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GSEs update interactive URLA
On January 29, Freddie Mac and Fannie Mae (GSEs) jointly announced the release of the updated interactive (fillable) pdf version of the Uniform Residential Loan Application (URLA), also known as Freddie Mac Form 65 and Fannie Mae Form 1003. The announcement also identifies a number of supporting documents published in connection with the new URLA, including instructions on how to complete the new form and a list of Frequently Asked Questions. An appendix at the end of the announcement illustrates improvements from the old application to the new application. Additionally, the GSEs have URLA pages on their websites to provide more information (see Freddie Mac’s URLA page here and Fannie Mae’s URLA page here). The effective date for the updated URLA is September 1, and lenders must begin using the new URLA form on November 1.
Indiana Supreme Court: Statute of limitations begins when lender exercises optional acceleration clause
On February 17, the Indiana Supreme Court reversed a trial court’s decision to dismiss a lender’s action as time-barred, holding that under the state’s two statutes of limitation, “a cause of action for payment upon a promissory note with an optional acceleration clause can accrue on multiple dates”—one of which “is when a lender exercises its option to accelerate before a note matures.” According to the opinion, the consumer executed a promissory note and mortgage in 2007 and stopped making payments in 2008. The note was subsequently transferred to the lender, and in 2016, the lender accelerated the debt and demanded payment in full. The lender sued to recover the note in 2017. The consumer argued that the claim was barred by a six-year statute of limitations for a cause of action upon a promissory note under Ind. Code Ann. § 34-11-2-9, and the trial court agreed, granting the consumer’s motion to dismiss. The Indiana Court of Appeals affirmed the decision, finding that the lender did not accelerate the debt within six years of the initial default, and clarified, on rehearing, that the relevant Uniform Commercial Code statute of limitations (Ind. Code Ann. § 26-1-3.1-118(a)) should also apply.
The Indiana Supreme Court reversed the trial court’s ruling, determining, among other things, that the six-year statute of limitations did not start running until the lender exercised the optional acceleration clause in 2016, which was well within the applicable statutes of limitations. “We find that. . .under either applicable statute of limitations, [the lender’s] claim is timely,” the Court wrote. “We thus reverse the trial court’s order dismissing [the lender’s] complaint and remand.”
Fannie, Freddie to drop LIBOR in favor of SOFR
On February 5, the FHFA announced updated LIBOR transition plans for Fannie Mae and Freddie Mac (GSEs) single-family and multi-family mortgage sellers and lenders, providing the next steps in the transition from LIBOR to the Secured Overnight Financing Rate (SOFR) for adjustable rate mortgage (ARM) instruments. The next steps include (i) a “[n]ew language require[ment] for single-family Uniform…ARM instruments closed on or after June 1, 2020”; (ii) a requirement that “[a]ll LIBOR-based single-family and multifamily ARMs…loan application dates [must be] on or before September 30, 2020 to be eligible for acquisition”; and (iii) that “[a]cquisitions of single-family and multifamily LIBOR ARMs will cease on or before December 31, 2020.” The announcement links to information directly from the two GSEs: Fannie Mae Multifamily Mortgage Business Lender Letter 20-02, and Fannie Mae Single-Family Sellers Lender Letter LL-2020-01; and Freddie Mac Selling Updates Bulletin 2020-1 and Freddie Mac Multifamily Update on LIBOR Transition. The FHFA LIBOR Transition page notes that the GSEs have already stopped buying ARMs based on LIBOR that mature after 2021 in preparation for the termination of the benchmark’s use.
Miami voluntarily dismisses FHA suits against banks
On January 30, the city of Miami dismissed fair housing lawsuits against four of the largest banks in the U.S. (see orders here, here, here and here). The suits—filed in 2013—claimed that redlining by the banks led to a high rate of mortgage loan defaults, foreclosures, and property vacancies, causing property values to go down, which resulted in reduced tax revenues to the city. As previously covered by InfoBytes, in May, the U.S. Court of Appeals for the Eleventh Circuit determined that Miami made plausible claims that the lending practices of two of the banks violated the Fair Housing Act (FHA) and eventually reduced property tax revenues. Philadelphia recently reached a settlement with a large bank after making similar allegations regarding discriminatory mortgage lending practices. (Covered by InfoBytes here.)
FHFA increases conforming loan limits for 2020
On November 26, the FHFA announced that it will raise the maximum conforming loan limits for mortgages purchased in 2020 by Fannie Mae and Freddie Mac from $484,350 to $510,400. In high-cost areas, such as Los Angeles, New York, San Francisco, and Washington, D.C., the maximum loan limit will be $765,600. For a county-specific list of the maximum loan limits in the U.S., click here.
HUD revises proposed FHA mortgage lender certification
On August 14, HUD published revisions in the Federal Register to the Federal Housing Administration’s (FHA) lender certification requirements originally issued in May. (Previously covered by InfoBytes here.) In response to comments received on its initial proposal, HUD released a proposed streamlined FHA Annual Lender Certification, which removes a broad statement regarding lenders certifying compliance with all HUD requirements in order to maintain FHA approval. Commenters generally recommended HUD: “(1) Rescind the annual certification statements since the National Housing Act does not require certification of compliance with FHA eligibility requirements or completion of an annual certification; or (2) revise the annual certification statements to a general acknowledgement of the existence of policies and procedures that are reasonably designed to ensure material compliance.” Comments are due September 13.
HUD proposes changes to FHA lender certification
On May 9, HUD announced several proposed revisions to the Federal Housing Administration’s (FHA) lender certification requirements in an effort to provide lenders and servicers “greater certainty in how to satisfy the agency’s compliance requirements.” HUD stated that the revisions are in response to the White House’s March Memorandum on Federal Housing Finance Reform, which included a directive that FHA work to diversify the network of FHA-approved lenders. (Covered by InfoBytes here.) The proposed changes include:
- Loan-Level Certifications. FHA released proposed changes to the Addendum to the Uniform Residential Loan Application (Form 92900-A), reorganizing the Form in a “logical, easy to read, and understandable format” and eliminating “duplicative information collected elsewhere.”
- Annual Lender Certification Statements. FHA released proposed changes to the Annual Lender Certification Statements, including a side-by-side comparison of the current and proposed changes. The changes are intended to “better align [the certifications] with National Housing Act standards while continuing to hold lenders accountable for compliance with HUD eligibility requirements.” The proposed changes include deleting redundancies and replacing handbook references with a general certification to compliance with the requirements of 24 CFR § 202.5.
- Defect Taxonomy. FHA released proposed changes to the Defect Taxonomy. The draft of the Defect Taxonomy Version 2 includes (i) changes to the Severity Tier definitions; (ii) potential remedies that align with each Severity Tier; (iii) revised sources and causes in certain defect areas; (iv) new defect areas for servicing loan reviews; and (v) HUD policy references.
All proposals are posted on the FHA’s Drafting Table for 30-day feedback through June 8.
District Court enters first significant decision under CFPB’s ATR/QM Rule
On March 26, the U.S. District Court for the Southern District of Ohio, in what appears to be the first significant decision on claims brought against a mortgage lender under the CFPB’s Ability-to-Repay/Qualified Mortgage Rule, granted summary judgment in favor of the lender. The court rejected plaintiff’s claims that his bank improperly relied on income under his spousal support agreement, stating that “[t]he fact that Plaintiff and [his spouse] did not keep the separation agreement and instead opted to divorce – a series of events which reduced Plaintiff’s income by an order of magnitude – was not an event that was reasonably foreseeable to the Bank.” The court also noted that, “[a]lthough Plaintiff is now in his eighties, he is a repeat player in the field of real estate and mortgages, and a consumer of above-average sophistication.” While this decision does not break new legal ground, it does provide useful insights into how courts may respond to inherently fact-specific claims about the underwriting of individual loans.
FHFA increases conforming loan limits for 2019
On November 27, the FHFA announced that it will raise the maximum conforming loan limits for mortgages purchased in 2019 by Fannie Mae and Freddie Mac from $453,100 to $484,350. The announcement marks the third consecutive year FHFA has increased the baseline loan limit. In high-cost areas, such as Los Angeles, New York, San Francisco, and Washington, D.C., the maximum loan limit will be $726,525. For a county-specific list of the maximum loan limits in the U.S., click here.
Jury awards mortgage company successor $27.8 million in indemnity RMBS case
On November 8, a federal jury for the U.S. District Court for the District of Minnesota awarded the ResCap Liquidating Trust, the post-bankruptcy successor-in-interest to Residential Funding Company, LLC (RFC), a $27.8 million verdict in an indemnity case against a correspondent lender. Shortly after RFC’s bankruptcy plan was confirmed in 2013, the ResCap Liquidating Trust filed indemnity and breach of contract lawsuits against more than 80 correspondent lenders, alleging that the loans RFC purchased from the lenders did not comply with applicable representations and warranties, thereby causing RFC to incur liabilities in the form of bankruptcy-allowed claims.
Before trial, the court excluded certain of the lender’s expert witnesses and concluded that under the relevant contracts, the ResCap Liquidating Trust had sole discretion to determine whether a loan was in breach. Thus, the issues for the jury largely were limited to determining the applicability of certain contracts to the loans and assessing damages for the alleged breaches.