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DOJ Secures Jury Verdict In First GSE Civil Fraud Suit
On October 23, a jury found a bank liable on one civil mortgage fraud charge arising out of a program operated by a lender the bank had acquired. The jury also found against a former executive of the acquired lender. The verdict followed a four week trial in the first DOJ case alleging violations of the FCA and FIRREA in connection with loans sold to Fannie Mae and Freddie Mac. Judge Jed Rakoff of the Southern District of New York will consider briefing on the penalty—the DOJ originally had sought damages close to $1 billion. The bank stated that it will evaluate its options for an appeal. For more information about the government’s expanding FCA/FIRREA civil fraud initiative, please visit our resource center.
Fannie Mae, Freddie Mac Issue Guidance Regarding CFPB Mortgage Servicing Rules
On October 11, Fannie Mae issued Servicing Guide Announcement SVC-2013-20 and Freddie Mac issued Bulletin 2013-21 to update their delinquency management and default prevention servicing requirements in response to the CFPB’s new mortgage servicing rules. These updated servicing requirements, which are effective for servicing activities completed on or after January 10, 2014, align with the CFPB’s final rules implementing the mortgage servicing provisions of RESPA and TILA. The policy changes announced by Fannie Mae and Freddie Mac include updates specific to mortgages secured by primary residences, as well as updates that apply to all mortgages. The servicing requirements affected by these policy changes, include, but are not limited to, (i) borrower inquiries and error resolution, (ii) written acknowledgement of a Borrower Response Package, (iii) early intervention and communication with delinquent borrowers, (iv) the evaluation of mortgage loan modification plans and the appeal process for the denial of such, (v) foreclosure referral and postponement, and (vi) pre-foreclosure reviews.
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.
Freddie Mac, Fannie Mae Offer Guidance Regarding Government Shutdown
On October 8, Freddie Mac issued Bulletin 2013-19 to provide guidance related to the federal government shutdown that began on October 1. Fannie Mae recently issued similar guidance in Lender Letter LL-2013-08. The guidance addresses income verification for new loans to government employees and reminds servicers of forbearance options for borrowers impacted by the shutdown.
Freddie Mac and Fannie Mae Provide Additional Guidance Regarding CFPB ATR/QM Rule
On October 1, Freddie Mac issued an industry letter and Fannie Mae issued Lender Letter LL-2013-07 to provide additional information regarding Freddie Mac’s and Fannie Mae’s new purchase eligibility requirements based on the CFPB’s final ability-to-repay/qualified mortgage (ATR/QM) rule. The letters inform sellers that, during an initial transitional period, the enterprises will not make any changes to their quality control processes and will not, except under certain circumstances, issue any repurchase requests related to the new points and fees eligibility requirements. The letters remind sellers that they must comply with all applicable laws regarding points and fees, including state laws and regulations that may be more restrictive than the CFPB ATR/QM rule, and withdraws prior guidance regarding excessive points and fees. Finally, the letters advise sellers that while Freddie Mac and Fannie Mae are not at this time requiring any additional documentation, sellers should retain all materials that might be necessary to demonstrate compliance with the new eligibility requirements.
Fannie Mae Announces Numerous Selling Policy Changes
On September 24, Fannie Mae issued Selling Guide Announcement SEL-2013-07, which includes changes to various selling policies. The announcement states that the flood insurance coverage requirements have been updated to clarify existing policy, address common lender questions and align with prevalent industry practices, as well as to alter the requirements for flood insurance on attached condominium projects (requiring a master policy in effect at least equal to 80% of replacement cost or the maximum insurance available from the National Flood Insurance Program per unit, whichever is lower). Fannie Mae updated its maintenance fee (formerly known as inactivity fee) requirements, including, among other things, lowering the loan delivery threshold from $2 million in mortgage loans to one mortgage loan. The announcement also (i) revises the instructions for Form 360 (“Certificate of Authority, Incumbency, and Specimen Signatures”) to clarify that the form must be completed and signed by an officer of the lender or, if the lender is not a corporation, a member of senior management, (ii) enhances guidance on the allowable age of federal income tax returns and the tax-related documentation required by adding disbursement dates, and (iii) revises the temporary leave income policy to clearly state that documentation concerning the timing of the borrower’s return to work can be provided directly to the lender by the borrower or the employer. The announcement also includes several other selling policy changes, and describes selling guide updates based on previously announced policy changes related to ability to repay and qualified mortgages.
FHFA Seeks to Clarify Relief from City of Chicago Vacant Property Ordinance
On September 20, the FHFA filed a motion requesting that the U.S. District Court for the Northern District of Illinois amend an order it issued after holding on August 23 that Fannie Mae and Freddie Mac are exempt from a 2011 City of Chicago ordinance that established new requirements for mortgagees and their agents regarding the maintenance of vacant property. The FHFA, as conservator of Fannie Mae and Freddie Mac, sued the city in December 2011 over the ordinance, which requires mortgagees to register vacant properties and pay a $500 registration fee per property. The FHFA asked the court “to specify the contents and persons” bound by its August 23 order. The motion was accompanied by a proposed order for declaratory and monetary relief, which would restate Fannie Mae’s and Freddie Mac’s immunity from the City’s ordinance and also would require the City to refund any payments that those the two enterprises, or any entities acting on their behalf, made pursuant to the ordinance.
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.
Federal District Court Holds Fannie Mae, Freddie Mac Exempt From Chicago's Property Maintenance Ordinance
On August 23, the U.S. District Court for the Northern District of Illinois held that Fannie Mae and Freddie Mac are exempt from a 2011 ordinance that established new requirements for mortgagees and their agents regarding the maintenance of vacant property. FHFA v. City of Chicago, No. 11-8795, 2013 WL 4505413 (N.D. Ill. Aug. 23, 2013). The FHFA, as conservator of Fannie Mae and Freddie Mac, sued the city over the ordinance, which requires mortgagees to register vacant properties and pay a $500 registration fee per property. The ordinance also imposes maintenance and other obligations on mortgagees and their agents (including servicers, Fannie Mae and Freddie Mac), regardless of whether the properties are foreclosed upon, and mandates fines for non-compliance. The court granted summary judgment for the FHFA, holding that the statute that created the FHFA—the Housing and Economic Recovery Act of 2008 (HERA)—preempts the local ordinance. The court reasoned that although HERA does not expressly preempt local laws, Congress intended for the FHFA to be the only entity responsible for operating Fannie Mae’s and Freddie Mac’s business and could not have intended to allow thousands of municipalities to impose varying obligations on the FHFA. On those grounds, the court granted the FHFA’s motion for summary judgment. The court also held in the alternative “for purposes of completeness” that the registration fees imposed on Fannie and Freddie by the ordinance would constitute an impermissible tax on the FHFA in violation of the federal government’s immunity from taxation.