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Freddie Mac, Fannie Mae Update Short Sale, Deed-In-Lieu Of Foreclosure Requirements
On November 25, Freddie Mac issued Bulletin 2013-24 and Fannie Mae issued Servicing Guide Announcement SVC-2013-23, which revised numerous short sale and deed-in-lieu of foreclosure (DIL) requirements. The enterprises updated, among other things, eligibility requirements for exceptions to borrower documentation for short sales and DILs by (i) permitting a borrower whose mortgage debt has been discharged in a Chapter 7 bankruptcy to be eligible for an exception to documentation, regardless of FICO score; and (ii) removing mortgages that were originated as investment properties from eligibility for an exception to documentation. The enterprises also required servicers to: (i) submit a short sale or DIL recommendation for approval when the borrower’s cash reserves exceed $50,000; and (ii) delay, or ensure that foreclosure counsel delays, the next legal action in the foreclosure process when such servicers receive a first complete borrower response package (BRP) more than 37 days prior to a scheduled foreclosure sale date, and the evaluation results in an offer to proceed with a short sale or DIL. Finally, the enterprises revised the timeframes within which servicers are required to conduct an expedited review of a completed BRP and updated requirements relating to borrower appeals.
Governor Yellen Addresses Bank Director Removal Over Foreclosure Practices; Lawmakers Press Regulators On Independent Foreclosure Review Details
On November 18, Federal Reserve Chair nominee Janet Yellen responded to a recent inquiry by Senator Elizabeth Warren (D-MA) seeking more details about the Federal Reserve Board’s process for determining whether bank officers or directors should be removed because they directly or indirectly participated in the alleged violations that have resulted in various mortgage servicer settlements. Governor Yellen stated that the Federal Reserve Board “has not, to date, taken any actions removing or prohibiting insiders of the mortgage servicing organizations that were subject to the 2011 and 2012 mortgage servicing enforcement actions for their conduct in connection with servicing or foreclosure activities”, but “[the Federal Reserve Board is], however, continuing to investigate whether such removal or prohibition actions are appropriate.” In addition, on November 15, Senator Warren, joined by Representatives Elijah Cummings (D-MD) and Maxine Waters (D-CA), again pressed the Federal Reserve Board and the OCC to release a public report on the Independent Foreclosure Review process. This latest request follows other similar requests made earlier this year.
HUD Updates Foreclosure Procedures, Pre-Foreclosure Borrower Communication Policies
On October 28, HUD issued two mortgagee letters related to the servicing of certain FHA-insured loans. Mortgagee Letter 2013-38 provides a list of the first legal actions necessary to initiate a foreclosure and the reasonable diligence timeframes for completing foreclosure and acquisition of title in each state. The letter also outlines acceptable delays in those timeframes due to mediation or bankruptcy, or when a separate legal action is necessary to acquire possession of the title. In addition, the letter provides a new schedule of allowable attorney fees by state for services performed in connection with a mortgage default. The updated reasonable diligence timeframes apply to all cases in which the first legal action to initiate foreclosure occurs on or after November 1, 2013. The updated attorney fees are effective for all cases in which certain actions occur on or after November 1, 2013. Mortgagee Letter 2013-39 updates the timelines servicers must follow for collection communications, advises servicers regarding early engagement in loss mitigation, outlines staffing requirements to support timely borrower communications, and provides guidance on the timing, content, and method of delivery for collection letters and other borrower communications. This letter also advises servicers to pay special attention to borrowers at risk of early payment default and re-default, and provides specialized collection techniques for such borrowers. Finally, this letter details the FHA’s expectations for escalating borrower inquiries and complaints that allege (i) improper analysis of borrower information or denials of loss mitigation options, (ii) foreclosures initiated or continued in violation of HUD’s policy, or (iii) any other violations of HUD collections and loss mitigation policies. This guidance is effective for all mortgages in default as of January 1, 2014.
Fannie Mae Announces Servicing Policy Changes
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.
Freddie Mac Updates Foreclosure, Abandoned Property Requirements
On October 18, Freddie Mac issued Bulletin 2013-22, which updates servicing requirements related to foreclosures and management of abandoned properties. The Bulletin states that servicers may, without obtaining prior written approval, instruct foreclosure counsel to conduct a foreclosure in Freddie Mac’s name when applicable law precludes the servicer from conducting the foreclosure in its own name, and establishes other requirements for servicers that do so. The Bulletin also updates requirements regarding vesting the title after foreclosure, stating that for conventional mortgages servicers must ensure that the title to the property is vested in Freddie Mac’s name (if the property is not purchased by a third party), unless it is in Freddie Mac’s best interest to have the title vested in the servicer’s name after the foreclosure sale, and then have the title to the property transferred to Freddie Mac via quitclaim deed. With regard to preservation of abandoned properties, the Bulletin, for example, (i) informs servicers of new expense codes and limits, (ii) introduces new pricing requirements for property preservation expense items that identify the per unit cost that Freddie Mac finds reasonable, and (iii) removes the requirement that servicers obtain pre-approval for reimbursement of certain vacant property registration fees. The Bulletin also announces certain other changes related to foreclosures and abandoned properties.
Fannie Mae Updates Standard Deed-In-Lieu of Foreclosure Requirements
On October 17, Fannie Mae issued Servicing Guide Announcement SVC-2013-21, which revises servicers’ responsibilities in finalizing standard deed-in-lieu of foreclosures (DILs). Servicers now must (i) complete a final interior property inspection no more than two business days following the receipt of the executed deed and all related documents, (ii) not complete final acceptance of the executed DIL until after they have received the results of the final property inspection, (iii) submit the case into HomeSaver Solutions Network (HSSN), regardless of the transition option chosen, to complete final acceptance of the DIL, and (iv) submit the REOgram within 24 hours of the date the servicer completes final acceptance of the executed DIL. The announcement also excludes from the three-month transition option program eligibility criteria the following requirements: (i) that at least three payments have been made since origination or since the last modification, (ii) that the loan is not 12 or more months delinquent when referred to Fannie Mae for transition option consideration, and (iii) that the borrower is not involved in an active bankruptcy proceeding. Finally, the announcement informs servicers that they are no longer required to ensure that a borrower will assign and transfer any rents to Fannie Mae and will collect rental income.
Massachusetts Finalizes Debt Collection and Loan Servicing Rule
On October 17, the Massachusetts Division of Banks released final regulations intended to parallel and supplement new mortgage servicing requirements promulgated by the CFPB and included in National Mortgage Servicing Settlement. The new regulations generally (i) prohibit third-party mortgage servicers from initiating a foreclosure when an application for a loan modification is in process, (ii) require that third-party mortgage servicers ensure that a creditor has the right to foreclose and that any foreclosure-related documents are properly prepared and executed based on personal knowledge, and (iii) mandate that third-party servicers provide a single point of contact for a borrower, follow detailed loan modification procedures, communicate with borrowers in a timely manner, and establish policies and procedures that ensure effective monitoring and oversight of certain third party providers (e.g., law firms, foreclosure firms, etc.). The new regulations also, among other things, (i) amend the definition of “debt collector” to include active debt buyers, (ii) clarify the definition of net worth for debt collectors, (iii) expand the limitations on contact with a consumer by a debt collector to include cellular telephone and text messaging, and (iv) add significant events of a debt collector and third party loan servicer that must be reported. The new requirements are effective immediately.
Pennsylvania Supreme Court Holds State Foreclosure Notice Requirements Do Not Impose Jurisdictional Prerequisites on Foreclosure Actions
On September 25, the Pennsylvania Supreme Court held that Pennsylvania state courts have jurisdiction over foreclosure actions where the foreclosing party may have failed to fully comply with the Pennsylvania Emergency Mortgage Act (Act 91) in providing notice of foreclosure. Beneficial Consumer Discount Co. v. Vukman, No. 29-WAP-2012, 2013 WL 5354330 (Pa. Sept. 25, 2013). A state trial court and intermediate appellate court set aside a judgment in a foreclosure action and subsequent sheriff’s sale, holding that the foreclosing party’s failure to comply with the Act 91’s foreclosure notice requirement stripped the state courts’ of subject matter jurisdiction. The Supreme Court disagreed and held that the pre-foreclosure requirements do not implicate the jurisdiction of the court—the borrower’s failure to pay the mortgage provided sufficient cause to pursue foreclosure. The court remanded the case to the trial court without addressing the foreclosing party’s arguments that its notice was sufficient because it was drafted by the state housing authority.
Fannie Mae, Freddie Mac Extend Streamlined Modifications, Announce HAMP Changes, Increase Certain State Foreclosure Timelines
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.
Fannie Mae Announces Requirements for Foreclosure Sale Eliminations and Rescissions
On September 18, Fannie Mae issued Servicing Guide Announcement SVC-2013-19, which establishes requirements for eliminations and rescissions of foreclosure sales, effective immediately. The announcement states that when a servicer identifies an issue that requires an elimination and/or rescission, the servicer must submit a request for elimination and/or rescission within five days of that identification. When Fannie Mae identifies an issue that requires a property to be eliminated from its REO inventory or a foreclosure sale to be rescinded, Fannie Mae will initiate the elimination and/or rescission process through a report to the servicer, which will list Fannie Mae’s decision for each servicer-requested elimination or rescission, as well as those eliminations and/or rescissions that Fannie Mae has processed. The servicer must then (i) review the report for notification of servicer-requested elimination/rescission approvals and Fannie Mae-processed eliminations/rescissions, (ii) add each eliminated file back into its servicer system within 24 hours of notification of approval or notification that the file has been eliminated by Fannie Mae, and (iii) resume managing the eliminated/rescinded file pursuant to the Servicing Guide.