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HUD, FHFA Extend Foreclosure Protections for Hurricane Sandy Victims
On January 31, HUD and the FHFA announced that the FHA, Fannie Mae, and Freddie Mac will extend for an additional 90 days protections against foreclosure actions for borrowers whose properties were damaged or destroyed due to Hurricane Sandy. Those protections were set to expire on January 31, 2013. For borrowers in certain counties, FHA is extending until April 30, 2013 its foreclosure moratorium and eviction suspension. Fannie Mae, through Lender Letter LL-2013-02, and Freddie Mac, through Bulletin 2013-1, also are extending their foreclosure and eviction moratoriums through the end of April.
FHFA Settles One of Many Pending MBS Suits
On January 23, the FHFA settled and voluntarily dismissed one of the lawsuits it initiated in 2011 as conservator for Fannie Mae and Freddie Mac, alleging against many parties that billions of dollars of MBS purchased by the GSEs were based on offering documents that contained materially false statements and omissions. FHFA v. Gen. Elec. Co., No. 11-7048, Notice of Dismissal (Jan. 23, 2013). This is the first settlement to be announced in connection with this series of cases; the lead case currently is on appeal to the U.S. Court of Appeals for the Second Circuit. Although the FHFA did not release any details related to the settlement, in reports the FHFA’s general counsel described the resolution as “consistent with FHFA’s responsibilities as conservator.”
Federal Agencies Announces Numerous Appointments
SEC Names Office of Market Intelligence Chief. On January 22, the SEC announced that Vincente Martinez will serve as the head of the Office of Market Intelligence, a unit of the Enforcement Division that collects and evaluates tips, complaints and referrals. Mr. Martinez rejoins the SEC from the CFTC where he served as the first director of that agency’s whistleblower office. He previously spent eight years in the SEC’s Enforcement Division, most recently helping to develop Enforcement Division and SEC-wide policies and procedures for handling tips, complaints, and referrals. Lori Walsh, who is currently serving as the Acting Chief of the Office of Market Intelligence, will serve as Deputy Chief of the office.
FHFA Announces Deputy Director for Housing Mission and Goals. On January 15, the FHFA announced that beginning in March Sandra Thompson will serve as Deputy Director of the Division of Housing Mission and Goals with responsibility for overseeing the FHFA’s housing and regulatory policy, financial analysis, and policy research and analysis of housing finance and financial markets. Ms. Thompson will leave her current position as Director of the Division of Risk Management Supervision at the FDIC where she led the agency’s examination and enforcement program for risk management and consumer protection. The FHFA also promoted Nina Nichols to serve as Deputy Director of the Division of Supervision Policy and Support.
OCC Announces Chief Counsel. Last week, the OCC announced Amy Friend as the agency’s Chief Counsel beginning in February, replacing Julie Williams who retired last fall. Ms. Friend is a former assistant chief counsel at the OCC and served as chief counsel to the Senate Banking Committee during the development of the Dodd-Frank Act.
Fannie Mae Obtains Comprehensive Settlement of Repurchase Claims Against Major Lender
On January 7, Fannie Mae and a national bank announced a comprehensive settlement to resolve all outstanding and future repurchase requests on nearly all single-family loans originated by the bank (and other lenders it later acquired) over a nine-year period and subsequently delivered to Fannie Mae. The announcement states that the loans had an outstanding unpaid principal balance of $297 billion as of November 30, 2012. Fannie Mae alleges that the lenders breached representations and warranties on the loans. The bank agreed to pay $3.55 billion in cash to Fannie Mae and to repurchase roughly 30,000 loans with cumulative unpaid principal balances and interest of $6.75 billion. On the loans retained by Fannie Mae, the bank remains responsible for certain payment and other obligations with respect to mortgage insurance rescissions, cancellations and denials, as well as its servicing, third-party indemnification, and recourse obligations. Finally, Fannie Mae and FHFA approved the transfer of servicing rights for roughly one million loans from the bank to specialty servicers, which FHFA stated is designed to benefit borrowers and reduce future credit losses to Fannie Mae.
FHFA Holds Maximum Loan Limits Steady for 2013
On November 29, the FHFA announced that the maximum conforming loan limits in 2013 for mortgages acquired by Fannie Mae and Freddie Mac will remain unchanged from the current levels. The FHFA announcement includes the full list of county-level loan limits, which are $417,000 across most of the country for one-unit properties. Under the Housing and Economic Recovery Act (HERA), the FHFA is required to adjust the baseline loan limit each year to reflect changes in the national average home price. However, HERA also requires that, following a period of declining home prices, prior price declines be fully offset before a loan limit increase can occur. The FHFA determined that despite evidence of price increases over the past year, those increases have not been sufficient to offset prior price declines and, therefore, the baseline could not be adjusted.
Key Stakeholders Comment on FHFA State-Level Guarantee Fee Pricing Proposal
Over the past week, key stakeholders submitted comments on the FHFA’s proposal regarding state-level guarantee fees, which would allow Fannie Mae and Freddie Mac to charge higher upfront fees for single-family mortgages originated in Connecticut, Florida, Illinois, New Jersey, and New York. The FHFA argues that the higher fees are needed to offset higher default-related costs incurred by Fannie Mae and Freddie Mac in those states resulting in part from state and local foreclosure policies. Senators from four of those states sent a letter on November 21, 2012 asking the FHFA to abandon the proposal in its entirety, citing shortcomings in the proposal and negative impacts on borrowers in those states. The senators argued that the proposal would penalize borrowers in states with higher consumer protections and would undermine those protections and restrict residential lending. The Attorneys General of Illinois, Connecticut, and New York similarly objected to the proposal in a November 26, 2012 letter. Also on November 26, 2012, the ABA submitted a letter in support of the increased fees in which it pointed out that the fees would be modest and argued that the fees would help to spur state and local policymakers to reform foreclosure processes. On the same day, the MBA submitted a letter seeking more information about the formula used by the FHFA to determine which states should be assessed the higher fees and urging the FHFA to (i) expand the proposal to reward states with lower default-related costs, (ii) change the format of the proposed pricing to more closely match industry practice, and (iii) alter its approach to compensatory fees charged to servicers for unavoidable foreclosure delays. The FHFA received numerous other comment letters.
Residential Mortgage-Backed Securities Working Group Announces Several New Cases
On November 20, New York Attorney General Eric Schneiderman, one of the Co-Chairs of the federal-state Residential Mortgage-Backed Securities (RMBS) Working Group, announced a new case filed in the New York State Supreme Court alleging Martin Act violations by a securities firm and several of its affiliates in connection with the offering of RMBS. The complaint charges that the firms made fraudulent misrepresentations and omissions to promote the sale of RMBS to private investors and deceived investors regarding the care with which the firms evaluated the quality of loans included in certain RMBS offerings. The suit claims that investors suffered cumulative losses over $11 billion on RMBS sponsored and underwritten in 2006 and 2007. The DOJ’s Financial Fraud Enforcement Task Force, of which the RMBS Working Group is a part, noted the significant federal-state coordination that led to the filing, including the “significant” contributions of the FHFA’s Inspector General, as well as assistance from the SEC and Assistant U.S. Attorneys from across the country.
On November 16 the SEC announced that it had obtained more than $400 million from two firms alleged to have misled investors in RMBS. In cases coordinated with the RMBS Working Group, the SEC charged that both firms failed to fully disclose their bulk settlement practices, which involved retaining cash from the settlement of claims against mortgage loan originators for problem loans that the firms had sold into RMBS trusts, and which they no longer actually owned. The SEC also claimed, among other things, that one of the firms misstated information concerning the delinquency status of loans that served as collateral for an RMBS offering it had underwritten, while the second firm allegedly applied different quality review procedures for loans that it sought to put back to originators and instituted a practice of not repurchasing such loans from trusts unless the originators had agreed to repurchase them.
Federal District Court Dismisses Virginia State Law Claims in FHFA RMBS Suit
On November 19, the U.S. District Court for the Southern District of New York held that the FHFA’s state-law claims against a financial institution with regard to the offering of certain residential mortgage-backed securities (RMBS) could not survive because, unlike federal law, the state law does not apply to the “offering” of securities. Fed. Housing Fin. Agency v. Barclays Bank PLC, No. 11-6190, slip op. (S.D.N.Y. Nov. 19, 2012). The case is one of sixteen in which the FHFA alleges as conservator for Fannie Mae and Freddie Mac that billions of dollars of RMBS purchased by Fannie Mae and Freddie Mac were based on offering documents that contained materially false statements and omissions. In prior rulings in this series of cases the court generally has denied the financial institutions’ motions to dismiss, with the lead case currently pending on appeal to the Second Circuit. The instant case, however, presented a unique issue with regard to the FHFA’s state law claims. As the court explained, the federal Securities Act’s private liability provisions apply to any person who “offers or sells” a security and broadly defines “offer,” while the Virginia Securities Act “omits the term ‘offer’ from its otherwise identical private liability provision.” The court determined that through inaction, Virginia “has purposefully sought to ensure that the scope of private liability under its statutes is more limited than that under federal law” and its law does not apply to the offering of securities, only the sale. The court dismissed the FHFA’s state law claims but allowed all other claims to proceed based on the reasoning presented in prior decisions.
CFPB and FHFA Partner to Develop National Mortgage Database
The CFPB and the FHFA announced today an agreement to create a National Mortgage Database, the first comprehensive repository of mortgage loan information. The database primarily will be used to support the agencies’ policymaking and research efforts and help regulators better understand emerging mortgage and housing market trends. The database is intended to (i) monitor the health of mortgage markets and consumers, (ii) provide insight on consumer decision making, (iii) monitor new and emerging mortgage products, (iv) consolidate data on first and second lien mortgages for a given borrower, and (v) help policymakers understand consumer debt burden. The press release states that development of the dataset is currently underway and the agencies expect early versions of the full dataset to be complete in 2013. Once completed, the agencies plan to explore opportunities to share database information with other federal agencies, academics, and the public. The database will include information spanning the life of a mortgage loan from origination through servicing and include loan-level data about (i) the borrower’s financial and credit profile, (ii) the mortgage product and terms, (iii) the property purchased or refinanced, and (iv) the ongoing payment history of the loan. The agencies will build the database by matching a nationwide sampling of credit bureau files on borrowers’ mortgages and payment histories with informational files such as the HMDA database and property valuation models. The database will include historical data back to 1998 and will be updated on a monthly basis.
FHFA Plans to Improve Efforts to Recover Losses from Certain Defaulting Borrowers
On October 17, the FHFA Office of Inspector General (OIG) reported that the FHFA does not currently oversee the deficiency management programs of Fannie Mae and Freddie Mac (the Enterprises) and that some oversight is necessary. When borrowers default on mortgage loans held by Fannie Mae and Freddie Mac, the Enterprises absorb the losses. To date, the Enterprises have only recovered a small fraction of losses by pursuing defaulting borrowers that may have the ability to repay, such as strategic defaulters, including those defaulting on vacation homes or investment properties. The FHFA OIG recommended, and the FHFA agreed, that the FHFA should collect from the Enterprises data about their deficiencies, their efforts to target defaulting borrowers who have the ability to repay their loans, and other related data. The FHFA also agreed with the OIG that with such information in hand, the FHFA can proactively oversee the Enterprises’ deficiency management programs and provide supervisory guidance on managing deficiency collections.