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Fannie Mae & Freddie Mac Announce Numerous Selling Guide Updates
On May 15, Fannie Mae issued Selling Guide Announcement SEL-2012-04, which includes numerous changes to various Selling Guide topics. To address questions from lenders, the Announcement enhances and clarifies certain DU Refi Plus and Refi Plus requirements in connection with HARP program modifications. Fannie Mae also updated the eligibility and underwriting requirements for DU Refi Plus and Refi Plus to specifically permit financing provided through state Hardest Hit Fund programs to be used to pay down the mortgage balance at closing or to pay closing costs. All of the DU Refi Plus and Refi Plus updates are detailed in an attachment to the Announcement. A second attachment provides myriad updates to Fannie Maes employment and income policies, which are designed to provide additional flexibility and efficiency in processing employment and income documentation. The Announcement also includes miscellaneous Guide changes, including changes to Fannie Maes (i) restructured mortgage loan policy, (ii) Eligibility Matrix, (iii) eCommitONE Users Guide, and (iv) Standard ARM Plan Matrix. Also on May 15, Freddie Mac issued Bulletin 2012-11, which amends and adds a number of selling requirements, many of which are effective immediately. The Bulletin permits federally regulated sellers to conduct Electronic Transactions using electronic versions of certain loan documents during the initial loan origination process. Several new Guide provisions also are included in the Bulletin. The new requirements: (i) entitle Freddie Mac to recapture premiums and buyups associated with mortgages that are paid off within 120 days of their sale to Freddie Mac, regardless of the reason for the payoff; (ii) remove the requirement that ARMs sold to Freddie Mac have a note rate, margin, and lifetime ceiling that are divisible by one-eighth of one percent; (iii) prohibit the sale of Mortgages encumbered by certain private transfer fee covenants as of July 16, 2012; and (iv) cease Freddie Macs practice of purchasing mortgages originated on Fannie Mae balloon documents as of September 1, 2012. The Bulletin also notifies sellers that Freddie Mac will contact customers with counterparty authorization (CPA) compliant accounts for resubmission of outdated CPA compliance forms. Finally, the Bulletin reiterates guidance from a number of previous bulletins and email updates regarding Freddie Mac Relief Refinance Mortgages and UAD Field-Specific Standardization Requirements.
New York Federal Court Denies Motion to Dismiss FHFA Mortgage-Backed Securities Case
On May 4, the U.S. District Court for the Southern District of New York denied, in large part, a motion to dismiss one of the many pending mortgage-backed securities (MBS) cases brought by the Federal Housing Finance Agency (FHFA). Federal Housing Finance Agency v. UBS Americas, Inc., No. 11-5201, 2012 WL 1570856 (S.D.N.Y. May 4, 2012). The court’s decision allows FHFA’s federal securities action to proceed while dismissing related state law negligent misrepresentation claims. In July 2011, as conservator for Fannie Mae and Freddie Mac (the GSEs), FHFA initiated multiple lawsuits alleging that billions of dollars of MBS purchased by the GSEs were based on offering documents that “contained materially false statements and omissions.” Defendants in the instant case argued that these claims were time-barred. FHFA countered that the Housing and Economic Recovery Act of 2008 (HERA) controlled questions of timeliness, a point on which the court agreed in refusing to dismiss related federal claims. In this regard, the court concluded that a reasonably diligent plaintiff (here, the FHFA) could not have “discovered” the underlying federal claim within the year before the GSEs were placed into conservatorship. Rather, such a plaintiff could only have “discovered” this claim when the securities were “downgraded from investment grade to near-junk status,” which was less than a year before conservatorship.
Freddie Mac Appoints New CEO, OCC Names Senior Deputy Comptroller
On May 10, Freddie Mac announced that Donald Layton will serve as the organization’s Chief Executive Officer. Mr. Layton will join the firm on May 21, 2012. Mr. Layton has served as chairman & CEO of E*TRADE Financial and worked for nearly 30 years at JP Morgan Chase and its predecessors.
On May 7, the Office of Comptroller of the Currency announced the hiring of Paul Nash to succeed John Walsh as Senior Deputy Comptroller and Chief of Staff. Mr. Nash comes from the FDIC, where he served for two years as the Deputy to the Chairman for External Affairs.
Freddie Mac Adjusts Residential Loan Mitigation Options
On April 23, Freddie Mac issued Servicer Guide Bulletin 2012-10, which expands and adjusts certain loss mitigation options to offer additional assistance to struggling borrowers. With regard to state housing finance agency borrower assistance programs, the Bulletin provides requirements for servicer participation in programs funded by the Hardest Hit Fund, and consolidates all requirements related to participation in such programs. Among other things, the Bulletin also implements a previously announced extension of the HAMP and HAFA programs through December 2013, and revises HAMP eligibility requirements for permanent modifications.
FHFA Calls for Streamlined Short Sales, Freddie Mac Updates Short Sale Requirements
On April 17, the FHFA directed Fannie Mae and Freddie Mac to develop procedures for streamlining short sales, deeds-in-lieu and deeds-for-lease in order to avoid foreclosures. Under the new Fannie Mae and Freddie Mac policies, servicers will be required to (i) review and respond to requests for short sales within 30 calendar days from receipt of a short sale offer and a complete borrower response package, (ii) provide weekly status updates to the borrower if the short sale offer is still under review after 30 calendar days, and (iii) make and communicate final decisions to the borrower within 60 calendar days of receipt of the offer and complete borrower response package. Also on April 17, Freddie Mac issued Servicing Guide Bulletin 2012-09, which clarifies existing requirements and adds new minimum requirements for communication timelines for Home Affordable Foreclosure Alternatives Short Sales and short sales processed under Guide Chapter B65. Servicers are encouraged to begin implementing the new requirements as soon as possible, but must do so for all new borrower evaluations conducted on or after June 15, 2012.
Senators Offer FHFA Suggestions for HARP Program Adjustments
On March 30, Senate Banking Committee Democrats, led by Chairman Tim Johnson, sent a letter to Acting Director of the Federal Housing Finance Agency, Edward DeMarco, suggesting changes to the Home Affordable Refinance Program (HARP) to facilitate additional refinancings. In their letter, the Senators endorsed policy changes suggested in a January 2012 Federal Reserve Board white paper, including (i) reducing or eliminating remaining loan-level price adjustments for HARP refinances where Fannie Mae and Freddie Mac already carry the credit risk on the original mortgage, (ii) streamlining the financing process for borrowers with loan-to-value ratios below 80 percent, and (iii) more comprehensively reducing putback risk in order to remove disincentives for servicers to refinance. The letter was in response to a request for suggestions that Mr. DeMarco made during a February 28, 2012 Senate Banking Committee hearing.
Freddie Mac Issues Selling System Conversion Reminder
On March 23, Freddie Mac issued a reminder that on April 23, 2012, the selling system will be updated to reflect Uniform Loan Delivery Dataset named fields and layout. To assist sellers and provide information as to what is changing in the system, Freddie Mac issued a job aid identifying, among other things, (i) what to do before the system conversion, (ii) changes to export functionality, and (iii) expectations for historical data conversion.
FHFA IG Issues Report on Fannie and Freddie Conservatorship
On March 28, the Inspector General (IG) for the Federal Housing Finance Agency (FHFA) published a white paper that provides a general assessment of the FHFAs conservatorship of Fannie Mae and Freddie Mac (the enterprises). The report provides background on the FHFA's oversight regime noting that it has evolved from one that strictly supervised the enterprises activities, to one that allows more operational decision-making at the enterprise level. The IG argues that the FHFA should assume a more active role in managing the enterprises and specifically notes that the FHFA (i) does not independently test and validate enterprise decision-making and (ii) is not sufficiently proactive in its oversight and enforcement of enterprise activity. The white paper acknowledges the significant challenges that the FHFA faces in its mission and provides a discussion of the tensions presented by FHFAs dual role as conservator and regulator.
FHFA IG Releases Results of Three Reviews
On March 22, the Office of Inspector General for the Federal Housing Finance Agency (FHFA IG) released the results of the following audit and surveys: (i) an audit of Fannie Maes single-family underwriting standards, (ii) a survey of FHFAs oversight of the charitable activities of Fannie Mae and Freddie Mac, and (iii) a survey of FHFAs oversight of Fannie Maes and Freddie Macs expenses related to the 2011 Mortgage Bankers Association Convention. The FHFA IG found that FHFAs oversight of Fannie Maes underwriting is limited, so FHFA should strengthen and formalize its processes for reviewing underwriting standards and variances. With regard to charitable contributions, the FHFA IG found that there is no need to conduct further evaluations because these contributions are scheduled to end by 2015. Similarly, the FHFA IG concluded that FHFAs new directive on conference sponsorships and expenditures for food will be sufficient if properly implemented.
Freddie Mac Publishes Revisions to Selling Requirements
On March 15, Freddie Mac published Single-Family Seller/Servicer Guide Bulletin 2012-8, which (i) updates mortgage eligibility and credit underwriting requirements Borrower Funds and Mortgage Credit Certificates for Borrower qualification, (ii) revises Forms 16SF and 1107SF regarding warehouse lender agreements and facilities, (iii) eliminates certain requirements for document custodians on Form 1034A, and (iv) updates certain delivery requirements under the Uniform Loan Delivery Dataset and clarifies delivery requirements for certain refinances under HARP.