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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.
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.