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  • Massachusetts Supreme Judicial Court Rules That Lenders May Foreclose Without Possessing Mortgage Note, But Only In Certain Circumstances

    Lending

    On June 22, the Massachusetts Supreme Judicial Court held that lenders do not need to be in physical possession of a mortgage note to foreclose on a property, but that they must establish that they are acting on behalf of the noteholder. Eaton v. Federal Nat’l Mortgage Ass’n, No. SJC-11041, 2012 WL 2349008 (Mass. June 22, 2012). The lower court had preliminarily enjoined defendant Fannie Mae from evicting the plaintiff following a foreclosure sale; that court interpreted the term “mortgagee,” as used in Massachusetts’ statutes, to refer to a person holding both the mortgage and the mortgage note. At the time of the foreclosure, the foreclosing party held only the mortgage. Reversing the lower court, the Supreme Judicial Court found that the term “mortgagee” refers to a person who (i) holds the mortgage, and (ii) either physically holds the mortgage note or acts on behalf of the mortgage note holder. Recognizing that it was common prior practice to interpret the term “mortgagee” as requiring possession of only the mortgage, the court held that its new interpretation of “mortgagee” should be given only prospective effect.

    Foreclosure Fannie Mae Mortgage Servicing

  • FHFA, Fannie Mae, and Freddie Mac File Suit Challenging Imposition of State and Local Taxes

    Lending

    On June 22, the FHFA, along with Fannie Mae and Freddie Mac (the Enterprises), filed a lawsuit in the U.S. District Court for the Northern District of Illinois challenging the authority of Illinois state and county officials to impose transfer taxes on transactions moving property to or from the Enterprises. Although the complaint concedes that federal law requires the Enterprises to pay real estate taxes on the value of properties held, it asserts that federal law exempts the Enterprises from other state and local taxation, including taxes tied to property transfers. This suit follows a class action raising the same issues, which was filed by a Florida county against FHFA and the Enterprises on June 15.

    Freddie Mac Fannie Mae FHFA

  • Federal Agencies Announce New Mortgage-Related Policies to Support Military Homeowners

    Lending

    On June 21, the CFPB, the federal prudential banking regulators, and the FHFA announced new policies to support servicemember homeowners. The CFPB, the Federal Reserve Board, the FDIC, the NCUA, and the OCC issued joint guidance that identifies specific servicing practices deemed by regulators to present risks to servicemembers. For servicemember homeowners who have received Permanent Change of Station Orders, the guidance instructs servicers to maintain adequate policies and procedures disallowing the identified practices. The guidance also informs servicers that if an agency determines that a servicer has engaged in any acts or practices that are unfair, deceptive, or abusive, or that otherwise violate federal consumer financial laws, the agency will take appropriate supervisory and enforcement actions.  Concurrent with the regulators’ announcement, the FHFA announced that military homeowners with Permanent Change of Station Orders and with Fannie Mae or Freddie Mac loans will be eligible to sell their homes in a short sale even if they are current on their mortgage. Under the new policy, Fannie Mae and Freddie Mac will not pursue a deficiency judgment or any cash contribution or promissory note from covered servicemembers for any property purchased on or before June 30, 2012.

    FDIC CFPB Foreclosure Freddie Mac Fannie Mae Federal Reserve Mortgage Servicing HUD OCC FHFA

  • FHFA Announces Multiple New Policy Initiatives

    Lending

    On June 15, the FHFA published a Notice of Proposed Rulemaking regarding state and local Property Assessed Clean Energy (PACE) programs, as required by a preliminary injunction issued by the Northern District of California in a lawsuit challenging the FHFA’s direction to Fannie Mae and Freddie Mac not to purchase mortgages subject to first-lien PACE obligations, and to the Federal Home Loan Banks to limit exposure to first-lien PACE programs. Under the PACE programs, local governments provide property-secured financing to property owners for the purchase of energy-related home improvement projects. The FHFA believes such financing arrangements present safety and soundness concerns. Several states challenged the FHFA actions in court. While most of the cases were dismissed, California succeeded in forcing the FHFA to conduct a formal rulemaking on the issue. Comments on the proposed rule are due by July 30, 2012.

    On June 18, the FHFA announced an initiative to supplement fraud reporting by the entities it supervises. Under the Suspended Counterparty Program, Fannie Mae, Freddie Mac, and the Federal Home Loan Banks are required to notify the FHFA whenever an individual or company with whom they do business is adjudicated to have engaged in fraud or other financial misconduct. The FHFA also will consider information it receives from other government sources. Based on the reported information, the FHFA will make a determination as to whether the individual or business will be suspended from doing business with the supervised entities. The new program takes effect August 15, 2012.

    On June 19, the FHFA published a Notice and Request for Comment regarding a proposed new rating system to be used in conducting safety and soundness examinations of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. The proposal seeks to implement a single risk-focused examination system for all three entities that would be similar to the “CAMELS” rating system used by federal prudential regulators for depository institutions. The FHFA is accepting comments on the proposed system through July 19, 2012.

    Freddie Mac Fannie Mae Mortgage Origination Mortgage Servicing FHFA

  • Fannie Mae Announces Private Transfer Fee Covenant Policy, Revises Loan Modification Agreement

    Lending

    On June 19, Fannie Mae issued the Selling Guide Announcement SEL-2012-05, which states that effective July 12, 2012, Fannie Mae will not purchase or securitize mortgages on properties encumbered by private transfer fee covenants that were created on or after February 8, 2011, with some exceptions. The policy follows a rule finalized by FHFA on March 16, 2012 that prohibits Fannie Mae and Freddie Mac from purchasing or investing in any properties or securities backed by such mortgages. In light of the new policy, mortgages on affected properties must be purchased by Fannie Mae as whole loans no later than July 13, 2012, or must be delivered no later than July 13, 2012 into MBS pools with issue dates of July 1, 2012 or later.  The policy requires lenders to establish their own policies and procedures to ensure compliance. On June 20, Fannie Mae published a Servicing Notice to advise servicers to begin using a new Loan Modification Agreement that was updated to include a line for the date of the lender’s signature. The new form must be used for all Trial Period Plans beginning on or after September 1, 2012.

    Fannie Mae Mortgage Origination Mortgage Servicing RMBS

  • Federal District Court Allows Interlocutory Appeal of Challenge to FHFA MBS Suit

    Securities

    On June 19, the U.S. District Court for the Southern District of New York granted defendants’ motion to certify an interlocutory appeal from a portion of the court’s earlier denial of their motion to dismiss as untimely the FHFA’s claims under the 1933 Securities Act. Fed. Hous. Fin. Agency v. UBS Americas, Inc., No. 11-5201, 2012 WL 2324486 (S.D.N.Y. June 19, 2012). On May 4, 2012, the court denied, in large part, the defendants’ motion to dismiss the FHFA’s claims alleging that billions of dollars of MBS purchased by Fannie Mae and Freddie Mac were based on offering documents that “contained materially false statements and omissions.” The suit was selected to proceed first among the 18 such suits brought by the FHFA. In this most recent decision, the court reasoned that resolution of issues relating to the timeliness of the claims will “remove a cloud of legal uncertainty that hangs over the other 17 actions in this suite of cases” by clarifying the impact of the Housing and Economic Recovery Act of 2008 on the statute of limitations in the Securities Act of 1933 and, as a consequence, defining the scope of discovery.

    Freddie Mac Fannie Mae RMBS FHFA

  • FHFA Submits Annual Report to Congress

    Lending

    On June 13, the FHFA submitted to Congress its annual report on its 2011 examinations of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. The report rates Fannie Mae and Freddie Mac as “critical supervisory concerns” and states that their continuing credit losses stem primarily from loans originated during 2005-2007. The report cites certain key challenges of Fannie Mae and Freddie Mac, which include (i) the ongoing stress in the national housing market, (ii) the broader economic environment, and (iii) the lack of certainty about the future of Fannie Mae and Freddie Mac. Among other things, the report provides updated information about the Fannie Mae and Freddie Mac portfolios and foreclosure prevention efforts. The report also notes that the financial condition of the Federal Home Loan Banks remained stable, though exposure to private-label mortgage-backed securities continues to impact certain of the Banks.

    Freddie Mac Fannie Mae FHFA

  • Fannie Mae and Freddie Mac Update Servicing Requirements

    Lending

    On June 13, Freddie Mac published Bulletin 2012-13, which updates multiple servicing requirements in the Single-Family Seller/Servicer Guide. With regard to the state foreclosure timeline, the Bulletin (i) adds several circumstances in which the timeline will be extended for all foreclosure sales completed on or after January 1, 2012, (ii) revises the calculation for compensatory fees associated with exceeding a state foreclosure timeline, and (iii) alters the compensatory fee appeal process. With regard to certain operational procedures, the Bulletin (i) adds a time frame for reimbursement of taxes that were incurred and paid to a taxing authority for non-real estate owned expenses, (ii) allows wire transfers for REO-related remittances, and (iii) clarifies the time frame for submitting modification agreements to document custodians. The Bulletin also makes changes to the Guide related to unemployment forbearance, the quality right party contract performance standard, fraud prevention and reporting, and MERS Rule 14.

    Also on June 13, Fannie Mae published Announcement SVC-2012-10, which updates its notice of data breach and incident response policy to require servicers to provide written notice to Fannie Mae of a data breach in addition to any reporting to consumers or state authorities required under applicable state law. A servicer also must request permission to use Fannie Mae’s name if it intends to refer to Fannie Mae in any notices sent to affected borrowers or regulatory agencies. On the same day, Fannie Mae also published Announcement SVC-2012-11, which updates and clarifies for all mortgages with a foreclosure sale date on or after January 1, 2012, (i) the maximum allowable foreclosure time frames for twelve jurisdictions, (ii) compensatory fee assessments and appeals, and (iii) the preferred method of foreclosure in Montana and Nebraska.

    Foreclosure Freddie Mac Fannie Mae Mortgage Servicing Privacy/Cyber Risk & Data Security

  • Fannie Mae Appoints New CEO

    Lending

    On June 5, Fannie Mae announced that Timothy J. Mayopoulos will be its next president and CEO, effective June 18, 2012. Mr. Mayopoulos is currently executive vice president, chief administrative officer, and general counsel at Fannie Mae. Prior to joining Fannie Mae, he was executive vice president and general counsel at Bank of America Corporation and a senior manager at Deutsche Bank AG, Credit Suisse First Boston, and Donaldson, Lufkin & Jenrette, Inc. Mr. Mayopoulos will succeed Michael J. Williams, who in January announced his decision to step down.

    Fannie Mae

  • New York Thrift Charged with Mortgage Fraud by Manhattan District Attorney

    Lending

    On May 31, the Manhattan District Attorney’s Office (DA) announced charges against Abacus Federal Savings Bank (Bank) and nineteen of its former employees for their alleged involvement in a securities and mortgage fraud scheme from 2005 to 2010 that resulted in the sale of “hundreds of millions of dollars worth of fraudulent loans” to Fannie Mae. The DA charged the Bank with allegedly falsifying mortgage application documents, primarily for immigrants working in cash-only businesses, by inflating their income, assets, and job titles, as well as falsifying employment verifications and other income sources to meet investor guidelines to enable the Bank to sell loans to Fannie Mae. The Office of the Comptroller of the Currency, the Internal Revenue Service, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, and Office of the Inspector General provided assistance and cooperation with the investigation as part of their participation in the Residential Mortgage-Backed Securities Working Group.

    FDIC Fannie Mae OCC

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