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National Mortgage Servicing Settlement Monitor Adds Enforcement Metrics
On October 2, Joseph A. Smith, Jr., the Monitor of the National Mortgage Servicing Settlement announced four new metrics his office will use to measure the settling servicers’ compliance with the agreement’s servicing standards. Two of the metrics take effect on January 1, 2014 and are intended to (i) ensure borrowers are provided contact information for new “single points of contact” and (ii) ensure that servicers’ monthly billing statements are accurate and detailed. Compliance testing on two additional metrics related to servicers’ communications to borrowers regarding the requirements for loan modification applications will begin on April 1, 2014. Those metrics are meant to (i) ensure that the servicers do not reject a borrower’s loan modification application or proceed with a foreclosure for at least 30 days while the borrower is responding to requests for additional documents and (ii) ensure the servicers communicate modification denials and make loss mitigation alternatives available.
HUD Clarifies Changes to HECM Program, Updates FHA Loss Mitigation Home Retention Options
On September 25, HUD issued Mortgagee Letter 2013-33, which clarifies the recent changes HUD made to its HECM program earlier this month through Mortgagee Letter 2013-27. The new letter (i) defines mandatory obligation, (ii) adds additional mandatory obligations for traditional and refinance transactions, and for purchase transactions, (iii) identifies items that must be included in the first twelve-month disbursement limit and initial MIP calculation, (iv) states that the monthly increase to the principal limit must include the annual mortgage insurance rate as well as the mortgage note interest rate, (v) corrects the calculation of the life-expectancy set-aside, (vi) makes accommodations for mortgagors who entered into a bona fide sales contract and made an earnest money deposit on a property before the issuance of Mortgagee Letter 2013-27, and (vii) clarifies an exception to the general policy that a mortgagee increase the available principal limit if the mortgagor makes a partial payment. On September 20, HUD issued Mortgagee Letter 2013-32 to supersede its prior guidance regarding loss mitigation in Mortgagee Letter 2012-22. The letter, among other things, (i) defines “continuous income,” other than wages, for loss mitigation evaluations, and other terms, (ii) establishes the conditions required for a “special forbearance” to be used as a loss mitigation tool, (iii) provides guidance on capitalization of arrearages for modifications and partial claims, and (iv) discusses working with mortgagors in bankruptcy and those failing to complete trial payment plans. Mortgagees are required to implement the policies in Mortgagee Letter 2013-32 by December 1, 2013.
Freddie Mac Revises Numerous Selling, Servicing Requirements
On September 24, Freddie Mac issued Bulletin 2013-18, which updates and revises certain selling and servicing requirements. Effective October 1, 2013, Freddie Mac will require that seller/servicers (i) provide third-party vendors retained to perform functions relating to origination and servicing of mortgages with training on fraud prevention, detection, and reporting as outlined in the Seller/Servicer Guide, (ii) maintain written procedures for reporting fraud or possible fraud in connection with a mortgage sold to or serviced for Freddie Mac, and (iii) report to Freddie Mac when they first know or suspect an incident of fraud may have occurred in connection with a mortgage sold to or serviced for Freddie Mac, rather than when they have a reasonable belief of such an incident. With regard to selling requirements, the bulletin, among other things, (i) updates asset documentation requirements, including the requirements for verification of large deposits, (ii) updates requirements for underwriting borrowers on temporary leave, (iii) updates certain relief refinance requirements, and (iv) retires Investor Feature Identifiers for temporary subsidy buydown mortgages with special characteristics.
Ninth Circuit Judge Withdraws Fraud Characterization of Bank's HAMP Trial Plan
On September 23, in a brief order, a judge for the U.S. Court of Appeals for the Ninth Circuit withdrew his concurrence in a recent opinion in which the court held that HAMP Trial Period Plans (TPPs) create a contractual obligation for servicers to offer a permanent modification to borrowers who complete the TPP. Corvello v. Wells Fargo Bank, N.A., Nos. 11-16234, 11-16242 (9th Cir. Sept. 23, 2013). In the concurring opinion, the judge had argued that the bank created the trial plan document for “the fraudulent purpose of inducing [the borrower] to make the payments while the bank retained the option of modifying the loan or stiffing him.” The bank filed a motion for rehearing and asked the court to withdraw the concurrence because the Treasury Department, not the bank, drafted the trial plan document and required its use. Therefore, according to the bank, its actions should not be characterized as fraudulent because it adhered to its obligations by using the required HAMP documents.
Fannie Mae, Freddie Mac Extend Streamlined Modifications, Announce HAMP Changes, Increase Certain State Foreclosure Timelines
On September 16, Freddie Mac issued Bulletin 2013-17, and on September 18, Fannie Mae issued Servicing Guide Announcement SVC-2013-18, which extend those entities’ streamlined modification programs to include all streamlined modification trial period plans that become effective by December 1, 2015. Fannie Mae and Freddie Mac also extended the expiration date for HAMP such that Trial Period Plan Effective Dates must be on or before March 1, 2016 and Modification Effective Dates must be on or before September 1, 2016. Fannie Mae further applied these extended time frames to Second-Lien Modification Programs. In addition, Fannie Mae and Freddie Mac revised their eligibility requirements for proposed HAMP modifications that are submitted through the Treasury Net Present Value Model on or after January 1, 2014. Further, both Fannie Mae and Freddie Mac (i) retired the annual servicer “Pay for Success” incentive for HAMP-eligible mortgages, effective for modifications with effective dates on or after April 1, 2014 and (ii) updated requirements for repurchased loans subject to a HAMP permanent mortgage loan modification or trial plan. Finally, the Freddie Mac bulletin increased state foreclosure timelines by 30 days in Nevada, New Mexico, and Washington, for all foreclosure sales completed after September 1, 2013, while Fannie took the same action through a separate servicing notice.
Fannie Mae Announces Requirements for Foreclosure Sale Eliminations and Rescissions
On September 18, Fannie Mae issued Servicing Guide Announcement SVC-2013-19, which establishes requirements for eliminations and rescissions of foreclosure sales, effective immediately. The announcement states that when a servicer identifies an issue that requires an elimination and/or rescission, the servicer must submit a request for elimination and/or rescission within five days of that identification. When Fannie Mae identifies an issue that requires a property to be eliminated from its REO inventory or a foreclosure sale to be rescinded, Fannie Mae will initiate the elimination and/or rescission process through a report to the servicer, which will list Fannie Mae’s decision for each servicer-requested elimination or rescission, as well as those eliminations and/or rescissions that Fannie Mae has processed. The servicer must then (i) review the report for notification of servicer-requested elimination/rescission approvals and Fannie Mae-processed eliminations/rescissions, (ii) add each eliminated file back into its servicer system within 24 hours of notification of approval or notification that the file has been eliminated by Fannie Mae, and (iii) resume managing the eliminated/rescinded file pursuant to the Servicing Guide.
Special Alert: CFPB Finalizes Additional Amendments to the 2013 Mortgage Rules
On September 13, the CFPB finalized another set of amendments to its January 2013 mortgage rules. Whereas previous amendments focused largely on the ability-to-repay/qualified mortgage rule, these amendments – originally proposed in late June 2013 – principally address several important questions that have emerged during the implementation process for the mortgage servicing and loan originator compensation rules. We have prepared a Special Alert regarding these latest amendments.
The amendments provide guidance on complying with the rules and, in several cases, the CFPB revised the proposed amendments in response to concerns raised by the industry during the comment period. Nevertheless, the volume and complexity of the new requirements and the number of outstanding issues still present a daunting task for many industry participants as they work to implement the rules by January 2014. The CFPB declined industry requests to provide additional time for compliance and, except as discussed in our Special Alert, has not indicated whether additional amendments will be forthcoming.
Questions regarding the matters discussed in the Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.
- Jeffrey P. Naimon, (202) 349-8030
- John P. Kromer, (202) 349-8040
- Clinton R. Rockwell, (310) 424-3901
- Joseph M. Kolar, (202) 349-8020
- Jeremiah S. Buckley, (202) 349-8010
CFPB Finalizes Additional Modifications to Certain Mortgage Rules
On September 13, the CFPB issued final amendments to its Mortgage Servicing and Loan Originator Compensation rules. The CFPB’s press release states that the amendments (i) clarify what servicer activities are prohibited in the first 120 days of delinquency, (ii) outline procedures for obtaining follow-up information on loss mitigation applications, (iii) facilitate servicers’ offering of short-term forbearance plans, (iv) clarify best practices for informing borrowers about the address for error resolution documents, (v) facilitate lending in rural or underserve areas, (vi) clarify the restrictions on the financing of credit insurance premiums, (vii) clarify the definition of a loan originator, (viii) clarify the points and fees thresholds and loan originator compensation rules for manufactured housing employees, and (ix) revise effective dates of many loan originator compensation rule provisions to align with other mortgage rule effective dates. We are reviewing the actual final amendments and plan to provide more information and analysis in the near future. Please also see our Special Alert on these changes as proposed in June.
OCC Announces Additional Foreclosure Review Settlement
On August 23, the OCC announced an amended consent order with one of the financial institutions that entered into a consent order in April 2011 to resolve allegations that the institutions engaged in improper mortgage servicing and foreclosure processing practices. The agreement follows numerous others released earlier this year and requires the institution to pay roughly $43 million, including $37 million in cash payments to more than 32,000 borrowers. The amendment also effectively ends the Independent Foreclosure Review process set forth under the original consent order for the institution and its customers.
Fannie Mae Announces Miscellaneous Servicing Policy Changes
On August 28, Fannie Mae issued Announcement SVC-2013-17, which describes miscellaneous servicing policy changes and updates. The announcement provides that a servicer is no longer obligated to treat a servicer name change as a transfer of servicing (although all other notification requirements related to name changes remain unchanged). In addition, the announcement clarifies servicer obligations with respect to unemployment forbearance arrangements, providing that (i) prior to expiration of an initial unemployment forbearance term (or upon re-employment), the borrower must be evaluated for an extension or another workout option and (ii) prior to expiration of an extended unemployment forbearance term or upon notification of re-employment, the borrower must be evaluated for other available foreclosure alternatives. The announcement also provides that (i) a borrower in a trial period plan who receives an evaluation notice has 14 days to indicate his or her intent to accept or reject the modification offer, and (ii) in situations where a due-on-sale clause is not enforceable because the property transfer constitutes an “exempt transaction,” a servicer must implement policies and procedures allowing it to promptly identify and communicate with the new property owner (including a widow, executor or administrator of the borrower’s estate, or other authorized representative upon notice of the death of a borrower) and allow such new property owner to make mortgage payments, to pursue an assumption, and to be evaluated for foreclosure alternatives, as applicable. If a mortgage loan is delinquent and the new property owner is unable to bring the mortgage loan current, he or she must be evaluated for all available workout options, and the servicer must follow Servicing Guide eligibility and Borrower Response Package requirements in doing so. All changes and updates take effect immediately for mortgage loans that become delinquent on or after the date of the announcement, except those related to unemployment forbearance. Servicers are required to implement the unemployment forbearance policies no later than November 1, 2013.