InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
Freddie Mac Announces Numerous Servicing Policy Updates
On June 3, Freddie Mac announced revisions to numerous servicing policies, including policies regarding, among other things, short sales and deeds-in-lieu of foreclosure (DILs), the CFPB’s mortgage servicing rules, and unemployment forbearance. Bulletin 2014-10 advises servicers that for new short sale and DIL evaluations conducted on and after August 1, 2014 (or sooner if a servicer chooses), Freddie Mac will permit a servicemember to qualify for a short sale or DIL provided the mortgaged property is or was previously the borrower’s primary residence. When such a short sale or DIL is approved for a servicemember as provided above, the servicemember will receive the existing benefits afforded to a service member with PCS orders. In addition, for any borrower seeking a short sale or DIL, Freddie Mac is establishing a new lookback period that requires the servicer to review the borrower’s credit report to determine that the borrower did not obtain a new mortgage in the six months preceding the delinquency or in the six months preceding the evaluation of the borrower for a short sale or DIL. In addition, Freddie Mac (i) is now requiring servicers to investigate any inquiries by mortgage creditors that appear on the borrower’s credit report to determine if the borrower obtained a mortgage in the lookback period; and (ii) soon will require the servicer to rely solely upon the results of the cash reserves and promissory note payment capacity formulae to determine when to request a contribution from a borrower who is 31 days or more delinquent. The Bulletin also includes revisions to the following requirements introduced in response to the CFPB’s mortgage servicing rules: (i) trial period payment adjustments after the borrower exercises the right to appeal; (ii) delay in referral to foreclosure or proceeding with the next legal action; (iii) foreclosure sale date timing; and (iv) borrower solicitation letters. Finally, among several other policy revisions, the announcement details unemployment forbearance policy changes similar to those announced by Fannie Mae on June 4, 2014.
New Jersey Allows Localities To Levy Fines For Failure To Maintain Vacant Properties
On May 15, New Jersey Governor Chris Christie signed AB 347, which authorizes municipalities to impose penalties on a creditor that fails to timely remedy violations related to the maintenance of vacant residential property in foreclosure for which the creditors are responsible under current law. A municipality must provide at least 30 days for the creditor to remedy the violation, and must include a description of the conditions that gave rise to the code violation as part of the notice of violation already required under state law. If the creditor fails to remedy the violation within that time period, the municipality may impose penalties allowed for the violation of municipal ordinances under current state statute. The new authority becomes effective July 14, 2014, 60 days after enactment.
Michigan Modifies Foreclosure Sale Redemption Period Property Inspection Provisions
On May 20, Michigan Governor Rick Snyder signed HB 5277, which, among other things, modifies the state’s procedures for property inspections during the redemption periods of foreclosure sales. The bill requires a purchaser of foreclosed property to issue a notice before conducting an interior inspection of the property during the redemption period. It allows a purchaser to conduct exterior inspections during the redemption period and to request information on the condition of the interior of any structures on the property. If the mortgagor refuses to provide the requested information, the purchaser may schedule an interior inspection. The bill also, among other things, requires a purchaser to notify the mortgagor that the purchaser intends to commence summary proceedings if damage to, or a condition on, the property is not repaired or corrected in seven days, and prohibits a purchaser from commencing such summary proceedings if the damage or condition is repaired, or the mortgagor and purchaser agree on a procedure and timeline to repair the damage or condition. The changes take effect June 19, 2014.
Fannie Mae Announces Servicemember Policy Changes, Other Servicing Policy Updates
On May 21, Fannie Mae issued Servicing Guide Announcement SVC-2014-08, which announced that the extended stay of foreclosure and other legal proceedings that is set to expire at the end of this year will continue indefinitely for eligible servicemembers, and that servicers can no longer obtain written servicemember consent or petition the court to continue or commence foreclosure proceedings. Fannie Mae also announced that, effective September 1, 2014, for loans originally purchased at a premium or discounted price that experienced negative amortization, Fannie Mae will limit both the purchase discount and the purchase premium to the amount of the original purchase discount or premium, and the price used to calculate the repurchase amount will be expressed as a percentage of par. Finally, Fannie Mae also (i) announced updated documents used to evaluate and apply for a full or partial release of a property securing a loan; and (ii) clarified that servicers must oversee all outsourcing and third-party vendors, and that both servicers and vendors must implement and maintain business continuity plans.
Fannie Mae Updates Delinquency Management, Default Prevention Policies
On May 16, Fannie Mae announced through Servicing Guide Announcement SVC-2014-07, that for a borrower who submits a complete Borrower Response Package (BRP) or incomplete documentation 37 days or less prior to a foreclosure sale, the servicer (i) must explain its plans for evaluating the borrower for a workout option and suspending the foreclosure sale in the BRP acknowledgement notice, if applicable; and (ii) is encouraged to work with borrowers who submit incomplete documentation to obtain a complete BRP but is not required to send an Incomplete Information Notice. Fannie Mae is eliminating all Servicing Guide requirements related to a substantially complete BRP, and thus servicers need no longer postpone foreclosure due to the receipt of a substantially complete BRP. But when a borrower has been offered a workout based on a complete BRP, the servicer must not refer the loan to foreclosure or proceed with the motion for judgment or order of sale until the borrower’s time period for submitting the initial payment to accept the offer has expired without payment. The announcement also states that, where additional amounts have accrued and/or the due dates of the initial workout offer have changed because the borrower was awaiting the outcome of the appeal decision, the servicer must adjust the payment amount of the initial offer, use the same adjustment approach on all Fannie Mae loans, and reissue the initial offer to reflect adjusted dates or amounts. Finally, servicers are no longer required to refer a mortgage loan secured by a principal residence to foreclosure within 5 business days after the 121st day of delinquency.
Freddie Mac Updates Foreclosure, Expense Reimbursement Requirements
On May 15, Freddie Mac issued Bulletin 2014-09, which updates foreclosure requirements to (i) permit servicers to begin utilizing the New York Foreclosure Inquest Program as an alternative foreclosure process to accelerate foreclosure actions in New York; (ii) provide servicers with greater flexibility on when to refer a mortgage secured by a primary residence to foreclosure; and (iii) revise foreclosure sale bidding requirements in states with the right of redemption. In addition, the announcement updates expense reimbursement requirements by (i) adding six new income codes for submitting expense reimbursement claims in the Freddie Mac Reimbursement System; and (ii) allowing permitted vendors access to the Reimbursement System for the purpose of submitting claims for servicer reimbursement using the expense and income codes listed in Guide Exhibit 74, Expense and Income Codes for Expense Reimbursement Claims. The announcement also includes several miscellaneous servicing policy changes including (i) an updated submission requirement for multipurpose loan transmittals; (ii) an extended submission time frame for subsequent transfers of servicing requests; (iii) new contact information for reporting a proposed or confirmed reorganization plan that includes a bankruptcy cramdown; and (iv) adding the service loans application to the list of tools and applications that are available to assist servicers in the monitoring of loans.
Federal District Court Rejects Putative Class Challenge To Servicer's Compliance With IFR Order
On May 12, the U.S. District Court for the Western District of Kentucky held that it lacks jurisdiction to review allegations that a mortgage servicer operating under an OCC consent order was negligent in its maintenance of records related to the order. Harris v. Citimortgage, Inc., No. 13-783, slip op. (W.D. Ky. May 12, 2014). The case stems from an amended OCC consent order entered in 2013 as part of the government’s decision to halt the Independent Foreclosure Review Process. The borrower in this action claimed, on behalf of herself and a class of similarly situated borrowers, that one of the settling servicers failed to keep up-to-date records and failed to exercise reasonable care in the maintenance of those records, resulting in the borrower’s foreclosure status being incorrectly classified and the borrower being paid less money under the order than she would have been if she her status had been properly classified. The court explained that the consent order requires the OCC to validate the categorization of borrowers, and that the payments to borrowers are established by the OCC at its discretion. To assess the borrower’s negligence claim, the court would be required to review the OCC’s validation of the borrower’s categorization and payment, which the court is prohibited from doing under federal law. The court dismissed the borrower’s action.
GAO Recommends Enhanced Oversight Of Independent Foreclosure Review Settlements
On April 29, the GAO published a report on its examination of the 2013 amended consent orders that ended the Independent Foreclosure Review process. After testing the regulators' major assumptions, the GAO concludes “that the final negotiated amount generally fell within a reasonable range.” However, the GAO criticizes the regulators for not defining specific objectives for the $6 billion in foreclosure prevention actions required by the settlements, for not analyzing available data, such as servicers' recent volume of foreclosure prevention actions, and for not analyzing approaches by which servicers' actions could be credited toward the total of $6 billion. In addition, the GAO found that while the OCC and the Federal Reserve are verifying servicers' foreclosure prevention policies, they are not testing policy implementation. The GAO believes that without specific procedures, regulators cannot assess implementation of the principles and may miss opportunities to protect borrowers. The GAO recommends that the OCC and the Federal Reserve Board “should define testing activities to oversee foreclosure prevention principles and include information on processes in public documents.” The GAO also believes the regulators should release publicly information on the processes used, such as how decisions about borrower payments were made, and that “[i]n the absence of information on the processes, regulators face risks to public confidence in the mortgage market, the restoration of which was one of the goals of the file review process.”
California Appeals Court Holds Judgment Creditor's Forbearance Fees Not Subject To State Usury Law
On April 25, the California Court of Appeal, First District, held that California’s usury law does not prohibit a judgment creditor from accepting a forbearance fee to delay collecting on a judgment. Bisno v. Kahn, No. A133537, 2014 WL 1647660 (Cal. Ct. App. Apr. 25, 2014). In consolidated cases, the judgment creditors agreed to delay executing on their judgments in exchange for the payment of forbearance fees in addition to statutory post-judgment interest on the unpaid balance of the judgments. The judgment debtors subsequently claimed the forbearance fees are usurious and sought treble damages against the creditors. The court held that because the state’s usury law does not expressly prohibit a party from entering into an agreement to forbear collecting on a judgment, usury liability does not extend to judgment creditors who receive remuneration beyond the statutory interest rate in exchange for a delay in enforcing a judgment. The court added that a forbearance agreement is a contract between the judgment creditor and the judgment debtor that is separate from the judgment to which it applies, and therefore must be enforced in a separate contract action and is subject to standard contractual defenses such as duress and unconscionability.
Maine Allows Expedited Foreclosure Of Abandoned Properties
On April 5, Maine Governor Paul LePage signed into law LD 1389, which expedites foreclosures on properties determined by a court to be abandoned by shortening the redemption period from 90 to 45 days. The bill also shortens the period of time within which an action can be filed to challenge the validity of a governmental taking of real property for nonpayment of property taxes from 15 to five years after the expiration of the redemption period. This shorter challenge period applies where the tax lien is recorded after October 13, 2014. The law takes effect 90 days after the legislative session adjourns.