InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
Federal Regulators Announce Additional Monetary Settlements in Lieu of Independent Foreclosure Review
On January 16, the Federal Reserve Board announced that two additional mortgage servicers subject to consent orders issued in April 2011 agreed in principle to a monetary resolution of allegations that the firms engaged in improper mortgage servicing and foreclosure practices. As described, the agreements in principle mirror those obtained by the Federal Reserve Board and the OCC from 10 other servicers, which were announced last week. Together the two firms will provide $232 million in direct payments to more than 220,000 borrowers whose homes were in foreclosure during 2009 and 2010. The companies also will provide $325 million in other assistance, such as loan modifications and forgiveness of deficiency judgments. On January 18, the Federal Reserve Board and the OCC announced an agreement in principle with another servicer that will provide $96 million in direct payments to more than 112,000 borrowers, and $153 million in other assistance. Under all three agreements, borrowers will be contacted by the end of March about their exact payout, which could range from hundreds of dollars to $125,000, depending upon the type of alleged servicing error.
Federal Regulators Agree to Monetary Settlement With 10 Servicers In Lieu of Independent Foreclosure Review
On January 7, the OCC and the Federal Reserve Board announced that 10 of the 14 mortgage servicers subject to consent orders issued in April 2011 regarding alleged improper servicing and foreclosure practices agreed in principle to resolve those allegations by paying borrowers $3.3 billion directly and providing $5.2 billion in borrower assistance through loan modifications and forgiveness of deficiency judgments. For the settling servicers, the agreement ends the costly and ineffective Independent Foreclosure Review program required by the consent orders, pursuant to which the banks were to compensate borrowers for any financial injury and/or improper foreclosure identified by third-party consultants through a case-by-case loan file audit process or in response to borrower requests for review. The OCC states that more than 3.8 million borrowers are expected to receive compensation ranging from hundreds of dollars up to $125,000, without having to take any action to become eligible. The exact payout will depend on the type of alleged servicing error, and the regulators expect that borrowers will be contacted by the end of March with payment details. The regulators continue to seek similar agreements with the remaining companies subject to the 2011 consent orders.
Ninth Circuit Affirms Dismissal of Unfair Competition Claims over Teaser Rates
On January 9, the U.S. Court of Appeals for the Ninth Circuit affirmed a district court’s dismissal of a putative class action against a national bank over its adjustable rate mortgage disclosure and payment application. O’Donnell v. Bank of Am., N.A., No. 11-16351, slip op. (9th Cir. Jan. 9, 2013). On appeal, the borrowers argued that the district court erred in holding that their California state-law claims for common law fraud and violations of the Unfair Competition Law based on the lender’s alleged concealment of material facts about the loans’ escalating principal balances and interest rates are preempted by the National Bank Act and OCC regulations. The borrowers also challenged the district court’s dismissal of their state-law breach of contract claim based on allegations that the lender improperly applied payments solely toward satisfying part of the interest owed while adding the remaining interest to the principal balance. In affirming the dismissal, the appeals court held that the fraud and unfair competition claims are expressly preempted because they would force the lender to make additional disclosures not required by federal law. The appeals court also affirmed the district court’s holding that the FTC Act does not provide a private right of action and therefore cannot be employed as a premise for the borrowers’ unfair competition claim. With regard to the borrowers’ breach of contract claim, the court held that the mortgage contract did not include any representation that the lender would apply payments to principal if the payment failed to cover the accrued interest, and, therefore, the borrowers failed to state a plausible claim.
Massachusetts Division of Banks Proposes Foreclosure Regulation Amendments
On January 7, the Massachusetts Division of Banks announced a public hearing to review proposed amendments to the state’s foreclosure and mortgage modification regulations. The proposed amendments would implement a recently passed law that makes it harder to foreclose in that state, including by creating a pre-foreclosure modification notice requirement for creditors. The amended regulation would (i) establish the processes for a borrower and creditor with regard to the borrower’s right to request a loan modification, (ii) establish the actions that constitute a borrower's good faith response to a creditor's notice of the right to request a loan modification, (iii) define good faith efforts by creditors to avoid foreclosure, and (iv) establish safe harbors for creditors that comply with the loan modification process. The hearing is scheduled for February 6, 2013, and the Division of Banks is accepting public comments on the proposal through February 15, 2013.
California Corrects Homeowner Bill of Rights Summary
On January 1, the California Department of Corporations reissued Release No. 65-FS regarding implementation of key parts of the Homeowner Bill of Rights that established new foreclosure requirements. Originally published on December 4, the new version clarifies certain requirements for mortgage servicers, and corrects the operative date of provisions enacted by AB 1599, a bill requiring translated summaries of notices of default and sale.
State Law Update: Michigan Excludes Certain Loans from State Mortgage Laws, Extends Loan Modification Program
On December 22, Michigan Governor Rick Snyder signed three bills—SB 1283, SB 1284, and SB 1285—to exclude from state mortgage laws, including its predatory lending law and loan originator licensing act, any loan transaction in which the proceeds are not used primarily for a personal, family, or household purpose. The changes took effect immediately. On December 28, the Governor executed SB 1172, which extends until June 30, 2013 a law enacted in 2009 to create a residential mortgage loan modification program. The program provides for a 90-day moratorium before a mortgage lender may pursue a non-judicial foreclosure against a delinquent borrower, during which time the borrower must be given an opportunity to modify the loan. Under prior law the program was scheduled to sunset on December 31, 2012.
Freddie Mac Offers Flexibility for Certain Selling Guide Verification Requirements
On December 14, Freddie Mac issued Bulletin 2012-28 (Bulletin), which provides sellers more flexibility with regard to certain required verifications. Under the new policy, Freddie Mac will (i) allow sellers to obtain a verbal verification of employment or a verification of existence of the business, as applicable, after the note date, provided the verifications are obtained prior to the delivery date, and (ii) provide additional options for sellers when documenting the terms of secondary financing, the fees and costs paid in connection with secondary financing and the evidence of subordination of secondary financing to the first lien. The Bulletin also (i) clarifies condominium project review and eligibility requirements, (ii) updates the Single-Family Seller/Servicer Guide (Guide) to reflect the new property valuation requirements for Relief Refinance Mortgages℠ secured by properties affected by disasters, (iii) reminds sellers and servicers about base conforming loan limits and high-cost area loan limits for 2013, and (iv) reminds sellers and servicers who use the services of a warehouse lender that Freddie Mac may refuse to fund or delay funding if the warehouse lender has not submitted acceptable documentation as required in Guide Chapter 19.
Freddie Mac Supplements Storm Relief Guidance
On December 18, Freddie Mac updated its disaster relief policies through Bulletin 2012-29 (Bulletin). Effective immediately, but only temporarily, servicers must perform one interior disaster-related property inspection for delinquent mortgages secured by properties in eligible disaster areas that have been identified as abandoned as of, or prior to the date of the area being declared an eligible disaster area. Freddie Mac will reimburse servicers up to $20 per property for the additional costs associated with completing the interior inspections. For mortgages secured by properties located in eligible disaster areas, which were reported as current in the most recent reporting cycle just prior to the area being declared an eligible disaster area, Freddie Mac will reimburse servicers up to $10 per property for one exterior property inspection related to the disaster. The Bulletin also provides instructions regarding forbearance plans for borrowers who are or were in approved or active trial period plans and whose property or places of employment are located in an eligible Hurricane Sandy disaster area.
Ninth Circuit Holds Mortgage Servicers Have No RESPA Duty To Respond to Request for Loan Terms
On December 11, the U.S. Court of Appeals for the Ninth Circuit held that letters sent by two borrowers challenging the monthly payment due on their mortgage loan were not “qualified written requests” and therefore did not trigger the servicer’s duty under RESPA to respond. Medrano v. Flagstar Bank, FSB, No. 11-55412, 2012 WL 6183549 (9th Cir. Dec. 11, 2012). The borrowers alleged that their mortgage servicer failed to respond adequately to three letters in which the borrowers challenged the monthly payment due on their loan. RESPA grants borrowers a private right of action against servicers who fail to respond to a “qualified written request.” Following the Seventh Circuit’s decision in Catalan v. GMAC Mortgage Corp., 629 F.3d 676 (7th Cir. 2011), the court held that RESPA provides that such requests must (i) reasonably identify the borrower’s name and account, (ii) either state the borrower’s reasons for the belief that the account is in error or provide sufficient detail to the servicer regarding other information sought, and (iii) seek information relating to the servicing of the loan. The court held that because the letters did not seek information relating to the servicing of the loan, but rather challenged the loan’s terms, the letters were not qualified written requests and the servicer had no duty to respond. The court affirmed the district court’s dismissal of the borrowers’ RESPA claims and remand of the borrowers’ remaining state law claims.
Fannie Mae Updates Servicing Guide to Implement Harmonized Contracts Directive
On December 5, Fannie Mae issued Servicing Guide Announcement SVC-2012-21, which provides numerous Servicing Guide updates to further conform to the FHFA’s directive that Fannie Mae and Freddie Mac align their servicing contracts and policies. The announcement provides new and revised policies regarding (i) metrics for performing and non-performing loans, (ii) servicer violations and remedies, (iii) compensatory fees, (iv) default events constituting a breach of a servicer’s contractual obligations, (v) servicing terminations and transfer of servicing remedies, (vi) response time frames and appeal process for remedies, and (vii) miscellaneous contractual changes.