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Financial Services Law Insights and Observations

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  • Illinois Extends Foreclosure Protection

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    On December 26, Illinois Governor Pat Quinn signed SB 1045, which extends through 2015 an existing state foreclosure protection. Under state law, a borrower facing foreclosure can seek to block a judicial foreclosure sale based on a pending federal HAMP modification. The state protection was set to expire at the close of 2013, but was extended to match the federal extension of HAMP through December 31, 2015.

    Foreclosure Mortgage Modification HAMP

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  • New York Proposes Shared Appreciation Mortgages For Underwater Borrowers

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    On December 10, the New York Department of Financial Services (DFS) proposed regulations that would authorize and encourage “shared appreciation” mortgage modifications in that state. The DFS explained that under a shared appreciation modification, banks and mortgage servicers reduce the amount of principal outstanding on a borrower’s mortgage in exchange for a share of the future increase in the value of the home. The program would be limited to borrowers who are 90 or more days past due on their loan, or whose loan is the subject of an active foreclosure action, and who are not eligible for existing federal and private foreclosure prevention programs. The proposed regulations detail the method for calculating a holder’s share of the appreciation, and limit the share to the lesser of: (i) the amount of the reduction in principal, plus interest; or (ii) 50% of the amount of appreciation in market value. In addition, banks and servicers would be required to provide specific disclosures to borrowers about the terms and nature of the shared appreciation mortgage modification. The proposed regulations also: (i) specify allowable fees, charges, and interest rates; (ii) detail the calculation of unpaid principal balance and debt-to-income ratio; and (iii) list certain prohibitions, including, among others, that the holder cannot require the borrower to waive any legal claims or defenses as a condition to obtaining shared appreciation modification.

    Mortgage Servicing Mortgage Modification Agency Rule-Making & Guidance

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  • Fannie Mae Announces Servicing Policy Changes

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    On October 30, Fannie Mae issued Servicing Guide Announcement SVC-2013-22, which describes various servicing policy updates. First, effective on or after February 1, 2014 for condominium insurance policy renewals, Fannie Mae is prohibiting the use of master or blanket insurance policies that cover multiple unaffiliated projects. Second, effective immediately for mortgage loan modifications, Fannie Mae is requiring that principal forbearance is payable upon the earliest of the maturity of the mortgage loan modification, sale or transfer of the property, refinance of the loan, or payoff of the interest-bearing unpaid principal. Third, effective January 1, 2014 for property inspection reimbursements, the Announcement updates the maximum amounts Fannie Mae will reimburse servicers for property inspections, outlines servicer responsibilities related to reimbursement requests, and clarifies the escalated case resolution process. Finally, the Announcement reminds servicers of their obligation to comply with both the Selling Guide and Servicing Guide, and informs servicers that requirements for maintaining eligibility and related fees were recently updated in the Selling Guide.

    Foreclosure Fannie Mae Mortgage Servicing Mortgage Modification Servicing Guide

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  • Ninth Circuit Judge Withdraws Fraud Characterization of Bank's HAMP Trial Plan

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    On September 23, in a brief order, a judge for the U.S. Court of Appeals for the Ninth Circuit withdrew his concurrence in a recent opinion in which the court held that HAMP Trial Period Plans (TPPs) create a contractual obligation for servicers to offer a permanent modification to borrowers who complete the TPP. Corvello v. Wells Fargo Bank, N.A., Nos. 11-16234, 11-16242 (9th Cir. Sept. 23, 2013). In the concurring opinion, the judge had argued that the bank created the trial plan document for “the fraudulent purpose of inducing [the borrower] to make the payments while the bank retained the option of modifying the loan or stiffing him.” The bank filed a motion for rehearing and asked the court to withdraw the concurrence because the Treasury Department, not the bank, drafted the trial plan document and required its use. Therefore, according to the bank, its actions should not be characterized as fraudulent because it adhered to its obligations by using the required HAMP documents.

    Mortgage Servicing Mortgage Modification HAMP

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  • Fannie Mae, Freddie Mac Extend Streamlined Modifications, Announce HAMP Changes, Increase Certain State Foreclosure Timelines

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    On September 16, Freddie Mac issued Bulletin 2013-17, and on September 18, Fannie Mae issued Servicing Guide Announcement SVC-2013-18, which extend those entities’ streamlined modification programs to include all streamlined modification trial period plans that become effective by December 1, 2015. Fannie Mae and Freddie Mac also extended the expiration date for HAMP such that Trial Period Plan Effective Dates must be on or before March 1, 2016 and Modification Effective Dates must be on or before September 1, 2016.  Fannie Mae further applied these extended time frames to Second-Lien Modification Programs.  In addition, Fannie Mae and Freddie Mac revised their eligibility requirements for proposed HAMP modifications that are submitted through the Treasury Net Present Value Model on or after January 1, 2014. Further, both Fannie Mae and Freddie Mac (i) retired the annual servicer “Pay for Success” incentive for HAMP-eligible mortgages, effective for modifications with effective dates on or after April 1, 2014 and (ii) updated requirements for repurchased loans subject to a HAMP permanent mortgage loan modification or trial plan. Finally, the Freddie Mac bulletin increased state foreclosure timelines by 30 days in Nevada, New Mexico, and Washington, for all foreclosure sales completed after September 1, 2013, while Fannie took the same action through a separate servicing notice.

    Foreclosure Freddie Mac Fannie Mae Mortgage Servicing Mortgage Modification HAMP Servicing Guide

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  • Federal District Court Denies Class Certification in Loan Modification MDL

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    On September 4, the U.S. District Court for the District of Massachusetts denied class certification of individual borrowers in a consolidated action against a national bank for allegedly mismanaging requests for HAMP modifications. In re Bank of Am. HAMP Contract Litig., No. 10-2193, 2013 WL 4759649 (D. Mass. Sept. 4, 2013). The named plaintiffs, who alleged breach of contract against the bank for issuing HAMP Trial Period Plans but then failing to provide a permanent modification or a timely written denial of eligibility, sought to certify 26 different classes, one from each state they represent. The court held that the plaintiffs failed to meet the predominance and superiority requirements of Rule 23(b) because their claims rely on numerous individual factual questions and “cannot sensibly be adjudicated on a classwide basis.” The court explained that individual questions predominate because borrowers’ claims require inquiry into each class members’ performance under the trial plans. Further, the court reasoned that class treatment would ignore those individual questions and deny the borrowers a fair trial on the merits of their claims, and determined that separate actions would more fairly and efficiently resolve the liability issues.

    Class Action Mortgage Modification HAMP

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  • Freddie Mac Updates Disaster Assistance, Other Servicing Policies

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    On August 15, Freddie Mac issued Bulletin 2013-15, which updates and revises many of its servicing requirements, including those related to assistance for borrowers impacted by an eligible disaster. With respect to such impacted borrowers, the Bulletin provides updated requirements related to (i) property protection activities, such as ascertaining the extent of the damage, and, if necessary, securing abandoned properties, (ii) managing the delinquency of a borrower whose mortgaged premises or place of employment was impacted by a disaster, (iii) the addition of the new Disaster Relief Modification for Borrowers who were current or less than 31 days delinquent at the time of a disaster, (iv) streamlined modifications for borrowers who were current or less than 31 days delinquent at the time of a disaster, (v) Trial Period Plan eligibility requirements, (vi) insurance loss settlements, and (vi) credit reporting. The Bulletin also instructs servicers to follow applicable state laws when handling Freddie Mac default legal matters (e.g. foreclosure) and adds a new Guide chapter about when servicers should take advantage of state procedures that allow for quickly completing foreclosures. Further, the Bulletin (i) revises requirements for servicemembers and their dependents, (ii) revises property inspection requirements, (iii) revises requirements for the reimbursement of attorney fees and costs related to contested foreclosures and mediation, expenses incurred for title work, and condominium, homeowners association and Planned Unit Development  assessments in super lien states, (iv) permanently extends the submission time frame for 104SF claims from 30 days to 45 days, and (v) updates unemployment forbearance requirements.

    Freddie Mac Mortgage Servicing Disaster Relief Mortgages Mortgage Modification

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  • Fannie Mae Updates Servicer Disaster Assistance Policies

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    On August 7, Fannie Mae issued Servicing Guide Announcement SVC-2013-16, which updates assistance policies for borrowers affected by earthquakes, floods, hurricanes, or other catastrophes caused by a person or event beyond the borrower’s control. The announcement provides a table of new pre-approved forbearance terms for borrowers affected by a disaster. Fannie Mae reminds servicers that while they have discretion to determine the appropriate duration of forbearance, any forbearance that exceeds the set terms must be approved in writing by Fannie Mae. The announcement also (i) updates requirements for insurance claim settlements, (ii) requires that income documentation be no more than 180 days old at the time of the post-disaster foreclosure prevention alternative evaluation, (iii) directs servicers to suspend credit reporting for a disaster-impacted borrower during a repayment plan or Trial Period Plan if the borrower is making the required payments, (iv) reduces eligibility requirements for streamlined modifications for borrowers completing a disaster-related forbearance plan in a FEMA-declared disaster area, (v) introduces a new modification, the Cap and Extended Modification for Disaster Relief, and (vi) addresses escrow analysis requirements prior to offering a Trial Period Plan for certain disaster-related modifications. All of these policy changes took effect immediately.

    Fannie Mae Mortgage Servicing Disaster Relief Mortgages Mortgage Modification Servicing Guide

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  • Fannie Mae Announces Standard and Streamlined Modifications Rate Adjustment

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    On July 31, Fannie Mae announced that as of September 1, 2013, the rate for standard and streamlined modifications is 4.625%, an increase from the 4% applicable to modifications with approved dates between December 1, 2012 and August 31, 2013. The notice reminds servicers that the interest rate used for the permanent loan modification must be the same interest rate reflected in the borrower’s Trial Period Plan.

    Fannie Mae Mortgage Modification

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  • Fannie Mae Updates Hardest Hit Fund Requirements

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    On July 1, Fannie Mae issued Servicing Guide Announcement SVC-2013-14 to notify servicers that they must accept modification assistance received from a state housing finance agency for a mortgage loan in connection with any Fannie Mae modification, without regard to whether principal forbearance is required. In doing so, servicers must also comply with certain delinquency management and default prevention requirements outlined in Announcement SVC-2011-18. Servicers are required to implement the policy changes no later than October 1, 2013, and are encouraged to do so immediately.

    Fannie Mae Mortgage Servicing Mortgage Modification Servicing Guide

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