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New York Thrift Charged with Mortgage Fraud by Manhattan District Attorney
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.
CFPB Delays Release of "Ability-to-Repay" Rule
On May 31, the CFPB announced that it has reopened the comment period for the proposed “ability-to-repay” rule that would require creditors to verify a consumer’s ability to repay prior to making a consumer credit transaction secured by a dwelling. The rule would also define a “qualified mortgage” that has a presumption of compliance with the ability-to-repay requirement. The CFPB is specifically seeking comments on new loan data provided to the CFPB by the Federal Housing Finance Agency. According to the CFPB, the loan data, which contains loan-level information on the characteristics and performance of all single-family mortgages purchased or guaranteed by Fannie Mae and Freddie Mac, can be used to analyze the impact of certain variables on a consumer’s ability to repay such as debt-to-income ratio. The CFPB is also seeking comments regarding the potential risk of litigation in connection with the proposed rule. The CFPB specifies that it has not reopened for comment any other aspect of the proposed rule. Comments are due by July 9, 2012. In its press release, the CFPB states that it expects to issue its final rule before the end of 2012. For more information on the proposed rule, see InfoBytes, Apr. 22, 2011.
Fannie Mae Extends Temporary Repurchase Accommodation Period to December 31
On May 23, Fannie Mae announced that the 90-day temporary repurchase accommodation period established in Servicing Announcement SVC-2011-12 has been extended to December 31, 2012. Absent the accommodation, servicers would have had 30 days to complete repurchases or submit paperwork required to formally appeal repurchase or make-whole requests. The accommodation was previously set to expire on June 30, 2012.
Fannie Mae Postpones Effective Date for Servicer Insurance Requirements
On May 23, Fannie Mae announced the postponement of its June 1, 2012 effective date for lender-placed property insurance requirements applicable to servicers (Fannie Maes initial announcement was reported in InfoBytes, Mar. 16, 2012). The May 23 announcement does not provide a new effective date. Until Fannie Mae announces a new effective date, it is encouraging servicers to implement the requirements as practically feasible.
FHFA Seeks Public Comment on Strategic Plan
On May 14, the Federal Housing Finance Agency released for public comment a draft strategic plan for fiscal years 2013-2017. The draft plan updates FHFA’s existing strategic plan document to incorporate a proposal sent to Congress in February 2012 that outlined FHFA’s plan to build a new infrastructure for the secondary mortgage market, contract Fannie Mae and Freddie Mac’s current market dominance, and maintain the Enterprises’ roles in foreclosure prevention activities and refinance initiatives. The draft plan sets forth four strategic goals: (i) Safe and sound housing GSEs; (ii) Stability, liquidity, and access in housing finance; (iii) Preserve and conserve Enterprise assets; and (iv) Prepare for the future of housing finance in the U.S.
Fannie Mae & Freddie Mac Announce Numerous Selling Guide Updates
On May 15, Fannie Mae issued Selling Guide Announcement SEL-2012-04, which includes numerous changes to various Selling Guide topics. To address questions from lenders, the Announcement enhances and clarifies certain DU Refi Plus and Refi Plus requirements in connection with HARP program modifications. Fannie Mae also updated the eligibility and underwriting requirements for DU Refi Plus and Refi Plus to specifically permit financing provided through state Hardest Hit Fund programs to be used to pay down the mortgage balance at closing or to pay closing costs. All of the DU Refi Plus and Refi Plus updates are detailed in an attachment to the Announcement. A second attachment provides myriad updates to Fannie Maes employment and income policies, which are designed to provide additional flexibility and efficiency in processing employment and income documentation. The Announcement also includes miscellaneous Guide changes, including changes to Fannie Maes (i) restructured mortgage loan policy, (ii) Eligibility Matrix, (iii) eCommitONE Users Guide, and (iv) Standard ARM Plan Matrix. Also on May 15, Freddie Mac issued Bulletin 2012-11, which amends and adds a number of selling requirements, many of which are effective immediately. The Bulletin permits federally regulated sellers to conduct Electronic Transactions using electronic versions of certain loan documents during the initial loan origination process. Several new Guide provisions also are included in the Bulletin. The new requirements: (i) entitle Freddie Mac to recapture premiums and buyups associated with mortgages that are paid off within 120 days of their sale to Freddie Mac, regardless of the reason for the payoff; (ii) remove the requirement that ARMs sold to Freddie Mac have a note rate, margin, and lifetime ceiling that are divisible by one-eighth of one percent; (iii) prohibit the sale of Mortgages encumbered by certain private transfer fee covenants as of July 16, 2012; and (iv) cease Freddie Macs practice of purchasing mortgages originated on Fannie Mae balloon documents as of September 1, 2012. The Bulletin also notifies sellers that Freddie Mac will contact customers with counterparty authorization (CPA) compliant accounts for resubmission of outdated CPA compliance forms. Finally, the Bulletin reiterates guidance from a number of previous bulletins and email updates regarding Freddie Mac Relief Refinance Mortgages and UAD Field-Specific Standardization Requirements.
New York Federal Court Denies Motion to Dismiss FHFA Mortgage-Backed Securities Case
On May 4, the U.S. District Court for the Southern District of New York denied, in large part, a motion to dismiss one of the many pending mortgage-backed securities (MBS) cases brought by the Federal Housing Finance Agency (FHFA). Federal Housing Finance Agency v. UBS Americas, Inc., No. 11-5201, 2012 WL 1570856 (S.D.N.Y. May 4, 2012). The court’s decision allows FHFA’s federal securities action to proceed while dismissing related state law negligent misrepresentation claims. In July 2011, as conservator for Fannie Mae and Freddie Mac (the GSEs), FHFA initiated multiple lawsuits alleging that billions of dollars of MBS purchased by the GSEs were based on offering documents that “contained materially false statements and omissions.” Defendants in the instant case argued that these claims were time-barred. FHFA countered that the Housing and Economic Recovery Act of 2008 (HERA) controlled questions of timeliness, a point on which the court agreed in refusing to dismiss related federal claims. In this regard, the court concluded that a reasonably diligent plaintiff (here, the FHFA) could not have “discovered” the underlying federal claim within the year before the GSEs were placed into conservatorship. Rather, such a plaintiff could only have “discovered” this claim when the securities were “downgraded from investment grade to near-junk status,” which was less than a year before conservatorship.
Fannie Mae Announces New Document Custodian Requirements
On February 4, 2016, the SEC announced a settlement with the CEO of Chile-based LAN Airlines S.A. and its holding company Latam Airlines Group SA, Ignacio Cueto Plaza, regarding his approval of the payment of over $1.15 million to an Argentinian consultant in connection with LAN Airline’s attempts to settle disputes over wages and work conditions with employees in Argentina. According to the SEC, Cueto knew that a portion of these payments might be passed on to union officials in Argentina and that the actual services agreed to in the underlying consulting agreement would not be performed. Without admitting or denying the SEC’s findings, Cueto agreed to pay a $75,000 penalty and "certify his compliance with his airline’s policies and procedures by attending anti-corruption training among other undertakings." In its administrative cease and desist order, the SEC found that Cueto violated both the FCPA’s internal accounting controls and books and records provisions.
The company has said that this was an isolated matter, that it cooperated with the SEC’s investigation, and strengthened its accounting controls since the incident took place.
Fannie Mae Announces Changes to Pricing Terms
On May 1, Fannie Mae updated terms pertaining to its ability to change the pricing applicable to lenders’ deliveries of mortgage loans under the standard Selling Guide provisions, as well as under existing Master Agreements and related MBS contracts. In Announcement SEL-2012-03, Fannie Mae stated that it may change the base guarantee fee, loan-level pricing adjustments, and/or guaranty fee adjustments for MBS Express or rapid payment method remittance cycles applicable to mortgages delivered under MBS contracts or as whole loans. Under the change (i) Fannie Mae reserves the right to change the pricing one or more times during the term of a Master Agreement or related MBS contract, (ii) Fannie Mae will provide the lender with written notice of the pricing change prior to it taking effect, and (iii) either party can cancel the affected contract or agreement if the parties are unable to come to terms on the new pricing. The effective date of the changes will be no later than October 1, 2012.
Federal Court Holds Fannie Mae Is Not a Government Entity
On April 30, the U.S. District Court for the District of Columbia held in an employment case that Fannie Mae is not a government entity and therefore the plaintiff could not sustain her Bivens claim. Herron v. Fannie Mae, No. 10-943, 2012 WL 1476051 (D.D.C. Apr. 30, 2012). The plaintiff, a former Fannie Mae employee and outside contractor to the institution, claimed that Fannie Mae is a government actor and improperly terminated her employment. She asserted a First Amendment claim under Bivens v. Six Unknown Named Agents of the Federal Bureau of Narcotics, 403 U.S. 388 (1971), and, in the alternative, brought claims against Fannie Mae as a private employer. Fannie Mae and its government conservator, the Federal Housing Finance Agency, which was granted intervenor status, moved to dismiss the Bivens claim on the grounds that Fannie Mae is not a government actor. The district court dismissed the Bivens claim, holding that the imposition of FHFA conservatorship did not transform Fannie Mae into a government actor. Instead, Fannie Mae was a private entity before conservatorship; FHFA stepped into that private role when it became conservator.