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Washington Supreme Court Rules on Electronic Mortgage Registry's Role As Beneficiary
On August 16, the Supreme Court of the State of Washington held that an electronic mortgage registry system cannot commence a nonjudicial foreclosure in that state if it is not the promissory note holder. Bain v. Metro. Mort. Group, Inc., No. 86206-1, 2012 WL 3517326 (Wash. Aug. 16, 2012). In this case, the registry, as the named beneficiary of the deeds of trust, appointed trustees to initiate foreclosure proceedings against two borrowers. The borrowers sought injunctions in federal court to halt the foreclosures, arguing that the beneficiary did not actually hold the promissory notes, and therefore could not foreclose in its own name. The federal court certified several questions for consideration by the Washington Supreme Court. The Washington Supreme Court held that under Washington law only the actual holder of the promissory note evidencing the obligation may be a beneficiary with the power to appoint a trustee to proceed with a nonjudicial foreclosure. The court concluded that the electronic registry “does not hold the note, it is not a lawful beneficiary,” and therefore cannot commence a nonjudicial foreclosure. The court also noted that an agent can represent the note holder, but found that the electronic registry failed to identify the entities that “control and are accountable for its actions,” and therefore failed to establish that it is an “agent for a lawful principal.”
State Law Update: Illinois Enacts Servicemember Protections
On August 9, Illinois enacted SB 3287, a bill to expand and create various new protections for servicemembers. The bill clarifies the scope of coverage of servicemember protections by amending the definition of “military service” to include any full-time training or duty, no matter how described and no matter which state, federal, or other authority ordered the service. The bill provides new relief for covered servicemembers with regard to (i) default judgments, (ii) mortgage foreclosures, and (iii) installment sales contracts. For example, the bill provides that any mortgagor who is a covered servicemember, or a family member who resides with a covered servicemember, may seek a stay of foreclosure proceedings and an adjustment of the monthly payment obligation for ninety days after the servicemember returns from service. Similarly, a covered servicemember may seek a stay of any repossession of goods subject to an installment sales contract and an adjustment of the obligation. Other protections added or expanded by the bill relate to (i) limitations on interest rates, (ii) termination of motor vehicle and property leases, (iii) cellular phone and long distance contracts, and (iv) utility services. These changes take effect on January 1, 2013.
Fannie Mae Updates Custodial Bank Accounts Guidance
On August 15, Fannie Mae issued Servicing Guide Announcement SVC-2012-06, which amends requirements regarding custodial accounts. Under the amended guidance, servicers may maintain multiple tax and insurance custodial accounts for hazard insurance loss drafts, partial payments, or unapplied funds, but must execute a Form 1014 for each such account. Servicers also are no longer required to (i) notify Fannie Mae of a depository’s ineligible status, (ii) request approval to hold custodial funds in a formerly ineligible, but now compliant, depository, or (iii) request the implementation of a different remedy for an ineligible depository. Servicers still must monitor depositories to ensure they maintain eligibility.
CFPB Proposes National Mortgage Servicing Standards
On August 10, the CFPB proposed two sets of rules covering a number of residential mortgage servicing practices. The rules would amend Regulation Z (TILA) and Regulation X (RESPA) to implement certain mortgage servicing standards set forth by the Dodd-Frank Act and to address other issues identified by the CFPB. The TILA proposal includes changes to (i) periodic billing statement requirements, (ii) notices about adjustable rate mortgage interest rate adjustments, and (iii) rules on payment crediting and payoffs. The proposed changes to RESPA relate to (i) force-placed insurance requirements, (ii) error resolution and information request procedures, (iii) information management policies and procedures, (iv) standards for early intervention with delinquent borrowers, (v) rules for contact with delinquent borrowers, and (vi) enhanced loss mitigation procedures. While many of the rules implement changes required by the Dodd-Frank Act, other proposed requirements incorporate those placed on servicers as part of the national mortgage servicing settlement earlier this year, or corrective actions taken in 2011 by the prudential regulators. The proposed rules follow a small business review panel that provided feedback on the rules’ impact on small servicers. In response to the panel, the CFPB states that it incorporated small business concerns, such as an exemption from new periodic statement requirements for certain small servicers. In addition to comments on the substance of the proposals, the CFPB requests detailed comments about the appropriate effective date of the rules, including whether the CFPB should set staggered effective dates for different aspects of the rules or a single implementation deadline. The CFPB is accepting comments through October 9, 2012 and intends to finalize the rules by the Dodd-Frank statutory deadline in January 2013.
Federal Reserve Board Announces Sanctions Against Mortgage Servicer
On August 7, The Federal Reserve Board announced that it assessed a $3.2 million monetary penalty against MetLife, one of fourteen servicers against which federal regulators took corrective actions in April 2011. According to the announcement, the assessment order is similar to those entered with the five servicers involved in the state-federal mortgage servicing settlement announced earlier this year, though the amount of the fine here is substantially smaller. Because MetLife was not a party to that multi-party servicing agreement, the order contemplates steps the parties would take if MetLife subsequently enters into such an agreement, which would require MetLife to provide monetary relief to consumers. The resolution of these issues will allow MetLife to pursue its planned exit from banking.
Missouri Attorney General Settles "Robosigning" Case
On August 2, the Missouri Attorney General (AG) and the parent company of indicted firm DocX LLC announced a settlement of the state’s criminal allegations that the company engaged in so-called "robosigning." In his February indictment, the AG alleged that DocX (i) directed employees to falsely sign mortgage documents in the names of various bank vice presidents without proper authorization, (ii) falsely notarized the forged documents, and (iii) subsequently filed the documents in courthouses across the state. Pursuant to the agreement, DocX agreed to pay a $1.5 million fine plus fees and costs of the investigation, and will continue to cooperate with the AG’s office as it pursues criminal charges against the company’s former president.
National Mortgage Settlement Monitor Announces Compliance Vendors
On August 6, Joseph Smith, Jr., the Monitor appointed to implement and oversee the national mortgage servicing settlement, announced the retention of five consulting firms that will assist the Monitor and a primary consulting firm previously retained by the Monitor. Each firm will work with one of the five servicers that are party to the national settlement to ensure execution of the agreement.
Fannie Mae Issues Multiple Servicing Announcements
On August 8, Fannie Mae issued three servicing announcements. The first, Announcement SVC-2012-13, reminds servicers that under the Housing and Economic Recovery Act, Fannie Mae must promote diversity through (i) the inclusion and utilization of minorities, women, and individuals with disabilities, and (ii) the use of minority-, women-, and disabled-owned businesses at all levels, in management and employment, in all business and activities, and in all contracts for services of any kind. To that end, Fannie Mae is requiring that servicers complete by November 1, 2012, a supplier registration profile that accurately reflects its ownership status and its team composition report. The second announcement, Announcement SVC-2012-14, notifies servicers that effective October 1, 2012, Fannie Mae no longer will require mandatory pre-foreclosure mediation for loans in Florida. Finally, through Announcement SVC-2012-15, Fannie Mae is establishing a policy to require both an existing and a new document custodian to provide at least thirty days written notice when all or part of the custodian’s business is being acquired by a new document custodian while the servicer remains the same. This new policy is effective immediately.
President Obama Expands SCRA Protections for Servicemembers
On August 6, President Obama signed into law the Honoring America's Veterans and Caring for Camp Lejeune Families Act of 2012, H.R. 1627. Section 710 of this Act expands foreclosure protections for active duty servicemembers. Currently, under the Servicemembers Civil Relief Act, 50 U.S.C. app. § 533 (SCRA), an individual is entitled to foreclosure protection during the period of active duty and for nine months thereafter. This extended foreclosure protection was set to expire at the end of calendar year 2012, at which point the foreclosure protection would only last for ninety days after the end of active duty.
This bill signing makes three important changes to the SCRA that expand protections for servicemembers:
- The SCRA will continue to provide servicemembers with foreclosure protection during the period of active duty and for nine months thereafter past the end of the current calendar year into 2013;
- One-hundred-and-eighty days from the date of enactment (i.e., February 2, 2013), the mortgage foreclosure protection will extend to one full year after the period of active duty; and
- On January 1, 2015, the SCRA's expanded foreclosure protection will sunset, and the protection period will revert to its 2008 level: the period of active duty service plus ninety days.
Additionally, this Act requires the Comptroller General of the United States to report to Congress information related to the use of this expanded foreclosure protection. This report is due a year-and-a-half after enactment-giving Congress several months to review the report prior to the 2015 sunset.
CFPB Exercises Enforcement Authority Against Alleged Mortgage Modification Scheme
On July 18, the CFPB filed suit against a group of California companies and individuals alleged to have orchestrated a mortgage modification scam in violation of the Consumer Financial Protection Act and Regulation O. According to the CFPB, the defendants engaged in deceptive acts by promising loan modifications in exchange for an advance fee and misrepresenting affiliation with government entities, while taking little or no action to assist borrowers. This is the first known instance in which the CFPB has brought an enforcement action in court. The CFPB is seeking preliminary and permanent injunction, as well as rescission or reformation of contracts, refund of moneys paid, restitution, and disgorgement or compensation for unjust enrichment.