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FHFA Decides Fannie Mae and Freddie Mac Will Not Offer Principal Forgiveness; Updates Other Borrower Assistance Efforts
On July 31, FHFA announced that it will not direct Fannie Mae and Freddie Mac to offer principal reduction assistance to troubled borrowers, concluding that a principal forgiveness policy does not “clearly improve foreclosure avoidance while reducing costs to taxpayers relative to the approaches in place today.” The Treasury Department immediately objected, countering that FHFA’s cost concerns could be alleviated with Treasury assistance to pay for additional administrative implementation costs. With its announcement, FHFA released correspondence to members of Congress explaining FHFA’s decision and providing a detailed assessment of the principal forgiveness policy option. FHFA also reported that it is working with Fannie Mae and Freddie Mac on a series of other borrower assistance efforts including (i) an update to Freddie Mac's refinance program to align it with Fannie Mae’s policy for refinancing mortgages with loan-to-value ratios equal to or less than 80%, (ii) new requirements expected in September related to representations and warranties, which will shift the loan quality review closer to the time of loan origination, (iii) a single, aligned short sale program for Fannie Mae and Freddie Mac with more flexible terms, (iv) a new set of adjustments to guarantee fee pricing, expected to be announced in August and to take effect later in the year, and (v) closing on the first set of REO pilot transactions in August.
Federal Reserve Board Provides Guidance on Abandoned Foreclosures
The Federal Reserve Board recently issued a supervisory letter advising covered banking institutions about risk management practices related to decisions not to complete foreclosure proceedings after they have been initiated. The letter advises covered institutions that their policies and practices governing abandoned foreclosures should include (i) notification to borrowers, (ii) extensive communication methods comparable to those used when attempting to collect payment, (iii) notification to local authorities, and (iv) a process for obtaining information about collateral value of the property.
Eleventh Circuit Holds Loan Servicer May Be Debt Collector Subject to FDCPA
On July 18, the U.S. Court of Appeals for the Eleventh Circuit held that a mortgage servicer may be a debt collector subject to the FDCPA where it attempts to both enforce a security interest and collect a debt. Birster v. American Home Mortgage Servicing, Inc., No. 11-13574, 2012 WL 2913786 (11th Cir. July 18, 2012). The borrowers alleged that the servicer harassed them with phone calls and home inspections in connection with trying to collect mortgage payments. The district court granted summary judgment to the servicer, holding that the servicer’s actions constituted efforts to enforce a security interest, and not to collect a debt. As such, the borrower’s claims under the FDCPA could not survive. The appellate court reversed and remanded, relying on its decision in Reese v. Ellis, Painter, Rattertree & Adams, LLP, No. 10-14366, 2012 WL 1500108 (11th Cir. May 1, 2012), which came after the district court ruled in favor of the servicer, and which provides that an entity can both enforce a security interest and collect a debt. The court held that the borrowers sufficiently alleged facts to support a claim under the FDCPA, citing a letter the servicer sent in which it stated that it was attempting to collect a debt.
State Law Update: Illinois, Michigan, Oregon Enhance Borrower Protections
Illinois Enhances Borrower Protections. On July 25, Illinois enacted SB 1692, which enhances consumer protections related to mortgages and tax refund anticipation loans. The bill amends the state’s High Risk Home Loan Act to (i) update the definition of “high risk home loan” to be consistent with the federal standard, and prohibit prepayment penalties, balloon payments and modification fees for such loans, (ii) revise the definition of “points and fees” and clarify the prohibition on the financing of such fees in connection with high risk loans, and (iii) limit late payment fees to 4% of the amount past due. The bill also amends the state’s Tax Refund Anticipation Loan Disclosure Act to (i) revise certain definitions, (ii) limit the fees that can be charged in connection with tax refund loans and establish other prohibited activities, and (iii) amend the disclosures required for creditors making such loans. These and other changes in the bill are effective January 1, 2013.
Michigan Updates Guidance on Return Check Fees on Installment Sales Contracts. On July 19, the Michigan Office of Financial and Insurance Regulation (OFIR) published a letter to installment seller/sales finance licensees clarifying the regulator’s position on the use of return check fees in installment sales contracts. Previously, the OFIR had taken the position that inclusion of an NSF fee in a vehicle installment sales contract was not permitted because such a fee was not expressly permitted under the state’s Motor Vehicle Sales Finance Act (MVSFA). However, in its July 19 letter the OFIR clarified that the OFIR considers it a violation of state law for a licensee under the MVSFA to charge a fee for returned checks if the motor vehicle installment sales contract does not specifically provide for the assessment of such a fee. The OFIR states that the MVSFA requires a contract contain all of the terms of the agreement between a buyer and a seller, including any default charges. Although the state Credit Reform Act permits regulated lenders to charge return check fees up to a maximum of $25, because a returned check constitutes a default under the contract, a return check fee is considered a default charge and can only be assessed if disclosed in the agreement.
Oregon Adopts Rules to Implement Foreclosure Avoidance Program. Recently, the Oregon Department of Justice adopted temporary rules to implement the Foreclosure Avoidance Mediation Program established earlier this year. The rules establish (i) the accepted methods of notice required to be provided to the state Attorney General, (ii) the minimum training and qualifications for mediators, (iii) the fees and timing of fee payments, and (iv) the form of mediation notice for use in seeking nonjudicial foreclosure. The rules took effect July 11, 2012, and expire January 6, 2013.
Fannie Mae Announces Numerous Servicing Policy Changes; ULDD Mandate Takes Effect
On July 25, Fannie Mae issued Servicing Guide Announcement SVC-2012-12, which provides notice of miscellaneous changes to the Fannie Mae Servicing Guide related to (i) the MERS Rule 14 Notice, (ii) approved title company requirements for certain states, and (iii) allowable attorney fees. With respect to the MERS Rule 14 notice, servicers will now be required to notify Fannie Mae whenever they are required to send MERS notice of certain MERS-related legal challenges. Fannie Mae announced that it is eliminating the requirement that servicers select a Fannie Mae-approved title company for work performed inArizona,California andWashington. Instead, servicers may select the title company of their choice. Fannie Mae also announced changes to the allowable amount of attorney’s and trustee’s fees in several jurisdictions.
On July 23, the Uniform Loan Delivery Dataset (ULDD) mandate took effect for loans delivered to Fannie Mae and Freddie Mac. Fannie Mae recently provided a notification, and Freddie Mac recently published a Bulletin, outlining updates to their ULDD resources.
Oregon Supreme Court Agrees to Address Electronic Mortgage Registry's Role as Beneficiary; Two California Appellate Courts Affirm Electronic Registry's Beneficiary Role
On July 19, the Oregon Supreme Court accepted certified questions arising from four cases pending in the U.S. District Court for the District of Oregon related to the role of an electronic mortgage registry as beneficiary. Brandrup v. ReconTrust Company, N. A. (S060281) (question certified from D. Or. Case No. 3:11-cv-1390-JE). The judge in those matters asked Oregon’s highest court to determine whether under state law (i) such a registry, that is neither a lender nor successor to a lender, may be a "beneficiary," (ii) an electronic registry may be designated as beneficiary where the trust deed provides the registry holds only the legal title to the interests granted by the borrower, but, if necessary to comply with law or custom, the registry has the right to exercise any or all of those interests, (iii) the transfer of a promissory note from the lender to a successor results in an automatic assignment of the securing trust deed that must be recorded prior to the commencement of nonjudicial foreclosure, and (iv) an electronic registry can retain and transfer legal title to a trust deed as nominee for the lender, after the note secured by the trust deed is transferred from the lender to a successor or series or successors. The court’s decision on these questions may also have implications for a recent decision in which the a state appellate court held that, under Oregon law, the term beneficiary can only mean the person named or otherwise designated in the trust deed as the person to whom the secured obligation is owed. Niday v. GMAC Mortgage LLC, No. CV 10020001, 2012 WL 2915520 (Or. App.Ct. Jul. 18, 2012). As such, the court held, a beneficiary that uses an electronic registry, and does not publicly record assignments of a trust deed, cannot avail itself of the state’s nonjudicial foreclosure process. That holding is contrary to substantialOregon case law.
Recently, in matters pending in California regarding similar issues, two appellate courts rejected challenges to an electronic registry’s role as beneficiary brought by borrowers as a defense in their foreclosure actions. Taasan v. Family Lending Services, Inc. No. A132339, 2012 WL 2774967 (Cal. Ct. App. 1st. Dist. Jul. 10 2012); Skov v. U.S. Bank N.A., No. H036483, 2012 WL 2054996 (Cal. Ct. app. 6th Dist. Jun. 8, 2012). For example, in Taasan, the court held that the foreclosing entity need not have physical possession of the note in order to initiate a nonjudicial foreclosure.
Delaware AG Settles Case Against Electronic Mortgage Registry
On July 13, Delaware Attorney General Beau Biden announced a settlement of the state’s lawsuit against a national electronic mortgage registry. The state alleged that the registry system created inaccurate and unreliable records that undermined chain of title in that state. Under the agreement, the registry has agreed to (i) maintain a database that allows homeowners to clearly see who owns the mortgage and who services the loan, (ii) record assignments of mortgages with the county Recorder of Deeds Office before a foreclosure can proceed, (iii) not foreclose in its name for the next five years, (iv) audit its records for accuracy and report results to the Attorney General, and (v) increase oversight and training, including annual examinations of documents signed by employees of its 25 largest members to check the identity and authority of the person who signed the documents. These steps are consistent with those already taken by the registry nationally, and the agreement does not include any monetary payment.
Fannie Mae Announces Expanded Servicer Training Program
On July 16, Fannie Mae announced its “Know Your Options Customer Care” program, through which Fannie Mae provides training for servicers’ call center employees in an effort to help prevent foreclosures. The program also offers servicers scripting for interactions with homeowners and assistance with quality control implementation. Fannie Mae has already implemented the program with 18 of its largest servicers and is now making the program available to all servicers through online webinars and related materials. Fannie Mae noted that those servicers that have participated in the free program have seen substantial increases in workouts.
State Law Update: Hawaii and California Take Actions on Mortgages and Privacy
California AG Announces Privacy Enforcement Unit. On July 19, California Attorney General Kamala Harris announced the creation of the Privacy Enforcement and Protection Unit. The unit will combine the various existing privacy functions of the California Department of Justice to centrally enforce and protect consumer privacy. The unit will pursue civil prosecution of state and federal privacy laws regulating the collection, retention, disclosure, and destruction of private or sensitive information by individuals, organizations, and the government. These include laws relating to cyber privacy, financial privacy, identity theft, and data breaches, among others. The new unit will reside within the eCrime Unit, which was created in December 2011 to identify and prosecute identity theft crimes, cyber-crimes and other crimes involving the use of technology.
California Expands Servicemember Protections. On July 13, California enacted AB 2476, which expands the period of time during which servicemembers are protected from high interest rates. Under current law, a creditor cannot charge, during a servicemember’s period of military service, an interest rate in excess of 6% on any obligation or liability incurred by a servicemember before that person’s entry into service. The bill expands the interest rate protections to prevent an increase in any such rate on a mortgage, trust deed, or other security in the nature of a mortgage for one year after the period of military service.
Hawaii Enacts Multiple Mortgage-Related Bills and Legislation to Protect Personal Information. Recently, Hawaii enacted a set of bills related to mortgage origination and servicing. With regard to mortgage origination, S.B. 2763 amends the state SAFE Act to reflect changes to the federal law and to adjust originator registration fees. With regard to mortgage servicers, H.B. 2502 allows the Commissioner of Financial Institutions to require registration with the NMLS and makes it unlawful for a servicer to provide loan modifications without first complying with certain licensing requirements. Another bill, H.B. 1875 makes numerous changes to the state’s foreclosure laws, largely implementing recommendations from the Mortgage Foreclosure Task Force created by the state legislature in 2010. Finally, with regard to mortgages, H.B. 2375 establishes criminal penalties for certain violations of the state’s Mortgage Rescue Fraud Prevention Act. Hawaii also recently enacted S.B. 2419, which prohibits businesses from scanning a customer’s identification card or driver’s license with an electronic device capable of obtaining information electronically encoded on that identification card, except for specific purposes.
Key Parts of California "Homeowner Bill of Rights" Signed Into Law
On July 11, California Governor Jerry Brown signed into law two bills (AB 278 and SB 900) that form part of the state’s proposed “Homeowner Bill of Rights.” Effective January 1, 2013, the two substantively identical bills will (i) codify a number of protections similar to those contained in the Multistate Servicer Settlement between 49 state attorneys general, the Federal Government, and the nation’s five largest mortgage servicers announced in February, (ii) amend the mechanics of California’s foreclosure processes, and (iii) provide borrowers with new private rights of action. Several other parts of the Homeowner Bill of Rights remain pending, as described in a fact sheet prepared by the California Attorney General.