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Financial Services Law Insights and Observations


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  • FHFA Decides Fannie Mae and Freddie Mac Will Not Offer Principal Forgiveness; Updates Other Borrower Assistance Efforts


    On July 31, FHFA announced that it will not direct Fannie Mae and Freddie Mac to offer principal reduction assistance to troubled borrowers, concluding that a principal forgiveness policy does not “clearly improve foreclosure avoidance while reducing costs to taxpayers relative to the approaches in place today.” The Treasury Department immediately objected, countering that FHFA’s cost concerns could be alleviated with Treasury assistance to pay for additional administrative implementation costs. With its announcement, FHFA released correspondence to members of Congress explaining FHFA’s decision and providing a detailed assessment of the principal forgiveness policy option. FHFA also reported that it is working with Fannie Mae and Freddie Mac on a series of other borrower assistance efforts including (i) an update to Freddie Mac's refinance program to align it with Fannie Mae’s policy for refinancing mortgages with loan-to-value ratios equal to or less than 80%, (ii) new requirements expected in September related to representations and warranties, which will shift the loan quality review closer to the time of loan origination, (iii) a single, aligned short sale program for Fannie Mae and Freddie Mac with more flexible terms, (iv) a new set of adjustments to guarantee fee pricing, expected to be announced in August and to take effect later in the year, and (v) closing on the first set of REO pilot transactions in August.

    Freddie Mac Fannie Mae Mortgage Servicing HAMP / HARP FHFA Department of Treasury

  • FHFA Announces REO Pilot Program Developments


    On July 3, FHFA announced the selection of the winning bidders in its real estate owned (REO) pilot program, with the initial transactions expected to close in the third quarter of 2012. FHFA launched its REO pilot program in February 2012 and bids from qualified investors were sought during the second quarter of the year for roughly 2,500 single-family foreclosed properties held by Fannie Mae. According to FHFA, investors qualified for the bidding process after a rigorous evaluation, considering factors such as their financial strength, asset management experience, property management expertise, and experience in the geographic area of the available properties. In a February 27 press release announcing its REO pilot sales initiative, FHFA identified the locations of the available properties, including the Chicago and Los Angeles metro areas.

    Fannie Mae REO FHFA

  • FHFA, Fannie Mae, and Freddie Mac File Suit Challenging Imposition of State and Local Taxes


    On June 22, the FHFA, along with Fannie Mae and Freddie Mac (the Enterprises), filed a lawsuit in the U.S. District Court for the Northern District of Illinois challenging the authority of Illinois state and county officials to impose transfer taxes on transactions moving property to or from the Enterprises. Although the complaint concedes that federal law requires the Enterprises to pay real estate taxes on the value of properties held, it asserts that federal law exempts the Enterprises from other state and local taxation, including taxes tied to property transfers. This suit follows a class action raising the same issues, which was filed by a Florida county against FHFA and the Enterprises on June 15.

    Freddie Mac Fannie Mae FHFA

  • Federal Agencies Announce New Mortgage-Related Policies to Support Military Homeowners


    On June 21, the CFPB, the federal prudential banking regulators, and the FHFA announced new policies to support servicemember homeowners. The CFPB, the Federal Reserve Board, the FDIC, the NCUA, and the OCC issued joint guidance that identifies specific servicing practices deemed by regulators to present risks to servicemembers. For servicemember homeowners who have received Permanent Change of Station Orders, the guidance instructs servicers to maintain adequate policies and procedures disallowing the identified practices. The guidance also informs servicers that if an agency determines that a servicer has engaged in any acts or practices that are unfair, deceptive, or abusive, or that otherwise violate federal consumer financial laws, the agency will take appropriate supervisory and enforcement actions.  Concurrent with the regulators’ announcement, the FHFA announced that military homeowners with Permanent Change of Station Orders and with Fannie Mae or Freddie Mac loans will be eligible to sell their homes in a short sale even if they are current on their mortgage. Under the new policy, Fannie Mae and Freddie Mac will not pursue a deficiency judgment or any cash contribution or promissory note from covered servicemembers for any property purchased on or before June 30, 2012.

    FDIC CFPB Foreclosure Freddie Mac Fannie Mae Federal Reserve Mortgage Servicing HUD OCC FHFA

  • FHFA Announces Multiple New Policy Initiatives


    On June 15, the FHFA published a Notice of Proposed Rulemaking regarding state and local Property Assessed Clean Energy (PACE) programs, as required by a preliminary injunction issued by the Northern District of California in a lawsuit challenging the FHFA’s direction to Fannie Mae and Freddie Mac not to purchase mortgages subject to first-lien PACE obligations, and to the Federal Home Loan Banks to limit exposure to first-lien PACE programs. Under the PACE programs, local governments provide property-secured financing to property owners for the purchase of energy-related home improvement projects. The FHFA believes such financing arrangements present safety and soundness concerns. Several states challenged the FHFA actions in court. While most of the cases were dismissed, California succeeded in forcing the FHFA to conduct a formal rulemaking on the issue. Comments on the proposed rule are due by July 30, 2012.

    On June 18, the FHFA announced an initiative to supplement fraud reporting by the entities it supervises. Under the Suspended Counterparty Program, Fannie Mae, Freddie Mac, and the Federal Home Loan Banks are required to notify the FHFA whenever an individual or company with whom they do business is adjudicated to have engaged in fraud or other financial misconduct. The FHFA also will consider information it receives from other government sources. Based on the reported information, the FHFA will make a determination as to whether the individual or business will be suspended from doing business with the supervised entities. The new program takes effect August 15, 2012.

    On June 19, the FHFA published a Notice and Request for Comment regarding a proposed new rating system to be used in conducting safety and soundness examinations of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. The proposal seeks to implement a single risk-focused examination system for all three entities that would be similar to the “CAMELS” rating system used by federal prudential regulators for depository institutions. The FHFA is accepting comments on the proposed system through July 19, 2012.

    Freddie Mac Fannie Mae Mortgage Origination Mortgage Servicing FHFA

  • Federal District Court Allows Interlocutory Appeal of Challenge to FHFA MBS Suit


    On June 19, the U.S. District Court for the Southern District of New York granted defendants’ motion to certify an interlocutory appeal from a portion of the court’s earlier denial of their motion to dismiss as untimely the FHFA’s claims under the 1933 Securities Act. Fed. Hous. Fin. Agency v. UBS Americas, Inc., No. 11-5201, 2012 WL 2324486 (S.D.N.Y. June 19, 2012). On May 4, 2012, the court denied, in large part, the defendants’ motion to dismiss the FHFA’s claims alleging that billions of dollars of MBS purchased by Fannie Mae and Freddie Mac were based on offering documents that “contained materially false statements and omissions.” The suit was selected to proceed first among the 18 such suits brought by the FHFA. In this most recent decision, the court reasoned that resolution of issues relating to the timeliness of the claims will “remove a cloud of legal uncertainty that hangs over the other 17 actions in this suite of cases” by clarifying the impact of the Housing and Economic Recovery Act of 2008 on the statute of limitations in the Securities Act of 1933 and, as a consequence, defining the scope of discovery.

    Freddie Mac Fannie Mae RMBS FHFA

  • FHFA Submits Annual Report to Congress


    On June 13, the FHFA submitted to Congress its annual report on its 2011 examinations of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. The report rates Fannie Mae and Freddie Mac as “critical supervisory concerns” and states that their continuing credit losses stem primarily from loans originated during 2005-2007. The report cites certain key challenges of Fannie Mae and Freddie Mac, which include (i) the ongoing stress in the national housing market, (ii) the broader economic environment, and (iii) the lack of certainty about the future of Fannie Mae and Freddie Mac. Among other things, the report provides updated information about the Fannie Mae and Freddie Mac portfolios and foreclosure prevention efforts. The report also notes that the financial condition of the Federal Home Loan Banks remained stable, though exposure to private-label mortgage-backed securities continues to impact certain of the Banks.

    Freddie Mac Fannie Mae FHFA


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