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FHFA Announces Two-Year HARP Extension
On April 11, the FHFA announced that Fannie Mae and Freddie Mac will extend the Home Affordable Refinance Program (HARP) to December 31, 2015. The program was set to expire at the end of 2013. In addition, the FHFA plans to launch a nationwide campaign to educate consumers about HARP. The FHFA announcement also includes HARP frequently-asked-questions and eligibility criteria for a HARP refinance.
Second Circuit Allows FHFA MBS Suits to Proceed
On April 5, the U.S. Court of Appeals for the Second Circuit affirmed a district court’s partial denial of a financial institution’s motion to dismiss on standing and timeliness grounds a suit brought by the FHFA. Fed. Hous. Fin. Agency v. UBS Americas, Inc., No. 12-3207, 2013 WL 1352457 (2d Cir. Apr. 5, 2013) The FHFA brought multiple suits against numerous institutions alleging that the offering documents provided to Fannie Mae and Freddie Mac in connection with the sale of $6.4 billion in residential MBS included materially false statements or omitted material information, resulting in massive losses. The institutions moved to dismiss, contending that (i) the securities claims were time-barred, (ii) FHFA had no standing to pursue the action, and (iii) a negligent misrepresentation claim failed to state a claim upon which relief could be granted. The district court denied the motion to dismiss with respect to the statutory claims and granted it only with respect to the negligent misrepresentation claim. On appeal, the Second Circuit held that the action, filed within three years after the FHFA was appointed conservator of Freddie Mac and Fannie Mae, was timely under the relevant sections of Housing and Economic Recovery Act, and that the FHFA has standing to bring the action. The decision, on interlocutory appeal from the U.S. District Court for the Southern District of New York, holds implications for more than a dozen other similar actions the FHFA has filed.
FHFA OIG Calls for Oversight of Counterparty Compliance with Consumer Protection Laws
On March 26, the FHFA Office of Inspector General (OIG) issued a report that concludes the FHFA has failed to actively oversee how Fannie Mae and Freddie Mac monitor counterparty compliance with federal and state consumer protection laws. The OIG review found that the FHFA is vulnerable to questions about why it does not have a strategy to monitor the Enterprises’ activities to assess whether they are aligned with the public interest as reflected in federal and state laws and regulations, and that the Enterprises’ failure to pursue seller repurchase demands related to mortgages in default with no material underwriting deficiencies—but that were originated in violation of consumer protection laws—may result in losses to the Enterprises that could be avoided or mitigated. The OIG concludes that given the FHFA’s duty under HERA to ensure that the activities of the Enterprises are consistent with the public interest, the FHFA should develop and implement a risk-based plan to monitor the Enterprises’ oversight of their counterparties’ compliance with contractual requirements, including consumer protection laws. According to the report, the FHFA has begun to put together a plan to address this oversight role.
FHFA Announces Streamlined Modification Initiative
On March 27, the FHFA announced that Fannie Mae and Freddie Mac will begin a new loan modification initiative on July 1, 2013. As described in more detail in Fannie Mae Servicing Guide Announcement SVC-2013-05 and Freddie Mac Bulletin Number 2013-5, servicers will be required 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. Eligible borrowers will need to demonstrate a willingness and ability to pay by making three on-time trial payments, after which the mortgage will be permanently modified. Borrowers will still have the option to document income and financial hardship, which could result in a modification with additional savings. The program will expire on August 1, 2015.
FHFA Proposes Ban on Lender-Placed Insurance Sales Commission and Reinsurance Activities
On March 26, the FHFA released a notice seeking comment on certain restrictions it expects Fannie Mae and Freddie Mac (the Enterprises) will put in place with regard to lender placed insurance practices. The FHFA anticipates that the Enterprises will (i) prohibit sellers and servicers from receiving, directly or indirectly, remuneration associated with placing coverage with or maintaining placement with particular insurance providers; and (ii) prohibit sellers and servicers from receiving, directly or indirectly, remuneration associated with an insurance provider ceding premiums to a reinsurer that is owned by, affiliated with or controlled by the sellers or servicer. The final restrictions will be issued by the Enterprises as aligned guidance to sellers and servicers four months after the close of the comment period, which will run for 60 days from the date of publication of the notice in the Federal Register. Pursuant to that timeline, a final policy could be expected in late September or early October.
House, Senate Committees Hold Separate Hearings on Housing Finance Reform
On March 19, the Senate Banking Committee and the House Financial Services Committee each held a hearing to review issues related to housing finance post-federal conservatorship of Fannie Mae and Freddie Mac. The House committee heard from Acting FHFA Director Edward DeMarco, while the Senate committee heard from non-governmental groups with reform proposals. The hearings mark the beginning of a process expected to play out over the course of the coming months to develop consensus on legislation to reform the housing finance sector. Each of the hearings covered numerous topics, but in each the central issue for debate was the appropriate level of government involvement in the mortgage market. On that primary issue, there was broad consensus that the current conservatorship role of the government should end. However, some stakeholders argued the government should play no role in the reformed market, while others believe a limited, protected government backstop would be necessary to support an affordable, stable housing market. Mr. DeMarco did not take positions on the broad policy issues, but repeated his commitment to implementing the FHFA’s Strategic Plan while positioning Fannie Mae and Freddie Mac to meet whatever requirements policymakers choose to impose.
Debate over FHFA Leadership Resurfaces
On March 15, the attorneys general (AGs) for nine states sent a letter to President Obama and Senate leaders seeking the appointment of a permanent director for the FHFA to replace Acting Director Edward DeMarco. The AGs complain that under Mr. DeMarco’s leadership, “Fannie Mae and Freddie Mac remain an obstacle to progress by refusing to adopt policies that will help maximize relief for homeowners,” identifying the FHFA’s opposition to allowing the entities to offer principal forgiveness as the primary issue. The AGs follow federal lawmakers who made a similar plea last month. Recently, it was reported that the President is considering Representative Mel Watt (D-NC) for the position. During a Senate hearing this week, Senator Bob Corker (R-TN) defended Mr. DeMarco and responded that any nominee for FHFA director should lack political bias and possess technical expertise to help guide Congress through development and implementation of housing reform.
FHFA OIG Issues Report on Servicers' Borrower Complaint Handling
Today, the FHFA Office of Inspector General (OIG) issued a report on servicers’ handling of borrower complaints, following an audit to assess FHFA’s oversight of Freddie Mac’s controls over servicers’ handling of escalated cases. Under the Servicing Alignment Initiative (SAI), servicers are required to track the escalated cases they receive - specifically defined to include any of five categories of complaints - and resolve those cases within 30 days. In addition, Freddie Mac’s Servicing Guide requires servicers to report monthly on escalated cases status, including when received and how resolved. According to the report, the audit revealed that (i) most of Freddie Mac’s servicers are not complying with reporting requirements for escalated cases, (ii) Freddie Mac’s oversight of servicer compliance has been inadequate, and (iii) the FHFA did not identify the foregoing problems through its own examination of Freddie Mac’s implementation of the SAI. In response, the OIG recommends that FHFA (i) ensure that Freddie Mac requires its servicers to report, timely resolve, and accurately categorize escalated cases, (ii) ensure that Freddie Mac enhances its oversight of its servicers through testing servicer performance and establishing fines for noncompliance, and (iii) improve its oversight of Freddie Mac by developing and implementing examination guidance related to testing the implementation of directives. Following receipt of the report, House Oversight Committee Ranking Member Cummings (D-MD) called for a hearing on borrower complaint handling by servicers.
FHFA Outlines 2013 Objectives for Fannie Mae and Freddie Mac
On March 4, FHFA Acting Director Edward DeMarco sketched out the FHFA’s plans for Fannie Mae and Freddie Mac (the Enterprises) in 2013. These measures implement the Strategic Plan issued in February 2012 that identified three goals for the Enterprises: (i) build a new infrastructure for the secondary market, (ii) contract the Enterprises’ presence in the secondary market, and (iii) maintain foreclosure prevention activities. In 2013, the FHFA expects to support its first goal by creating an independent business entity that will serve as a securitizing platform. To continue contracting the Enterprises’ presence, the FHFA (i) has asked each Enterprise to conduct risk sharing transactions to meet a target of $30 billion of unpaid principal balance in credit risk sharing transactions, (ii) plans to continue increasing guarantee fees, (iii) aims to reduce multifamily business volume by 10 percent, and (iv) plans to sell five percent of the less liquid portion of the enterprises retained portfolios. Finally, on foreclosure prevention, the FHFA expects to (i) enhance the post-delivery quality control practices and transparency associated with the new representation and warranty framework, and (ii) work to complete representation and warranty demands for pre-conservatorship loan activity. In addition to making strides on the three prongs of its Strategic Plan, the FHFA plans to (i) update master policies and formulate eligibility standards for mortgage insurance, and (ii) develop a set of aligned standards for force placed insurance.
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.