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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.
Fannie Announces Hazard Insurance Change for Vacant Properties
On March 6, Fannie Mae issued Servicing Guide Announcement SVC-2013-04, which requires servicers to cancel hazard insurance coverage (for both borrower and lender-placed policies) within 14 calendar days after a property appears on the Vacancy Report in HomeTracker. The policy took effect immediately and applies to all loans where the foreclosure sale occurred or will occur on or after October 1, 2012. For properties foreclosed after that date that have hazard insurance coverage still in place, the servicer must cancel the insurance by March 20, 2013. Fannie Mae also reminded servicers that if a policy is cancelled prematurely and damages are found, the servicer will be required to make Fannie Mae whole for any losses or fees relating to the property damages.
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.
Fannie Mae Updates Property Transfer Policies for Exempt Transactions
On February 27, Fannie Mae issued Lender Letter LL-2013-04, clarifying servicers’ obligations in connection with the transfer of ownership of a property securing a mortgage loan when the due-on-sale or due-on-transfer provision is not enforceable because the transfer is considered an exempt transaction. For such exempt transactions, servicers must implement policies and procedures to promptly identify and communicate with the new owner, and must allow the new owner to continue making mortgage payments and pursue an assumption of the mortgage loan as well as a foreclosure prevention alternative, if applicable. In addition, for delinquent mortgage loans that are exempt transactions, if the new owner is unable to bring the mortgage loan current but may be able to resolve the delinquency with a foreclosure prevention alternative and assume the mortgage loan, the servicer must collect a Borrower Response Package from the new owner, evaluate the request as if it were a borrower, and submit a recommendation to Fannie Mae if the servicer determines a foreclosure prevention alternative is appropriate. Finally, servicers are reminded that, in the case of an exempt transaction, before finalizing any permanent modification entered into in conjunction with an assumption for an MBS Pool mortgage loan, the mortgage loan must be (i) in a continuous state of delinquency for at least four consecutive monthly payment dates (or at least eight consecutive payment dates in the case of a biweekly mortgage loan) without a full cure of the delinquency, and (ii) removed from the MBS pool.
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.
Fannie Mae Announces Servicing Policy Changes
On February 22, Fannie Mae issued Servicing Guide Announcement SVC-2013-02, reminding servicers that when they deposit undisbursed insurance loss draft funds into an interest-bearing account, the account must be for the borrower’s benefit and, regardless of the mortgage loan’s delinquency status, the servicer must comply with applicable laws regarding the disbursement of interest earned to the borrower. The announcement also introduced a new form for use when referring a borrower to Fannie Mae for the exit option that allows a three-month transition with no rent payment required, and updated the form to be used when referring a borrower for the exit option that allows up to a twelve-month lease with a market rent payment. On February 27, Fannie Mae issued Servicing Guide Announcement SVC-2013-03, describing servicing policy changes and updates to (i) private flood insurance, (ii) termination of applicable force-placed insurance, and (iii) special remittance type codes. The private flood insurance change follows a related announcement, SEL-2013-02, which, among other things, informed sellers that Fannie Mae must accept flood insurance from private providers as an alternative to National Flood Insurance Program policies. The insurance-related policies are effective immediately, and servicers must report using the new codes for applicable special remittances on or after April 1, 2013.
Fannie Updates Foreclosure Time Frames for Twelve States
On February 13, Fannie Mae issued Servicing Guide Announcement SCV-2013-01, which increases the maximum number of allowable days within which routine foreclosure proceedings are to be completed in California, Colorado, Hawaii, Massachusetts, North Carolina, Oregon, Pennsylvania, and Rhode Island, effective for foreclosure sales on or after April 1, 2013. Fannie Mae also decreased the maximum number of allowable days for foreclosure proceedings in Alabama, Iowa, Missouri, and Wisconsin. These time frame reductions will be effective for mortgage loans that become delinquent on or after March 1, 2013. In addition, Fannie Mae (i) announced that on or after April 1, 2013, in New Jersey, allowable delay credit will be given for the actual number of days the mortgage loan is reported in a foreclosure status between December 2010 and April 2012, up to a maximum of 180 days, and (ii) added 90 days to the allowable delay for Military Indulgence, effective for foreclosure sales on or after November 1, 2012. Finally, effective for all foreclosure sales on or after July 1, 2013, those foreclosure sales that result in a third-party sale will be included in the foreclosure time frame compensatory fee billing process for foreclosure delays.
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.
Fannie Mae Updates Servicer Selection Form and Process, Publishes First Issue of New Quarterly Compliance Newsletter
On February 1, Fannie Mae issued a Servicing Notice requiring servicers to submit a Servicer Selection Form (Form 200) to Fannie Mae for each law firm the servicer will retain for default-related services. If a law firm practices in multiple jurisdictions, Fannie Mae requires a servicer to submit a Servicer Selection Form for each jurisdiction in which the servicer intends to retain the firm. The notice also provides a link to a step-by-step guide for completing and submitting Form 200.
On February 5, Fannie Mae published the first issue of The Quarterly Compass, a new newsletter providing projected timelines on upcoming key Fannie Mae initiatives and changes that may impact lenders’ and vendors’ operations, systems, and processes. The first issue includes, among other things, (i) a Quarterly Initiatives Timeline, (ii) a ULDD Phase 2 update, and (iii) information about loan delivery updates.
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.