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Fannie Mae Gives Notices of Lender-Placed Insurance Changes
On March 6, Fannie Mae notified servicers that it will soon change its Lender-Placed Insurance (LPI) requirements. As reported by several media outlets, Fannie Mae has asked insurance companies to compete for Fannie Mae LPI business. Through the proposal Fannie Mae wants to ensure that insurance costs are significantly reduced. It plans to issue new policy guidelines regarding (i) when and how to procure LPI, and (ii) allowed reimbursable costs associated with LPI.
Fannie Mae Provides Guidance Regarding Hardest-Hit Fund
On March 6, Fannie Mae issued Servicing Guide Lender Letter LL-2012-02 to all single-family servicers to provide guidance in connection with transition assistance programs under the Hardest-Hit Fund (HHF). Effective immediately, servicers must facilitate the borrowers’ receipt of HHF funds in connection with transition assistance programs on Fannie Mae loans, including those held in a Fannie Mae portfolio or those in an MBS pool with the special servicing option or a shared-risk MBS pool for which Fannie Mae markets the acquired property. The Lender Letter also clarifies policies related to implementation of the HHF unemployment, reinstatement, and loan modification assistance programs, including clarifications regarding (i) collection and solicitation activity, (ii) foreclosure actions, and (iii) servicer obligations when dealing with housing finance agencies.
Fannie Mae Announces Multiple Selling Guide Updates
On February 28, Fannie Mae issued Announcement SEL-2012-02, which describes Selling Guide updates related to the Project Eligibility Review Services (PERS), premium pricing recapture, and the maximum buyup of the mortgage backed securities (MBS) guaranty fees. Regarding PERS, effective April 1, 2012, Fannie Mae is increasing the base fee, eliminating the waiver for projects that require a mandatory review, and eliminating the maximum project review fee limit. The announcement also outlines other PERS fee structure changes. Additionally, the Selling Guide updates a remedy available to Fannie Mae when it has identified a lender as having unusual prepayment behavior. Effective immediately, Fannie Mae will be allowed to request reimbursement for any premium paid in connection with the purchase of a mortgage that is paid in full within 120 days from the whole loan purchase date or from the MBS issue date. Finally, for loans delivered on or after May 28, 2012 with MBS issue dates on or after June 1, 2012, Fannie Mae is increasing the maximum buyup of the guaranty fee of 25 basis points for fixed-rate loans and certain ARMs.
FHFA Announces First Properties Available for Sale in REO Pilot Program
On February 27, the Federal Housing Finance Agency opened for sale the first pool of foreclosed properties currently owned by Fannie Mae to be sold to private firms under the condition that the firms will manage the properties as rental properties for a specified period of time. This first transaction is part of a recently announced pilot program designed to shift the management of certain foreclosed properties to private entities in an effort to reduce taxpayer losses and stabilize neighborhoods and home values. Interested investors must apply to become pre-qualified in order to bid on the pools of properties. At the start, the properties for sale will be located in the hardest-hit markets including, Atlanta, Chicago, Las Vegas, Los Angeles, Phoenix, and parts of Florida.
FHFA Takes Initiative on Idled Housing Finance Reform
On February 21, the Federal Housing Finance Agency (FHFA) submitted a strategic plan outlining the next phase of its conservatorship of Fannie Mae and Freddie Mac (the Enterprises). FHFA’s plan is in part a response to requests from lawmakers, including requests made during a December 2011 hearing. FHFA states that it will seek to build a new infrastructure for the secondary mortgage market, contract the Enterprises’ current market dominance, and maintain the Enterprises’ roles in foreclosure prevention activities and refinance initiatives. FHFA also outlines the legal authority under which it plans to act.
Until Congress can enact broader housing finance reform, FHFA envisions moving the Enterprises into a single open-architecture securitization platform that could become a type of public utility that would outlast the Enterprises. This move would also be accompanied by uniform standards for underwriting, disclosures, and servicing, and a robust and standard pooling and servicing agreement. FHFA will also contract Enterprise operations by (i) working to shift mortgage credit risk to private investors through some combination of increasing the g-fee, establishing loss sharing arrangements, and/or expanding reliance on mortgage insurance; (ii) directing the Enterprises to conduct a market analysis of the viability of their multifamily operations without government guarantees; and (iii) considering whether to retain each Enterprise's capital markets expertise to manage portfolios, or to hire a third-party investment firm to manage the portfolios. Finally, the FHFA asserts that it will maintain foreclosure prevention efforts and credit availability by (i) continuing existing programs such as the Servicing Alignment Initiative, HARP, and REO disposition initiatives; (ii) aligning and making policies for representations and warranties more transparent, in conjunction with the ongoing Uniform Mortgage Data Program; and (iii) pursuing lawsuits alleging securities law violations in private-label mortgage-backed securities purchased by the Enterprises.
The FHFA paper notes that these strategic goals and plans are consistent with each of the housing finance reform options identified in a February 2011 Obama administration report to Congress, as well as "leading legislative proposals." However, the paper also reminds legislators that fully addressing the Enterprises and the federal government's role in the secondary mortgage market will require congressional action, which should not be impaired by the FHFA's immediate pursuit of its strategic goals. For additional details on the strategic plan, please click here.
Fannie Mae Advises Sellers Regarding SEC Disclosures
On February 21, Fannie Mae advised all sellers that on February 9, 2012 it had filed its initial report pursuant to a new SEC rule requiring public disclosure of information regarding asset-backed securities loan repurchase requests, including the identity of the originator. It will continue to disclose such information in quarterly reports to the SEC beginning in May 2012.
Freddie Mac Releases Detailed Procedures for Tracking Expenses
On February 15, Freddie Mac published Single Family Seller/Servicer Guide Bulletin 2012-5 to implement new requirements related to the City of Chicago’s Vacant Property Ordinance. As previously reported, the FHFA sued Chicago over the ordinance, which requires lenders to register vacant properties and pay a $500 registration fee per property. Whether the property has been foreclosed upon or not, the ordinance also imposes maintenance and other obligations on lenders and their agents (including servicers, Fannie Mae, and Freddie Mac), and includes fines for non-compliance. The Bulletin, which follows up on a December 12 industry notice, establishes procedures for tracking and submitting expenses incurred pursuant to the ordinance and directs servicers to make required payments “under protest.” The Bulletin also eliminates the requirement for servicers to obtain prior consent from Freddie Mac to decline an application for a Mortgage assumption and reinforces the requirement that the servicer, for itself and on behalf of Freddie Mac, must waive all rights to seek deficiencies for short payoffs and deed-in-lieu of foreclosure transactions on Freddie Mac mortgages that have closed in accordance with the Guide.
Obama Administration Expands Housing Recovery Plans
On February 1, President Obama unveiled a plan to expand government support for the housing market, including a broad-based refinancing plan. The plan, announced during the President's State of the Union Address, combines changes to existing programs and creation of new initiatives, some of which will require congressional action. First, the President will ask Congress to enact legislation to allow the Federal Housing Administration (FHA) to provide government support for the refinancing of non-Fannie Mae and non-Freddie Mac mortgages. The $5 to $10 billion program would be funded by a fee imposed on the largest financial institutions. For borrowers with Fannie Mae or Freddie Mac loans, the legislation would further streamline existing refinance programs and create incentives for borrowers to accept shorter loan terms to build equity. Second, the administration will continue its work to create new mortgage origination and servicing standards in an effort to create a Homeowner Bill of Rights. Third, the Federal Housing Finance Agency (FHFA) will conduct a pilot program through which it will sell foreclosed properties to be transitioned into rental housing. Finally, the President's upcoming budget will include a national program to put unemployed construction workers back to work refurbishing vacant and foreclosed properties.
The President also highlighted the work of the recently-formed Residential Mortgage-Backed Securities Working Group, and reviewed the success of existing government efforts (e.g., those related to unemployment forbearance). Further, the announcement incorporated a Treasury Department move last week to enhance the Home Affordable Modification Program (HAMP) by (i) extending HAMP's deadline through December 31, 2013, (ii) expanding borrower eligibility for HAMP, and (iii) encouraging use of principal reduction for loans insured or owned by Freddie Mac or Fannie Mae. In response, the FHFA reiterated its opposition to use of principal reduction by Fannie Mae and Freddie Mac.
Fannie Mae Announces Multiple Selling Guide Updates
On January 31, Fannie Mae issued Selling Guide Announcement SEL-2012-01, which provides updates and changes regarding (i) Construction-to-Permanent Financing; (ii) effective quality control plans, and (iii) other miscellaneous Guide topics. The changes to the Construction-to-Permanent Financing provisions aim to more closely align the policies related to such financing with standard requirements for other refinance transactions. The updates to the requirements for the lender to have an effective quality control plan do not establish any new policies, but seek to clarify requirements for lenders' post-closing quality control process. These and most of the other updates provided in the Announcement are effective immediately.
FHFA Releases Analysis of Principal Forgiveness Loan Modification Option
On January 23, the Federal Housing Finance Agency (FHFA), the entity serving as conservator for Fannie Mae and Freddie Mac, released a letter sent to certain members of Congress describing the internal analyses that resulted in FHFA’s decision not to use principal forgiveness as part of Fannie Mae’s and Freddie Mac’s loan modification programs. In short, the letter and analyses support FHFA’s previous publicly-stated conclusion that FHFA lacks statutory authority to incur the taxpayer losses that would result from the use of principal forgiveness. The letter concludes that “forbearance achieves marginally lower losses for the taxpayer than forgiveness,” but both provide the same more affordable payment for the borrower. The additional costs of principal forgiveness would not be offset by preservation of Fannie Mae and Freddie Mac assets.