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Fannie Mae Issues Numerous Selling and Servicing Updates
On August 21, Fannie Mae issued Selling Guide Announcement SEL-2012-07, which updates numerous Selling Guide topics, including changes to loan eligibility requirements. As of October 20, 2012, for adjustable rate mortgages, the maximum LTV ratios will be reduced and the minimum score requirement for manually underwritten loans will increase. Fannie Mae is also changing LTV ratios and minimum credit score requirements in certain areas to simplify the requirements and align product and property types. Also effective on October 20, 2012, Fannie Mae will (i) retire the Comprehensive Risk Assessment Worksheet for Manual Underwriting, (ii) update the eligibility criteria matrix for manually underwritten loans, (iii) implement several changes to the DU Version 9.0, and (iv) retire the FannieNeighbors product.
On August 22, Fannie Mae issued Servicing Guide Announcement SVC-2012-18, which announces several policy changes related to delinquency management and default prevention. To further short sale directives, and to support other policy changes, the Announcement updates Fannie Mae’s Uniform Borrower Assistance Form. The announcement also implements the extended stay of foreclosure protections enacted recently as part of the Honoring America’s Veterans and Care for Camp Lejeune Families Act and the extension of the federal Making Home Affordable Programs. Concurrently, Fannie Mae issued Announcement SVC-2012-17, which requires servicers to cancel hazard insurance coverage within fourteen days after a property has been inspected and is confirmed vacant by a broker, agent, or property management company designated by Fannie Mae. This change takes effect on October 1, 2012.
FHFA Announces New Short Sale Guidelines
On August 21, the FHFA announced new guidelines that align and merge Fannie Mae’s and Freddie Mac’s (the GSEs) short sale programs to facilitate quicker short sale processing. For mortgages owned or guaranteed by the GSEs, the consolidated guidelines, as implemented through Freddie Mac Bulletin 2012-16 and Fannie Mae Announcement SVC-2012-19, (i) reduce or eliminate the documentation borrowers must provide to demonstrate a need for a short sale, (ii) allow servicers to qualify certain borrowers for short sales—for example those based on hardship caused by death, divorce, or disability—without approval from the GSEs, even when the borrower is current, (iii) automatically qualify for short sale servicemembers receiving Permanent Change of Station Orders and borrowers who must relocate more than fifty miles for existing or new employment, (iv) waive the GSEs’ rights to pursue deficiency judgments in certain circumstances, and (v) allow the GSEs to expedite short sales by offering up to $6,000 to second lien holders. These changes take effect on November 1, 2012.
Massachusetts AG Outlines Foreclosure Expectations for Fannie Mae and Freddie Mac
On August 23, Massachusetts Attorney General Martha Coakley sent a letter to FHFA Director Edward DeMarco in which she advised Fannie Mae and Freddie Mac about their obligation to comply with a recently enacted state law that will make it harder to initiate foreclosures. The letter states that like all creditors, Fannie Mae and Freddie Mac are expected to follow the new statutory requirements and generally should “pursue common-sense loan modifications for borrowers” when economically beneficial to borrowers. The letter also asks the FHFA to reconsider its decision to not require Fannie Mae and Freddie Mac to offer principal forgiveness. Also on August 23, the Massachusetts Division of Banks announced that it will hold a public hearing on August 29, 2012 to gather input regarding regulations it is required to develop to implement the state’s new foreclosure law.
Treasury Announces More Steps to Wind Down Fannie Mae and Freddie Mac
On August 17, the U.S. Department of Treasury announced new steps to accelerate the wind down of Fannie Mae’s and Freddie Mac’s (the GSEs) government-backed portfolios. Treasury is modifying its Preferred Stock Purchase Agreements with the FHFA to wind down the GSEs’ portfolios at an annual rate of fifteen percent, moving up the time by which the portfolios must meet the existing $250 billion target. The amended agreements also (i) require that each GSE submit an annual plan on actions to reduce taxpayer exposure to mortgage credit risk and (ii) replace the current ten percent dividend payments to Treasury with a quarterly sweep of every dollar of profit made by each GSE.
Fannie Mae Updates Custodial Bank Accounts Guidance
On August 15, Fannie Mae issued Servicing Guide Announcement SVC-2012-06, which amends requirements regarding custodial accounts. Under the amended guidance, servicers may maintain multiple tax and insurance custodial accounts for hazard insurance loss drafts, partial payments, or unapplied funds, but must execute a Form 1014 for each such account. Servicers also are no longer required to (i) notify Fannie Mae of a depository’s ineligible status, (ii) request approval to hold custodial funds in a formerly ineligible, but now compliant, depository, or (iii) request the implementation of a different remedy for an ineligible depository. Servicers still must monitor depositories to ensure they maintain eligibility.
FHFA Seeks Comment on Potential Response to Use of Eminent Domain to Restructure Loans
On August 8, the FHFA released a notice commenting on the potential use of eminent domain by localities to restructure mortgages for borrowers who are current but “underwater.” Several localities have stated publicly that they are considering use of their eminent domain authority to seize such loans and sell them to private investors who would restructure the loans to the borrowers' benefit. The FHFA notes “significant concerns” with the potential practice, including that Fannie Mae and Freddie Mac would sustain losses that would ultimately be borne by taxpayers, and mortgage lenders may restrict their lending activities. The FHFA seeks feedback on a series of factors that would inform its potential response to the use of eminent domain, such as the impact on seized mortgages and whether the proposed use of eminent domain is constitutional.
Fannie Mae Issues Multiple Servicing Announcements
On August 8, Fannie Mae issued three servicing announcements. The first, Announcement SVC-2012-13, reminds servicers that under the Housing and Economic Recovery Act, Fannie Mae must promote diversity through (i) the inclusion and utilization of minorities, women, and individuals with disabilities, and (ii) the use of minority-, women-, and disabled-owned businesses at all levels, in management and employment, in all business and activities, and in all contracts for services of any kind. To that end, Fannie Mae is requiring that servicers complete by November 1, 2012, a supplier registration profile that accurately reflects its ownership status and its team composition report. The second announcement, Announcement SVC-2012-14, notifies servicers that effective October 1, 2012, Fannie Mae no longer will require mandatory pre-foreclosure mediation for loans in Florida. Finally, through Announcement SVC-2012-15, Fannie Mae is establishing a policy to require both an existing and a new document custodian to provide at least thirty days written notice when all or part of the custodian’s business is being acquired by a new document custodian while the servicer remains the same. This new policy is effective immediately.
FHFA Decides Fannie Mae and Freddie Mac Will Not Offer Principal Forgiveness; Updates Other Borrower Assistance Efforts
On July 31, FHFA announced that it will not direct Fannie Mae and Freddie Mac to offer principal reduction assistance to troubled borrowers, concluding that a principal forgiveness policy does not “clearly improve foreclosure avoidance while reducing costs to taxpayers relative to the approaches in place today.” The Treasury Department immediately objected, countering that FHFA’s cost concerns could be alleviated with Treasury assistance to pay for additional administrative implementation costs. With its announcement, FHFA released correspondence to members of Congress explaining FHFA’s decision and providing a detailed assessment of the principal forgiveness policy option. FHFA also reported that it is working with Fannie Mae and Freddie Mac on a series of other borrower assistance efforts including (i) an update to Freddie Mac's refinance program to align it with Fannie Mae’s policy for refinancing mortgages with loan-to-value ratios equal to or less than 80%, (ii) new requirements expected in September related to representations and warranties, which will shift the loan quality review closer to the time of loan origination, (iii) a single, aligned short sale program for Fannie Mae and Freddie Mac with more flexible terms, (iv) a new set of adjustments to guarantee fee pricing, expected to be announced in August and to take effect later in the year, and (v) closing on the first set of REO pilot transactions in August.
Fannie Mae Announces Numerous Servicing Policy Changes; ULDD Mandate Takes Effect
On July 25, Fannie Mae issued Servicing Guide Announcement SVC-2012-12, which provides notice of miscellaneous changes to the Fannie Mae Servicing Guide related to (i) the MERS Rule 14 Notice, (ii) approved title company requirements for certain states, and (iii) allowable attorney fees. With respect to the MERS Rule 14 notice, servicers will now be required to notify Fannie Mae whenever they are required to send MERS notice of certain MERS-related legal challenges. Fannie Mae announced that it is eliminating the requirement that servicers select a Fannie Mae-approved title company for work performed inArizona,California andWashington. Instead, servicers may select the title company of their choice. Fannie Mae also announced changes to the allowable amount of attorney’s and trustee’s fees in several jurisdictions.
On July 23, the Uniform Loan Delivery Dataset (ULDD) mandate took effect for loans delivered to Fannie Mae and Freddie Mac. Fannie Mae recently provided a notification, and Freddie Mac recently published a Bulletin, outlining updates to their ULDD resources.
Fannie Mae Announces Expanded Servicer Training Program
On July 16, Fannie Mae announced its “Know Your Options Customer Care” program, through which Fannie Mae provides training for servicers’ call center employees in an effort to help prevent foreclosures. The program also offers servicers scripting for interactions with homeowners and assistance with quality control implementation. Fannie Mae has already implemented the program with 18 of its largest servicers and is now making the program available to all servicers through online webinars and related materials. Fannie Mae noted that those servicers that have participated in the free program have seen substantial increases in workouts.