexual Orientation and Gender Equal Access


    On January 30, the Department of Housing and Urban Development (HUD) issued a final rule designed to ensure equal access to housing, regardless of sexual orientation, gender identity, or marital status. The rule, which will take effect thirty days after being published in the Federal Register (which publication is likely to occur the week of February 6), will (i) prohibit owners and operators of HUD-assisted housing or housing for which financing is insured by HUD from seeking information from applicants about sexual orientation and gender identity, and require such owners and operators to make housing available without regard to those factors, (ii) prohibit lenders from determining FHA-insured financing eligibility based on sexual orientation or gender identity, and (iii) clarify that otherwise eligible families will have an opportunity to participate in HUD programs, regardless of marital status, sexual orientation, or gender identity. The final rule is substantially similar to the proposed rule published in January 2011.


  • New York Amends Mortgage Origination Law Regarding Payments to Home Improvement Contractors


    On January 27, New York enacted AB 8909, which changes the state banking law to exclude from existing payment restrictions certain home improvement loans insured by the Federal Housing Administration (FHA). Current state law prohibits mortgage brokers from directly paying home improvement contractors, which conflicts with FHA guidelines that allow a home improvement contractor to be paid directly by a mortgage broker. Under state law as amended by AB 8909, such direct payment will be permitted for specified FHA loans.

    Mortgage Origination

  • HUD Publishes Final Rule on FHA Single Family Lender Insurer Process


    On January 24, the Department of Housing and Urban Development (HUD) published a final rule to enhance the Federal Housing Administration (FHA) Lender Insurance process. Under the final rule, (i) Lender Insurance mortgagees (mortgagees who have authority to insure mortgages on HUD’s behalf) must meet stricter performance standards to gain and maintain their approval status as an entity that can insure mortgages on HUD’s behalf; (ii) HUD may require indemnification for “serious and material” violations of FHA origination requirements and for fraud and misrepresentation; (iii) Lender Insurance mortgagees must demonstrate a two-year seriously delinquent and claim rate at or below 150 percent of the aggregate rate for the states in which they operate; (iv) FHA may monitor lender performance on an ongoing basis, and (v) HUD-approved lenders created through corporate restructuring have a new process for seeking Lender Insurance authority. The final rule follows an October 2010 proposed rule (see InfoBytes, October 15, 2010), and makes certain changes to the proposal including to (i) clarify that HUD reviews of Lender Insurance mortgagee performance will be “ongoing”, as opposed to “continual”; (ii) require indemnification of HUD when the mortgagee “knew or should have known” that fraud or misrepresentation occurred; (iii) clarify that automatic termination of Lender Insurance authority can result only from institutional and not branch activity; and (iv) provide a reinstatement process closely modeled on the existing reinstatement process regarding origination approval agreements or Direct Endorsement authority.


  • CFPB Seeks Third Round of Feedback on Mortgage Closing Forms


    On January 24, the CFPB announced a third round of testing of prototype mortgage closing forms as part of its Know Before You Owe campaign. In this round, the CFPB asks the public to compare two versions of its prototype closing forms and consider how each works with the prototype initial disclosure form the CFPB previously developed. The CFPB asks consumers to consider certain specific questions, including whether changes to loan terms or costs are easily identifiable from initial disclosure to closing. The CFPB also seeks comment on whether the disclosures are easy for lenders and settlement agents to use and explain. As with prior rounds of testing, the CFPB will travel to local communities to review the forms with the public. A fourth and final round of testing is expected next month.

    CFPB Mortgage Origination


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