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Fannie Mae Amends Bifurcated Mortgage Loan Obligations, Announces Miscellaneous Servicing Guide Updates
On June 12, Fannie Mae issued two Servicing Guide Announcements relating to bifurcated mortgages, mortgage payments, valuations, and processing IRS forms. Announcement SVC 2013-12 clarifies and adds numerous obligations for servicers and responsible parties in connection with bifurcated mortgage loans – loans or properties for which the current servicer is not the responsible party for the selling representations and warranties and/or for the prior servicing responsibilities or liabilities. The announcement addresses, among other topics, (i) issuance of repurchase requests and statements, requests for a make whole payment, or requests for indemnification, (ii) remittance of bifurcated repurchase price and appeal process, (iii) hiring of a servicer and a servicer’s failure to comply, (iv) mortgage loan files, record retention, and release of records, and (v) disputes between responsible parties and servicers. All of the policy changes in 2013-12 take effect on September 1, 2013. Announcement SVC 2013-11 describes policy changes regarding (i) processing and applying mortgage loan payments, (ii) obtaining a property valuation for Fannie Mae conventional mortgage loan modifications, and (iii) processing IRS Form 4506-T and Form 4506T-EZ. While servicers are encouraged to implement the changes noted in 2013-11 immediately, servicers are not required to do so until October 1, 2013.
On May 13, Freddie Mac announced in Bulletin Number 2013-7 that servicers can immediately begin offering modifications under the streamlined modifications initiative announced by the FHFA in March. The Bulletin states that servicers must generate the terms of each trial period plan using their own proprietary system or third-party system until Workout Prospector® becomes available July 15, 2013 to process the terms of a streamlined modification. The Bulletin also revises Freddie Mac’s property valuation requirements for modifications of mortgages secured by manufactured homes and 2- to 4-unit properties, and eliminates the requirement that a property value be obtained for a long-term forbearance plan. On May 7, Fannie Mae published new Frequently Asked Questions intended to help servicers understand and implement the requirements of Servicing Guide Announcement SVC-2013-05, which, beginning July 1, 2013, requires services to offer eligible borrowers who are at least 90 days delinquent on their mortgage a way to lower their monthly payments and modify their mortgage without requiring financial or hardship documentation. The FAQs relate to (i) solicitation, (ii) eligibility requirements/exclusions, (iii) workout hierarchy, (iv) valuations, and (v) servicer requirements.
On May 1, Fannie Mae issued Servicing Guide Announcement SVC-2013-10, which includes numerous servicing policy changes. The announcement informs servicers that they must (i) conduct regular testing of compliance with applicable laws in all jurisdictions in which they service mortgage loans for Fannie Mae, (ii) provide test results to senior management and, upon request, to Fannie Mae, and (iii) maintain evidence of any corrective actions. For eMortgages, the Announcement explains that servicers must obtain special approval to service such mortgages by contacting their Servicing Consultant, Portfolio Manager, or Fannie Mae’s National Servicing Organization’s Servicing Solutions Center. The Announcement also (i) provides new requirements for repayments of escrow deficits and shortages for all conventional loan modifications, (ii) requires servicers to obtain the results of property valuation order requests for the purposes of bidding instructions through HomeSaver Solutions® Network within 7 to 10 calendar days from the date the servicer submits the request, (iii) clarifies delinquency management and default prevention policies outlined in SVC-2012-18, (iv) removes Guide language regarding temporary possession of mortgage notes, and (v) incorporates a recent change to Moody’s rating system.
On April 17, Fannie Mae issued Servicing Guide Announcement SVC-2013-09, which revises Fannie Mae’s execution of legal documents policy related to (i) quitclaim deeds, (ii) limited power of attorney, (iii) execution of assumptions, and (iv) releases of security. The policy changes are effective immediately. Also on April 17, Fannie Mae issued a servicing notice to inform servicers of a change in the format for bidding instructions to help clarify the situations in which specific bidding instructions must be used.
On April 10, Fannie Mae issued Servicing Guide Announcement SVC-2013-08, which introduces a delinquency status code hierarchy and updates delinquency status code definitions. The hierarchy requires servicers to report the most appropriate delinquency status code based on priority level, using a six level priority hierarchy. The announcement explains that when multiple delinquency status codes are applicable to an individual loan, the servicer must use the appropriate delinquency status code in the highest priority, though Priority Level 1 through 3 status codes are mutually exclusive. The changes will take effect for the February 2014 delinquency status code reporting cycle (for January 2014 activity), though Fannie Mae encourages servicers to implement the new policies as soon as possible.
On April 3, Fannie Mae issued Servicing Guide Announcement SVC-2013-07, which outlines policy updates regarding (i) lender-placed property insurance requirements, (ii) military indulgence reporting and reimbursement processes, and (iii) scheduled/schedule remittance payoffs. Effective immediately, the announcement retracts the lender-placed insurance requirements introduced in Announcement SVC-2012-04, but the hazard insurance claims processing requirements in that 2012 announcement remain in effect. Fannie Mae also replaced in its entirety the sections of Part III, Chapter 1, Exhibit 1: Military Indulgence, that relate to reporting to Fannie Mae and requesting reimbursement for advances. The announcement includes an attachment with the new section, and notes that servicers also must retain the servicemember's orders and the completed Request for Military Indulgence (Form 180) in the individual mortgage loan file as long as the military indulgence remains in effect. Finally, also effective immediately, the announcement allows a subservicer greater flexibility in deciding whether it will consider any full payoff received on the first business day of a month as though it was received in the prior calendar month. Subservicers may either select one option for all loans serviced on behalf of Fannie Mae or elect the option based on its individual agreement with the servicer for which is it subservicing Fannie Mae mortgage loans.
On March 27, Fannie Mae issued Servicing Guide Announcement SVC-2013-06, which announces policy updates regarding (i) redelivery of balloons, (ii) property value ordering process, and (iii) Mortgage Release and REOgram Submissions. The announcement states that Fannie Mae is eliminating Servicing Guide procedures for removing a balloon mortgage loan from an MBS pool when a refinance is effective after the balloon maturity date, and that servicers should contact their Investor Reporting Business Analyst for specific instructions on the process for past-due balloon mortgage loans serviced in a special servicing option MBS pool. The announcement also provides detailed instructions about a new servicer requirement to place orders directly with Fannie Mae (i) to determine the market value of property for short sales, and (ii) for Mortgage Releases and foreclosure sale bidding, if required by Fannie Mae or a mortgage insurer. Finally, effective immediately, servicers are no longer required to obtain recordation of the release of the subordinate lien within 60 days of the borrower’s acceptance of the offer for a Mortgage Release and instead, evidence of recordation of the subordinate lien release will be required with submission of the REOgram.
On March 27, the FHFA announced that Fannie Mae and Freddie Mac will begin a new loan modification initiative on July 1, 2013. As described in more detail in Fannie Mae Servicing Guide Announcement SVC-2013-05 and Freddie Mac Bulletin Number 2013-5, servicers will be required to offer eligible borrowers who are at least 90 days delinquent on their mortgage a way to lower their monthly payments and modify their mortgage without requiring financial or hardship documentation. Eligible borrowers will need to demonstrate a willingness and ability to pay by making three on-time trial payments, after which the mortgage will be permanently modified. Borrowers will still have the option to document income and financial hardship, which could result in a modification with additional savings. The program will expire on August 1, 2015.
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.
On March 6, Fannie Mae issued Servicing Guide Announcement SVC-2013-04, which requires servicers to cancel hazard insurance coverage (for both borrower and lender-placed policies) within 14 calendar days after a property appears on the Vacancy Report in HomeTracker. The policy took effect immediately and applies to all loans where the foreclosure sale occurred or will occur on or after October 1, 2012. For properties foreclosed after that date that have hazard insurance coverage still in place, the servicer must cancel the insurance by March 20, 2013. Fannie Mae also reminded servicers that if a policy is cancelled prematurely and damages are found, the servicer will be required to make Fannie Mae whole for any losses or fees relating to the property damages.
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