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  • HUD Updates Requirements For Pre-Foreclosure Sales And Deeds-In-Lieu Of Foreclosure

    Lending

    On July 10, HUD issued Mortgagee Letter 2014-15, which updates requirements for pre-foreclosure sales (PFS) and deeds-in-lieu (DIL) of foreclosure for all mortgagees servicing FHA single-family mortgages. The letter explains that if none of FHA’s loss mitigation home retention options are available or appropriate, the mortgagee must evaluate the borrower for a non-home retention option, with mortgagors in default or at imminent risk of default being evaluated first for a PFS transaction before being evaluated for a DIL transaction. The letter details eligibility and documentation requirements for standard PFS, streamlined PFS, and DILs, as well as rules for calculating cash reserve contributions for standard PFS transactions. Further, the letter advises mortgagees that they may, under certain conditions, approve a servicemember for a streamlined PFS or DIL without verifying hardship or obtaining a complete mortgagor workout packet. The letter also addresses numerous other topics, including: (i) requirements for real estate agents and brokers participating in PFS transactions; (ii) an initial listing period requirement for PFS transactions; (iii) updated sample language for the PFS Addendum; (iv) validation requirements for appraisals; (v) the criteria under which the HUD will permit non-arms-length PFS transactions; and (vi) minimum marketing period for all PFS transactions.

    Foreclosure Mortgage Servicing HUD FHA Mortgagee Letters Loss Mitigation

  • FHFA OIG Concerned About Specialty Servicers, Highlights FHFA Servicing Transfer Guidance

    Lending

    On July 1, the FHFA Office of Inspector General (OIG) issued a report containing its assessment of FHFA controls to ensure that Fannie Mae and Freddie Mac monitor nonbank special servicer performance and mitigate related risks. The report concluded that the FHFA has not established a risk management process to handle risks resulting from specialty servicers’ (i) use of short-term financing to buy servicing rights for troubled mortgage loans that may only begin to pay out after long-term work to resolve their difficulties; and (ii) obtaining large volumes of mortgage loans that may be beyond what their infrastructures can handle. The OIG asserted that such risks “are amplified by nonbank special servicers operating without the same standards and regulation as banks that service mortgage loans,” including capital requirements, which the OIG believes makes nonbank servicers “more susceptible to economic downturns” that could “substantially increase nonperforming loans that require servicer loss mitigation while at the same time impact[ing] the ability of the servicer to perform.” The OIG recommended that the FHFA (i) issue guidance on a risk management process for nonbank special servicers and (ii) develop a comprehensive, formal oversight framework to examine and mitigate the risks these nonbank special servicers pose. The report highlighted recent FHFA guidance that the OIG believes is sufficient to resolve the second recommendation—a June 11, 2014 FHFA Advisory Bulletin outlining supervisory expectations for risk management practices in conjunction with the sale and transfer of mortgage servicing rights or the transfer of the operational responsibilities of servicing mortgage loans owned or guaranteed by Fannie Mae and Freddie Mac. The Bulletin requires Fannie Mae and Freddie Mac to consider servicer capacity, including staffing, facilities, information technology systems, and any sub-servicing arrangements, as part of the analysis of mortgage servicing transfers. The FHFA agreed to also develop supervisory guidance on how Fannie Mae and Freddie Mac manage risks associated with servicing troubled loans.

    Freddie Mac Fannie Mae Mortgage Servicing FHFA Loss Mitigation

  • HUD Adds Requirement For Voluntary Termination Of FHA Mortgage Insurance

    Lending

    On July 3, HUD issued Mortgagee Letter 2014-13, which requires mortgagees seeking voluntary termination of FHA mortgage insurance to obtain a signed borrower consent form from each borrower on the mortgage. HUD states that in order to ensure that voluntary terminations of mortgage insurance are processed in accordance with the National Housing Act and HUD regulations, HUD now requires mortgagees requesting such termination to inform borrowers in writing that electing to terminate the mortgage insurance means that the mortgage will no longer be governed by FHA insurance program rules and regulations, including FHA’s loss mitigation requirements. Effective October 1, 2014, mortgagees must obtain a signed Borrower’s Consent to Voluntary Termination of FHA Mortgage Insurance, which must be on the mortgagee’s letterhead and must include the language in the sample form provided by HUD. HUD will require each borrower on the mortgage to sign the consent form in order for the request for voluntary termination to be considered valid by FHA. Mortgagees must retain copies of the consent form(s) in the servicing file in accordance with HUD’s record retention policies.

    HUD Mortgage Insurance FHA Mortgagee Letters Loss Mitigation

  • Colorado Adds Mortgage Servicer Requirements

    Lending

    Recently, Colorado enacted legislation that requires servicers of residential loans, including lenders and other parties that offer a borrower a loss mitigation option or seek to enforce the power to foreclose and sell the residential real estate that secures a delinquent loan, to establish a single point of contact with a borrower. The bill obligates the single point of contact to inform the borrower about loss mitigation options, the status of the borrower's loan, circumstances that may result in foreclosure, and procedures to submit a notice of error or information request. Further, the bill prohibits the servicer from initiating foreclosure proceedings unless the borrower has not qualified for, accepted, or complied with the terms of a loss mitigation option. The bill provides that if a servicer is engaging in prohibited “dual tracking,” the public trustee must follow certain procedures, including continuance of the foreclosure sale and withdrawal of the notice of election and demand, provided so the borrower is complying with all applicable terms of a loss mitigation option. In addition, the bill requires a foreclosing lender to disclose that it is illegal for a foreclosure consultant to require a deposit or charge fees in advance for providing services, and requires that the posted notice include a statement regarding the borrower's ability to file a complaint with state and federal authorities if the borrower believes the lender or servicer has violated certain provisions of the bill. The bill takes effect January 1, 2015.

    Foreclosure Mortgage Servicing Mortgage Modification Loss Mitigation

  • Special Alert: CFPB Proposes Amendments To Mortgage Rules

    Lending

    On April 30, the Consumer Financial Protection Bureau (CFPB or Bureau) proposed targeted amendments to the Dodd-Frank Act mortgage rules that took effect in January 2014. Comments are due 30 days after publication of the proposal in the Federal Register.

    Ability-to-Repay/Qualified Mortgage

    • Points and fees cure. The CFPB proposed a post-consummation cure mechanism for loans that are originated with the good faith expectation of qualified mortgage (QM) status but exceed the points and fees limit for QMs. Specifically, the Bureau’s proposal would allow the loan to retain QM status if the excess points and fees are refunded to the borrower within 120 days after consummation by the creditor or assignee.

      In proposing this amendment, the Bureau acknowledged that “[t]he calculation of points and fees is complex and can involve the exercise of judgment that may lead to inadvertent errors.” The Bureau further acknowledged that “some creditors may not originate, and some secondary market participants may not purchase, mortgage loans that are near the [QM] limits on points and fees because of concern that the limits may be inadvertently exceeded at the time of consummation.” As a result, creditors seeking to originate QMs may establish buffers to avoid exceeding the points and fees limit and “refuse to extend mortgage credit to consumers whose loans would exceed the buffer threshold, either due to the creditors’ concerns about the potential liability attending loans originated under the general ability-to-repay standard or the risk of repurchase demands from the secondary market if the qualified mortgage points and fees limit is later found to have been exceeded.” The Bureau expressed concern that such buffers would negatively affect the cost and availability of credit.

    • Debt-to-income cure. The Bureau did not propose a cure for loans that inadvertently exceed the 43% debt-to-income ratio (DTI) requirement for QMs made under Appendix Q. The Bureau did, however, request comment on the question, noting concerns that creditors may establish DTI buffers that would affect access to credit. For a DTI cure provision to be considered, the Bureau stated that “creditors would need to maintain and follow policies and procedures of post-consummation review of loans to restructure them and refund amounts as necessary to bring the debt-to-income ratio within the 43-percent limit.” However, the Bureau expressed skepticism that creditors could realistically meet such a requirement.

      The Bureau stated that it would also consider allowing creditors or assignees to correct DTI overages that result solely from errors in documentation of debt or income. However, the Bureau expressed concern that such a process might lead to post-consummation underwriting and requested comment on “whether or how a debt-to-income cure or correction provision might be exploited by unscrupulous creditors to undermine consumer protections and undercut incentives for strict compliance efforts by creditors or assignees.”

    • Non-profit small creditor exemption. The CFPB proposed to amend the exemption for non-profit lenders that make 200 or fewer dwelling-secured loans in a year to exclude from that limit certain interest-free, contingent subordinate liens commonly offered by affordable homeownership programs.
    • Other small creditor exemptions. The Bureau requested feedback and data from smaller creditors regarding the 500 loan limit on first lien mortgages for “small creditor” status, the implementation of the Dodd-Frank Act mortgage rules by small creditors, and how small creditors’ origination activities have changed in light of the new rules.

    Mortgage Servicing

    • Non-profit small servicer exemption. The CFPB proposed to provide an alternative definition of “small servicer,” that would apply to certain non-profit entities that service for a fee loans on behalf of other non-profit chapters of the same organization that do not fall within the Bank Holding Company Act definition of “affiliate.” Adoption of the proposal would exempt these entities would be exempt from the Regulation Z periodic statement requirements as well as certain provisions in Regulation X regarding force-placed insurance, servicing policies and procedures, and loss mitigation.

    Additional Amendments

    The CFPB also stated that it expects to issue additional proposals to address other topics relating to the Dodd-Frank Act mortgage rules, including the definition of “rural and underserved” for purposes of certain mortgage provisions affecting small creditors.

     

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    Questions regarding the matters discussed in the Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

     

    CFPB Mortgage Origination Mortgage Servicing Qualified Mortgage Ability To Repay Loss Mitigation

  • Washington Amends Foreclosure Mediation Procedures

    Lending

    On March 31, Washington Governor Jay Inslee signed into law HB 2723, which amends the foreclosure mediation process established by the 2011 Foreclosure Fairness Act. The bill, which takes effect June 12, 2014, amends the meet-and-confer process to (i) require that notice of pre-foreclosure options a beneficiary or authorized agent is required to send to the borrower must be sent by first-class registered or certified mail, return receipt requested; (ii) require that in-person meetings must be held in the county where the property is located, unless the parties agree otherwise; and (iii) amend the "foreclosure loss mitigation form" to add options for describing or explaining meet-and-confer efforts. The bill also alters mediation provisions to (i) allow mediation upon agreement of the parties, even if the borrower failed to elect mediation in the required timeframe; (ii) require beneficiaries to disclose any investor restriction that prohibits the beneficiary from implementing a modification and not just the portion or excerpt of a pooling and servicing agreement that includes such a prohibition; and (iii) require mediation to take place in the county where the property is located.

    Foreclosure Mortgage Servicing Loss Mitigation

  • Fannie Mae Updates Servicing Policies

    Lending

    On February 26, Fannie Mae issued Servicing Guide Announcement SVC-2014-04, which states that a servicer must retain in the mortgage loan servicing file all supporting documentation for all expense reimbursement claims, in addition to other servicing and liquidation information. A servicer must document its compliance with all Fannie Mae policies and procedures, including but not limited to, timelines that are required in the Servicing Guide, and must maintain in the individual mortgage loan file all documents and system records that preserve Fannie Mae’s ownership interest in the individual mortgage loan. The Announcement also (i) clarifies that when Fannie Mae requests a mortgage loan servicing file for a quality control review, the servicer must include supporting documents for all expense reimbursement claims it has submitted or intends to submit to Fannie Mae; (ii) states that a servicer must submit the final Cash Disbursement Request (Form 571) within 30 days after completion of a loss mitigation alternative, filing a mortgage insurance claim for a property that will be conveyed to the insurer or guarantor, acquisition of a property by a third party at a foreclosure sale, or disposition of an acquired property; (iii) provides examples of information sufficient to support a servicer’s attorney expense reimbursement request; and (iv) clarifies that when a servicer transfers its contractual right to service some or all of its Fannie Mae single-family servicing to another Fannie Mae-approved servicer, any variance or waiver granted to a transferor servicer does not automatically transfer to the transferee servicer, and the transferor and transferee servicers must ensure that all existing special servicing obligations associated with the transferred mortgage loan are disclosed. Finally, in a separate notice, Fannie Mae announced that it may adjust the Fannie Mae Standard Modification Interest rate for Fannie Mae Standard or Streamlined Modifications on a monthly basis, beginning July 1, 2014.

    Fannie Mae Mortgage Servicing Servicing Guide Loss Mitigation

  • CFPB Deputy Director Promises Vigilant Supervision, Enforcement Of Mortgage Servicing Rules

    Lending

    On February 19, CFPB Deputy Director Steve Antonakes spoke at the Mortgage Bankers Association’s annual servicing conference and detailed the CFPB’s expectations for servicers as they implement the new servicing rules that took effect last month.

    Mr. Antonakes’s remarks about the CFPB’s plans to supervise and enforce compliance with the new rules are the most assertive to date. Until now, the CFPB’s public position has been that “in the early months” after the rules took effect, the CFPB would not look for strict compliance, but rather would assess whether institutions have made “good faith efforts” to come into “substantial compliance.”

    Mr. Antonakes clarified this position, stating that “[s]ervicers have had more than a year now to work on implementation” of “basic practices of customer service that should have been implemented long ago” and that “[a] good faith effort . . . does not mean servicers have the freedom to harm consumers.” He went on to state that “[m]ortgage servicing rule compliance is a significant priority for the Bureau. Accordingly, we will be vigilant about overseeing and enforcing these rules.”

    Default Servicing and Foreclosures

    Specifically, the CFPB expects that, “in these very early days,” servicers will (i) identify and correct “technical issues”; (ii) “conduct outreach to ensure that all consumers in default know their options”; and (iii) “assess loss mitigation applications with care, so that consumers who qualify under [a servicer’s] own standards get the loss mitigation that saves them – and the investor – from foreclosure.” Mr. Antonakes acknowledged that “foreclosures are an important part of the business, but they shouldn’t happen unless they’re necessary and they must be done according to relevant law. We expect the new rules to go a long way to reduce consumer harm for all consumers with mortgages, especially as these rules work in concert with the existing prohibition against unfair, deceptive, and abusive practices.”

    Servicing Transfers

    Mr. Antonakes specifically detailed expectations concerning mortgage servicing rights transfers. He stated that the CFPB expects servicers to “pay exceptionally close attention to servicing transfers and understand [that the CFPB] will as well. . . . Our rules mandate policies and procedures to transfer ‘all information and documents’ in order to ensure that the new servicer has accurate information about the consumer’s account. We’re going to hold you to that. Servicing transfers where the new servicers are not honoring existing permanent or trial loan modifications will not be tolerated. Struggling borrowers being told to pay incorrect higher amounts because of the failure to honor an in-process loan modification – and then being punished with foreclosure for their inability to pay the incorrect amounts – will not be tolerated. There will be no more shell games where the first servicer says the transfer ended all of its responsibility to consumers and the second servicer says it got a data dump missing critical documents.”

    CFPB Nonbank Supervision Mortgage Servicing Enforcement Bank Supervision Loss Mitigation

  • Special Alert: FHA Announces It Will Accept Electronically-Signed Mortgage Documents

    Fintech

    On January 30, HUD issued Mortgagee Letter 2014-03, announcing that FHA will now treat electronic signatures as equivalent to handwritten signatures for certain mortgage documents. The announcement sets forth FHA’s first authorization of electronic signatures on mortgage documents (other than certain third party documents – see Mortgagee Letter 2010-14) and applies to FHA Single Family Title I and II forward mortgages and Home Equity Conversion Mortgages. The announcement is consistent with other government agency initiatives to promote a more streamlined and efficient mortgage process for consumers, particularly through the use of technology such as electronic signatures. Earlier this month, for example, the CFPB issued a request for information containing a questionnaire focused on improving the home loan closing process. “By extending our acceptance of electronic signatures on the majority of single family documents, we are bringing our requirements into alignment with common industry practices,” said FHA Commissioner Carol Galante. “This extension will not only make it easier for lenders to work with FHA, it also allows for greater efficiency in the home-buying and loss mitigation process.”

    The announcement indicates that, effective immediately, FHA will accept electronic signatures on (i) any documents associated with servicing or loss mitigation; (ii) any documents associated with the filing of a claim for FHA insurance benefits; (iii) the HUD Real Estate Owned Sales Contract and related addenda; and (iv) all documents included in the case binder for mortgage insurance except the Note.  FHA will begin accepting electronic signatures on the Note for forward mortgages, but not Home Equity Conversion Mortgages, on December 31, 2014. FHA already allows electronic signatures on documents originated and signed outside of the lender’s control, such as the sales contract.

    FHA requires lenders that accept electronic signatures to comply with the ESIGN Act (15 U.S.C. §§ 7001-7006). The ESIGN Act mandates that the signer be presented the document before the electronic signature is obtained, that the document is true and correct at the time it is signed, and that the signature is attached to, or logically associated with, the documents being electronically signed. Lenders must also take steps to confirm the identity of the signer as a party to the transaction and to establish that the signature may be attributed to the purported signer. Lenders must have systems in place to ensure that information generated to confirm the identity of signers is secure and that electronically signed documents cannot be altered without detection.

    In addition to citing the requirements of ESIGN, FHA sets some more specific requirements for certain elements of the signing process. These include requirements for establishing attribution of the signature and authentication of the signer.  FHA also sets requirements for maintaining audit logs, computer systems, controls and documentation, and making them available for FHA inspection.

     

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    Questions regarding the matters discussed in this alert may be directed to any of the lawyers in our Electronic Signatures and Records practice, or to any other BuckleySandler attorney with whom you have consulted in the past.

    Mortgage Origination Mortgage Servicing Electronic Signatures FHA Loss Mitigation

  • HUD Replaces Delinquent Borrower Publication

    Lending

    On January 10, HUD issued Mortgagee Letter 14-01, which notifies mortgagees that within 30 days they must begin using a new brochure for sending notice to delinquent FHA borrowers. HUD regulations require mortgagees to send the notice to FHA borrowers in default between the 32nd and 60th day of delinquency. Notice includes a cover letter and a brochure with foreclosure-related advice for borrowers. The new brochure, “Saving Your Home: Tips to Avoid Foreclosure,” replaces the “How to Avoid Foreclosure” brochure, HUD-PA-426, and includes information on revised loss mitigation tools available to FHA-insured borrowers. The mortgagee letter also reviews the requirements for the cover letter that must accompany the brochure, and provides a link for mortgagees to order the brochure.

    Foreclosure Mortgage Servicing HUD FHA Loss Mitigation

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