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FHFA Announces Streamlined Modification Initiative
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.
FHFA Proposes Ban on Lender-Placed Insurance Sales Commission and Reinsurance Activities
On March 26, the FHFA released a notice seeking comment on certain restrictions it expects Fannie Mae and Freddie Mac (the Enterprises) will put in place with regard to lender placed insurance practices. The FHFA anticipates that the Enterprises will (i) prohibit sellers and servicers from receiving, directly or indirectly, remuneration associated with placing coverage with or maintaining placement with particular insurance providers; and (ii) prohibit sellers and servicers from receiving, directly or indirectly, remuneration associated with an insurance provider ceding premiums to a reinsurer that is owned by, affiliated with or controlled by the sellers or servicer. The final restrictions will be issued by the Enterprises as aligned guidance to sellers and servicers four months after the close of the comment period, which will run for 60 days from the date of publication of the notice in the Federal Register. Pursuant to that timeline, a final policy could be expected in late September or early October.
Freddie Mac Releases Additional Loan-Level Data
On March 21, Freddie Mac released historical loan-level credit performance data on a portion of the fully amortizing 30-year, fixed-rate single-family mortgages it purchased during the past 13 years. The data-set is comprised of 35 loan-level data elements, including credit score, loan purpose, actual unpaid principal balances, and repurchase flag, and covers delinquencies of up to and including 180-days. Specific performance information in the dataset includes voluntary prepayments, repurchases and loan modifications, and loans that were short sales, deeds-in-lieu of foreclosure, third party sales, and REOs. Further, the release includes publication of the (i) name of the seller that delivered each loan at the time Freddie Mac purchased or securitized the loan, and (ii) the name of the servicer as of the earlier loan termination or the active servicer as of June 2012. Freddie Mac plans to update the data each quarter and may in the future include more recent productions, other mortgage product types, and additional data elements.
Freddie Mac Files Suit over Losses Due to Alleged LIBOR Manipulation
On March 14, Freddie Mac sued 15 banks and the British Bankers’ Association (BBA), claiming that the institutions manipulated the London Interbank Offered Rate (LIBOR) and caused substantial losses to Freddie Mac on investment activities tied to LIBOR. Fed. Home Loan Mortg. Corp. v. Bank of Am. Corp., No. 13-342 (E.D. Va. filed Mar. 14, 2013). LIBOR is a global benchmark rate used in financial products and transactions, and during the time period covered by the complaint it was set using data from the banks, under the auspices of the BBA. Freddie Mac alleges that the banks deliberately suppressed the rate to hide their financial condition and boost profits, while the BBA participated in the rate fixing to protect revenue generated by selling LIBOR licenses. As a result, Freddie Mac claims it suffered losses on pay-fixed, receive-floating interest rate swap transactions indexed to LIBOR, and mortgage-backed securities in which coupon payments or the underlying collateral were indexed to LIBOR. The mortgage financing enterprise, which currently is in U.S. government conservatorship, alleges that the banks engaged in fraud, breached their contracts with Freddie Mac, and violated antitrust laws. Freddie Mac seeks full damages for all economic, monetary, actual, consequential, and compensatory damages, treble damages under the Sherman Act, and punitive damages. Some of the banks already have settled civil and criminal enforcement actions by U.S. and foreign authorities, and the institutions face other private claims related to the alleged LIBOR conduct.
FHFA OIG Issues Report on Servicers' Borrower Complaint Handling
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.
FHFA Outlines 2013 Objectives for Fannie Mae and Freddie Mac
On March 4, FHFA Acting Director Edward DeMarco sketched out the FHFA’s plans for Fannie Mae and Freddie Mac (the Enterprises) in 2013. These measures implement the Strategic Plan issued in February 2012 that identified three goals for the Enterprises: (i) build a new infrastructure for the secondary market, (ii) contract the Enterprises’ presence in the secondary market, and (iii) maintain foreclosure prevention activities. In 2013, the FHFA expects to support its first goal by creating an independent business entity that will serve as a securitizing platform. To continue contracting the Enterprises’ presence, the FHFA (i) has asked each Enterprise to conduct risk sharing transactions to meet a target of $30 billion of unpaid principal balance in credit risk sharing transactions, (ii) plans to continue increasing guarantee fees, (iii) aims to reduce multifamily business volume by 10 percent, and (iv) plans to sell five percent of the less liquid portion of the enterprises retained portfolios. Finally, on foreclosure prevention, the FHFA expects to (i) enhance the post-delivery quality control practices and transparency associated with the new representation and warranty framework, and (ii) work to complete representation and warranty demands for pre-conservatorship loan activity. In addition to making strides on the three prongs of its Strategic Plan, the FHFA plans to (i) update master policies and formulate eligibility standards for mortgage insurance, and (ii) develop a set of aligned standards for force placed insurance.
Servicers Granted Broad Discretion in Effort to Accelerate Release of Sandy Insurance Funds
On February 26, New York Governor Andrew Cuomo announced that Fannie Mae, through Lender Letter LL-2013-03, and Freddie Mac, through Bulletin 2013-4, implemented new rules to accelerate the release of insurance proceeds to homeowners affected by Hurricane Sandy by reducing restrictions on how banks and mortgage servicers may release insurance money. Effective immediately, for borrowers who were current on their payments before Sandy and have less than 80 percent damage to their homes, Fannie Mae and Freddie Mac servicers have broad discretion to disburse insurance proceeds. The New York Department of Financial Services urged banks and mortgage servicers to immediately adjust their policies and begin using the new discretion to release insurance funds to covered borrowers.
Freddie Mac Issues Numerous Loss Mitigation Policy Updates
On February 15, Freddie Mac issued Bulletin 2013-3, which provides a series of updates and revisions to its loss mitigation policies. The Bulletin reminds servicers of their obligations with regard to various transfers of property even where the only remaining borrower is a trust, and provides additional details about these obligations. Following Fannie Mae’s announcement last week, Freddie Mac similarly revised certain state foreclosure timelines and policies regarding compensatory fee calculations and reimbursement for property inspections. Effective for mortgages that become delinquent as of June 1, 2013, Freddie Mac will no longer provide a list of states in which servicers are required to preserve Freddie Mac’s right to pursue a deficiency. Instead, in all instances where additional attorney fees/costs will not be incurred above the approved expense limits, servicers must preserve Freddie Mac’s right to pursue a deficiency so that Freddie Mac may decide on a case-by-case basis whether to pursue the deficiency. The Bulletin also notifies servicers that Freddie Mac is eliminating a requirement announced in Bulletin 2012-17 that, for servicers participating in state modification programs, the modification include partial principal forbearance. Finally, the Bulletin also (i) revises Guide Form 710, Uniform Borrower Assistance Form, and medical hardship documentation requirement; (ii) revises requirements related to the verification of alimony, child support and separate maintenance income; (iii) expands the Freddie Mac Service Loans application process to enable servicers to obtain a property value and minimum net proceeds for borrowers being considered for a standard short sales and are less than 31 days delinquent; and (iv) updates the Guide to reflect that the Home Affordable Foreclosure Alternatives initiative is no longer an option in the loss mitigation evaluation hierarchy.
House Democrats Urge President Obama to Nominate FHFA Director
On February 7, 45 Democratic Members of the House of Representatives sent a letter to President Obama requesting he nominate a permanent director for the FHFA to replace Acting Director Edward DeMarco. The Members object to the FHFA’s decision not to direct Fannie Mae and Freddie Mac to offer principal reduction assistance to troubled borrowers. The FHFA and Mr. DeMarco believe that principal forgiveness does not improve foreclosure avoidance while reducing costs to taxpayers relative to existing policies. In their letter, the Members argue that the FHFA’s decision under Mr. DeMarco is contrary to the intent of the federal law that created the FHFA as conservator. Further, the Members charge that Mr. DeMarco’s stated reasoning has been contradicted by the FHFA’s own data, which indicates that principal reduction loan modifications could save U.S. taxpayers billions of dollars compared to both allowing underwater homes to go into foreclosure, and the FHFA’s preferred alternative of principal forbearance. In support of their position that a new director is needed to properly implement congressional directives meant to support the housing market, the Members also cite (i) the FHFA’s decision not to allow the implementation of a principle forgiveness pilot program, and (ii) recently proposed increased state-level guarantee fees charged by Fannie Mae and Freddie Mac in certain states.
HUD, FHFA Extend Foreclosure Protections for Hurricane Sandy Victims
On January 31, HUD and the FHFA announced that the FHA, Fannie Mae, and Freddie Mac will extend for an additional 90 days protections against foreclosure actions for borrowers whose properties were damaged or destroyed due to Hurricane Sandy. Those protections were set to expire on January 31, 2013. For borrowers in certain counties, FHA is extending until April 30, 2013 its foreclosure moratorium and eviction suspension. Fannie Mae, through Lender Letter LL-2013-02, and Freddie Mac, through Bulletin 2013-1, also are extending their foreclosure and eviction moratoriums through the end of April.