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Fannie Mae Alters Policies for Preforeclosure Sale Process, Delinquency Management, Default Prevention
On April 25, Fannie Mae issued Servicing Guide Announcement SVC-2012-06, which sets new policies and clarifies several delinquency management and default prevention requirements related to (i) electronic submission of borrower response package documents, (ii) income documentation for employed borrowers, (iii) determining monthly gross income, (iv) modifications of loans secured by leasehold estates, (v) property valuation, and (vi) executing and recording modification agreements. The majority of the changes are effective immediately. The new requirements for determining income are effective for loans evaluated on or after July 1, 2012.
On the same date, Fannie Mae also published Announcement SVC-2012-07 to establish new policies to expedite the preforeclosure sale process. For all conventional mortgage loans held in Fannie Mae's portfolio, those purchased for Fannie Mae's portfolio but subsequently securitized into Fannie Mae MBS pools, and those originally delivered as part of an MBS pool, the policies (i) establish maximum required response times for preforeclosure sale offers submitted for consideration, (ii) require servicers to provide borrowers with status updates during the evaluation process, and (iii) allow servicers to respond to unsolicited preforeclosure sale offers without first requiring an evaluation for a HAMP modification. Servicers are encouraged to adopt these policies immediately, but must do so no later than June 25, 2012. The Announcement reminds servicers that Fannie Mae may pursue any of its available remedies for failure to comply with these new policies.
FHFA Calls for Streamlined Short Sales, Freddie Mac Updates Short Sale Requirements
On April 17, the FHFA directed Fannie Mae and Freddie Mac to develop procedures for streamlining short sales, deeds-in-lieu and deeds-for-lease in order to avoid foreclosures. Under the new Fannie Mae and Freddie Mac policies, servicers will be required to (i) review and respond to requests for short sales within 30 calendar days from receipt of a short sale offer and a complete borrower response package, (ii) provide weekly status updates to the borrower if the short sale offer is still under review after 30 calendar days, and (iii) make and communicate final decisions to the borrower within 60 calendar days of receipt of the offer and complete borrower response package. Also on April 17, Freddie Mac issued Servicing Guide Bulletin 2012-09, which clarifies existing requirements and adds new minimum requirements for communication timelines for Home Affordable Foreclosure Alternatives Short Sales and short sales processed under Guide Chapter B65. Servicers are encouraged to begin implementing the new requirements as soon as possible, but must do so for all new borrower evaluations conducted on or after June 15, 2012.
CFPB Previews Mortgage Servicing Rules
On April 9, the CFPB previewed its upcoming mortgage servicing rules, which likely will be proposed this summer and finalized in January 2013. The key aspects of the proposal relate broadly to (i) monthly mortgage statements, (ii) ARM adjustment disclosures, (iii) force-placed insurance, (iv) payment crediting, (v) error resolution and borrower inquiries, and (vi) borrower outreach and borrower information. The majority of the details were provided in an outline prepared for a Small Business Regulatory Enforcement Fairness Act (SBREFA) panel, which will consider the potential impact of the planned rules on small businesses. The outline includes model forms related to periodic statements, ARM reset notices, and force-placed insurance notices, which the CFPB has been testing in recent months. The CFPB release also included questions directed to the small entity representatives in order to assist the SBREFA panel in understanding the potential economic impacts of the particular proposals under consideration by the CFPB. Generally, the servicing proposals incorporate statutory changes imposed by the Dodd-Frank Act, which would go into effect in January 2013 unless final rules are issued on or before that date. The concepts in the proposal that do not address specific Dodd-Frank requirements are consistent with servicing requirements imposed by recent mortgage servicing consent orders and/or recent requirements for servicing delinquent loans owned by or serviced on behalf of Fannie Mae or Freddie Mac (see, e.g., Federal Reserve Board Consent Orders and Fannie Mae Ann. SVC 2011-08R).
Fannie Mae Provides Guidance Regarding Chicago Vacant Property Ordinance and Payment of Homeowners' Association Dues and Condo Assessments
On April 11, Fannie Mae published Servicing Guide Lender Letter LL-2012-04, which follows up on a previous notice regarding the City of Chicagos (the City) vacant property ordinance. Effective May 1, 2012, servicers will be required to submit expense reimbursement requests using the Cash Disbursement Request and updated expense designations for all expenses related to the ordinance that are not otherwise required by the Servicing Guide. The Letter attaches a list of the expense designations. Fannie Mae reminds servicers that payments to the City in connection with the ordinance must be made under protest by sending a written communication to the City with the registration fee. Further, (i) all ordinance-related expenses must be submitted to Fannie Mae within 10 business days of the date they are paid by the servicer, (ii) ordinance-related expenses incurred from November 19, 2011 through April 30, 2012 must be submitted for reimbursement using the new expense categories no later than May 31, 2012, (iii) servicers will not be reimbursed for any penalties, fines, expenses or interest assessed by the City for failure to comply with the ordinance, and (iv) servicers must submit a request for pre-approval for ordinance expenses that exceed the allowable limits on or after May 1, 2012. Also on April 11, Fannie Mae published Servicing Guide Announcement SVC-2012-05 to provide guidance regarding payment of homeowners association (HOA) dues and condo assessments. Effective July 1, 2012, servicers must ensure that any priority liens for delinquent HOA dues and assessments on acquired properties are cleared immediately, but no later than 30 days, after the foreclosure sale or acceptance of a deed-in-lieu of foreclosure. The Announcement also revises the reimbursement policy to align with the amount a servicer must pay to protect the lien position and ensure properties are clear of any liens for HOA dues and condo assessments. The Announcement further reminds servicers of their responsibility to continue (i) advancing funds to pay HOA dues and property taxes as they become due following a foreclosure sale and (ii) performing certain property management duties.
Senators Offer FHFA Suggestions for HARP Program Adjustments
On March 30, Senate Banking Committee Democrats, led by Chairman Tim Johnson, sent a letter to Acting Director of the Federal Housing Finance Agency, Edward DeMarco, suggesting changes to the Home Affordable Refinance Program (HARP) to facilitate additional refinancings. In their letter, the Senators endorsed policy changes suggested in a January 2012 Federal Reserve Board white paper, including (i) reducing or eliminating remaining loan-level price adjustments for HARP refinances where Fannie Mae and Freddie Mac already carry the credit risk on the original mortgage, (ii) streamlining the financing process for borrowers with loan-to-value ratios below 80 percent, and (iii) more comprehensively reducing putback risk in order to remove disincentives for servicers to refinance. The letter was in response to a request for suggestions that Mr. DeMarco made during a February 28, 2012 Senate Banking Committee hearing.
FHFA IG Issues Report on Fannie and Freddie Conservatorship
On March 28, the Inspector General (IG) for the Federal Housing Finance Agency (FHFA) published a white paper that provides a general assessment of the FHFAs conservatorship of Fannie Mae and Freddie Mac (the enterprises). The report provides background on the FHFA's oversight regime noting that it has evolved from one that strictly supervised the enterprises activities, to one that allows more operational decision-making at the enterprise level. The IG argues that the FHFA should assume a more active role in managing the enterprises and specifically notes that the FHFA (i) does not independently test and validate enterprise decision-making and (ii) is not sufficiently proactive in its oversight and enforcement of enterprise activity. The white paper acknowledges the significant challenges that the FHFA faces in its mission and provides a discussion of the tensions presented by FHFAs dual role as conservator and regulator.
Fannie Mae Reminds Servicers About Documentation Request Limits
On March 21, Fannie Mae issued a notice reminding servicers that in processing a borrower request for a foreclosure prevention alternative evaluation, servicers may only request limited documentation from a borrower. Specifically, a servicer may only request (i) a completed Uniform Borrower Assistance Form (Form 710), (ii) income documentation as outlined in Form 710 based on income type, (iii) hardship documentation as outlined in Form 710 based on hardship type, and (iv) a Short Form Request for Individual Tax Return Transcript (IRS Form 4506T-EZ) or a Request for Transcript of Tax Return (IRS Form 4506-T) signed by the borrower. Servicer requests for additional documentation are limited only to instances in which the servicer must reconcile inconsistencies in the documentation provided by the borrower, but such instances should be rare. Further, servicers may not request federal income tax returns unless the borrower is self-employed or the borrower has rental income, as outlined in Form 710.
FHFA IG Releases Results of Three Reviews
On March 22, the Office of Inspector General for the Federal Housing Finance Agency (FHFA IG) released the results of the following audit and surveys: (i) an audit of Fannie Maes single-family underwriting standards, (ii) a survey of FHFAs oversight of the charitable activities of Fannie Mae and Freddie Mac, and (iii) a survey of FHFAs oversight of Fannie Maes and Freddie Macs expenses related to the 2011 Mortgage Bankers Association Convention. The FHFA IG found that FHFAs oversight of Fannie Maes underwriting is limited, so FHFA should strengthen and formalize its processes for reviewing underwriting standards and variances. With regard to charitable contributions, the FHFA IG found that there is no need to conduct further evaluations because these contributions are scheduled to end by 2015. Similarly, the FHFA IG concluded that FHFAs new directive on conference sponsorships and expenditures for food will be sufficient if properly implemented.
FHFA Issues Final Rule on Private Transfer Fees
On March 15, the Federal Housing Finance Agency (FHFA) issued a final rule to limit the ability of Fannie Mae, Freddie Mac and the Federal Home Loan Banks to deal in mortgages on properties encumbered by certain types of private transfer fee covenants and in certain types of related securities. The rule generally applies, with some exceptions, only prospectively to private transfer fee covenants created on or after the date of publication of the proposed rule, Feb. 8, 2011, and regulated entities must comply with the rule by July 16, 2012. The final rule largely mirrors the proposed rule, though the FHFA did make some changes in response to comments. For example, as described more fully in Section IV of the final rule, (i) certain changes ensure that the rule clearly restricts any activity dealing in mortgages on property encumbered by private transfer fee covenant, (ii) the exception for fees imposed by a court judgment, order or decree was removed, and (iii) the rule now will not apply to private transfer fee covenants imposed pursuant to a litigation settlement agreement or an agreement approved by a government body before February 8, 2011.
FHFA Provides Strategic Plan Implementation Scorecard, Announces Executive Compensation Reductions
On March 9, the Federal Housing Finance Agency (FHFA) released a “scorecard” that details the implementation of its recently released strategic plan for Freddie Mac and Fannie Mae. The scorecard provides specific measures Fannie and Freddie will take in executing the strategic plan. It also identifies timetables for implementation of each objective. Contemporaneously, the FHFA released details of its 2012 compensation program for Fannie Mae and Freddie Mac executives. The program reduces total direct compensation by ten percent and eliminates bonuses. The program also sets $500,000 as the target annual salary for new CEOs.