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FHFA Issues Final Rule on Private Transfer Fees
On March 15, the Federal Housing Finance Agency (FHFA) issued a final rule to limit the ability of Fannie Mae, Freddie Mac and the Federal Home Loan Banks to deal in mortgages on properties encumbered by certain types of private transfer fee covenants and in certain types of related securities. The rule generally applies, with some exceptions, only prospectively to private transfer fee covenants created on or after the date of publication of the proposed rule, Feb. 8, 2011, and regulated entities must comply with the rule by July 16, 2012. The final rule largely mirrors the proposed rule, though the FHFA did make some changes in response to comments. For example, as described more fully in Section IV of the final rule, (i) certain changes ensure that the rule clearly restricts any activity dealing in mortgages on property encumbered by private transfer fee covenant, (ii) the exception for fees imposed by a court judgment, order or decree was removed, and (iii) the rule now will not apply to private transfer fee covenants imposed pursuant to a litigation settlement agreement or an agreement approved by a government body before February 8, 2011.
Freddie Mac Updates Multiple Servicing Requirements
On March 13, Freddie Mac issued Bulletin 2012-7 providing several updates to its Single-Family Seller/Servicer Guide. Effective immediately, Freddie Mac has revised the definition of “REO rollback” to include additional circumstances beyond bankruptcy petition filings and is requiring servicers to communicate an “REO rollback” through a new REO Rollback Request mailbox. Freddie Mac also announced in the Bulletin that (i) new and revised compensatory fees related to research and construction, “REO rollback”, and reporting noncompliance will be instituted under the Servicing Success Program; (ii) submission of requested file documentation that a servicer initially failed to provide under the Servicer Success File Review does not constitute an appeal; and (iii) upcoming enhancements to the Servicing Success Program will treat standard modification mortgages in the same manner as HAMP mortgages.
FHFA IG Recommends Improved Freddie Mac Servicer Oversight
On March 7, the Inspector General (IG) of the FHFA published a report related to the FHFA’s supervision of Freddie Mac’s controls over mortgage servicing contractors. The report found areas in which the FHFA could enhance its supervision of Freddie Mac’s controls over those contractors. Specifically, the report found with regard to servicer oversight that the FHFA has not (i) clearly defined its role, (ii) sufficiently coordinated with other federal banking agencies, or (iii) addressed emerging risks in a timely manner. The IG recommends that the FHFA (i) promulgate comprehensive regulations or guidance regarding servicer oversight, (ii) direct Freddie Mac to implement servicer performance metrics more broadly, and (iii) improve existing procedures for coordinating with other federal agencies. The report includes a response letter from the FHFA, which highlights the FHFA servicing oversight initiatives to date and indicates whether and how the FHFA plans to implement the IG’s recommendations.
FHFA Provides Strategic Plan Implementation Scorecard, Announces Executive Compensation Reductions
On March 9, the Federal Housing Finance Agency (FHFA) released a “scorecard” that details the implementation of its recently released strategic plan for Freddie Mac and Fannie Mae. The scorecard provides specific measures Fannie and Freddie will take in executing the strategic plan. It also identifies timetables for implementation of each objective. Contemporaneously, the FHFA released details of its 2012 compensation program for Fannie Mae and Freddie Mac executives. The program reduces total direct compensation by ten percent and eliminates bonuses. The program also sets $500,000 as the target annual salary for new CEOs.
Freddie Mac Announces Seller/Servicer Guide Updates To Implement Higher G-Fees
On February 29, Freddie Mac issued Bulletin 2012-06, which details Freddie Mac’s implementation of an upcoming increase in required spreads. As previously announced, effective April 1, 2012, Freddie Mac is increasing the required spreads for all products by 10 basis points. For Mortgages sold through the Freddie Mac Selling System Selling System, the 10 basis point increase is being implemented through the use of g-fee add-on functionality, and Freddie Mac has created a new Guide exhibit identifying the 10 basis point increase as the “Payroll Tax Cut Act Gfee Add-On.” Freddie Mac also has made a commensurate change in the pricing Sellers receive for Mortgages sold under the cash program. For all other delivery paths and executions, the 10 basis point increase will be reflected in the pricing provided to sellers.
FHFA Takes Initiative on Idled Housing Finance Reform
On February 21, the Federal Housing Finance Agency (FHFA) submitted a strategic plan outlining the next phase of its conservatorship of Fannie Mae and Freddie Mac (the Enterprises). FHFA’s plan is in part a response to requests from lawmakers, including requests made during a December 2011 hearing. FHFA states that it will seek to build a new infrastructure for the secondary mortgage market, contract the Enterprises’ current market dominance, and maintain the Enterprises’ roles in foreclosure prevention activities and refinance initiatives. FHFA also outlines the legal authority under which it plans to act.
Until Congress can enact broader housing finance reform, FHFA envisions moving the Enterprises into a single open-architecture securitization platform that could become a type of public utility that would outlast the Enterprises. This move would also be accompanied by uniform standards for underwriting, disclosures, and servicing, and a robust and standard pooling and servicing agreement. FHFA will also contract Enterprise operations by (i) working to shift mortgage credit risk to private investors through some combination of increasing the g-fee, establishing loss sharing arrangements, and/or expanding reliance on mortgage insurance; (ii) directing the Enterprises to conduct a market analysis of the viability of their multifamily operations without government guarantees; and (iii) considering whether to retain each Enterprise's capital markets expertise to manage portfolios, or to hire a third-party investment firm to manage the portfolios. Finally, the FHFA asserts that it will maintain foreclosure prevention efforts and credit availability by (i) continuing existing programs such as the Servicing Alignment Initiative, HARP, and REO disposition initiatives; (ii) aligning and making policies for representations and warranties more transparent, in conjunction with the ongoing Uniform Mortgage Data Program; and (iii) pursuing lawsuits alleging securities law violations in private-label mortgage-backed securities purchased by the Enterprises.
The FHFA paper notes that these strategic goals and plans are consistent with each of the housing finance reform options identified in a February 2011 Obama administration report to Congress, as well as "leading legislative proposals." However, the paper also reminds legislators that fully addressing the Enterprises and the federal government's role in the secondary mortgage market will require congressional action, which should not be impaired by the FHFA's immediate pursuit of its strategic goals. For additional details on the strategic plan, please click here.
Freddie Mac Releases Detailed Procedures for Tracking Expenses
On February 15, Freddie Mac published Single Family Seller/Servicer Guide Bulletin 2012-5 to implement new requirements related to the City of Chicago’s Vacant Property Ordinance. As previously reported, the FHFA sued Chicago over the ordinance, which requires lenders to register vacant properties and pay a $500 registration fee per property. Whether the property has been foreclosed upon or not, the ordinance also imposes maintenance and other obligations on lenders and their agents (including servicers, Fannie Mae, and Freddie Mac), and includes fines for non-compliance. The Bulletin, which follows up on a December 12 industry notice, establishes procedures for tracking and submitting expenses incurred pursuant to the ordinance and directs servicers to make required payments “under protest.” The Bulletin also eliminates the requirement for servicers to obtain prior consent from Freddie Mac to decline an application for a Mortgage assumption and reinforces the requirement that the servicer, for itself and on behalf of Freddie Mac, must waive all rights to seek deficiencies for short payoffs and deed-in-lieu of foreclosure transactions on Freddie Mac mortgages that have closed in accordance with the Guide.
Fannie Mae Discontinues National Monthly Median Cost of Funds Index and Revises Delinquency Status Code Descriptions
On February 15, Fannie Mae issued a notice to servicers advising that, effective March 15, 2012, servicers must use the Federal Cost of Funds Index published by Freddie Mac instead of the National Monthly Median Cost of Funds Index for adjustable rate mortgages. Also on February 15, Fannie Mae issued a servicing notice to clarify the descriptions of certain mandatory effective or completion date requirements for delinquency status codes announced in June 2011.
Freddie Mac Updates Selling Guide Regarding Guaranteed Rural Housing and Newly Constructed Homes, Advises Sellers Regarding SEC Disclosures
On February 10, Freddie Mac issued Bulletin 2012-4 with updates to the Single Family Seller/Servicer Guide regarding mortgages for newly constructed homes and mortgages under the Rural Housing Service’s Guaranteed Rural Housing (GRH) loan program. Effective immediately, the terms “Newly Built Home Mortgage” and “Mortgages for Newly Constructed Homes” have been removed from the Guide as unnecessary in light of other changes. With respect to nonassumable GRH mortgages, effective as to settlements on or after June 1, 2012, such loans must be sold to Freddie Mac with recourse and with Freddie Mac’s written approval in the Purchase Documents, but a minimum Indicator Score of 620 is no longer required.
On the same day, Freddie Mac advised all sellers that it had filed its initial report pursuant to a new SEC rule requiring public disclosure of information regarding asset-backed securities loan repurchase requests, including the identity of the originator. It will continue to disclose such information in quarterly reports to the SEC beginning in May 2012.
Obama Administration Expands Housing Recovery Plans
On February 1, President Obama unveiled a plan to expand government support for the housing market, including a broad-based refinancing plan. The plan, announced during the President's State of the Union Address, combines changes to existing programs and creation of new initiatives, some of which will require congressional action. First, the President will ask Congress to enact legislation to allow the Federal Housing Administration (FHA) to provide government support for the refinancing of non-Fannie Mae and non-Freddie Mac mortgages. The $5 to $10 billion program would be funded by a fee imposed on the largest financial institutions. For borrowers with Fannie Mae or Freddie Mac loans, the legislation would further streamline existing refinance programs and create incentives for borrowers to accept shorter loan terms to build equity. Second, the administration will continue its work to create new mortgage origination and servicing standards in an effort to create a Homeowner Bill of Rights. Third, the Federal Housing Finance Agency (FHFA) will conduct a pilot program through which it will sell foreclosed properties to be transitioned into rental housing. Finally, the President's upcoming budget will include a national program to put unemployed construction workers back to work refurbishing vacant and foreclosed properties.
The President also highlighted the work of the recently-formed Residential Mortgage-Backed Securities Working Group, and reviewed the success of existing government efforts (e.g., those related to unemployment forbearance). Further, the announcement incorporated a Treasury Department move last week to enhance the Home Affordable Modification Program (HAMP) by (i) extending HAMP's deadline through December 31, 2013, (ii) expanding borrower eligibility for HAMP, and (iii) encouraging use of principal reduction for loans insured or owned by Freddie Mac or Fannie Mae. In response, the FHFA reiterated its opposition to use of principal reduction by Fannie Mae and Freddie Mac.