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Freddie Mac Adjusts Standard Modification Interest Rate
On June 1, Freddie Mac announced that, as of July 1, 2012, servicers must use a new fixed interest rate when determining a borrowers eligibility for a Freddie Mac Standard Modification. Previously 5 percent, the new rate will be 4.625 percent. Servicers can also implement the new rate prior to July 1 if they desire.
State Law Update: Mortgage Law Changes in Alabama & West Virginia
Alabama Enacts Residential Mortgage Satisfaction Act. On May 3, Alabama enacted Senate Bill 347, which establishes procedures by which a borrower can obtain a payoff statement for a residential mortgage, including the form of such a request, deadlines for responding to a request (14 days), and the method for providing the statement, among other things. The bill also requires a secured creditor to record a mortgage satisfaction within 30 days after it receives full payment and performance of the obligation, and establishes a process for enforcing the recording requirement. The bill takes effect March 1, 2013.
West Virginia Amends Mortgage Record Keeping Requirements. Recently, West Virginia amended regulations that implement the record keeping requirements for all licensed residential mortgage lenders, brokers, and servicers. For lenders who provide the initial funding on a loan, the rules now make clear that the requirement to retain electronic records includes emails between the lender and borrower. Initial lenders and mortgage brokers also must maintain an itemized list of all fees and charges imposed on each loan and received by the lender or broker and by any third party. Further, the regulation adds a new requirement that a lender or broker document tangible net benefit to the borrower prior to refinancing a residential mortgage. The regulation also contains a new section on the process by which the state Division of Banking will determine if mortgage loan originator applicants meet certain standards of financial responsibility required by West Virginia law. The requirements took effect May 1, 2012.
Eleventh Circuit Court of Appeals Finds that "Dunning" Notice Enforcing a Security Interest May Give Rise to FDCPA Claim
On May 1, the U.S. Court of Appeals for the Eleventh Circuit reversed and remanded a lower court’s dismissal of an FDCPA claim, finding that the contents of a “dunning” notice from the lender’s foreclosing law firm constitutes an attempt to collect a debt under the FDCPA. Reese v. Ellis, Painter, Rattertree & Adams, LLP, No. 10-14366, 2012 WL 1500108 (11th Cir. May 1, 2012). The borrowers received a letter and documents from the lender’s law firm demanding payment of the debt on the borrowers’ defaulted mortgage loan and threatening to foreclose on their home if they did not pay the outstanding debt. The borrowers filed a class action lawsuit against the law firm alleging that the communication violated the FDCPA. The district court dismissed the complaint for failure to state a claim under the FDCPA. On appeal, the court held that the borrowers’ obligation to pay off the promissory note, which the court distinguished from a security interest, represents a debt under the FDCPA. The court then rejected the law firm’s argument that the purpose of the letter and accompanying documents was not to collect a debt, but rather to inform the borrowers of the lender’s intent to enforce its security interest through possible foreclosure. The court determined that the documents at issue, which contained disclaimers such as “This law firm is acting as a debt collector attempting to collect a debt,” had a dual purpose of providing notice of foreclosure and collecting a debt. In so holding, the court noted that following the law firm’s reasoning would create a giant loophole in the FDCPA wherein the law only would apply to efforts to collect on unsecured debt and would permit collectors to “harass or mislead [secured] debtors without violating the FDCPA.”
Fannie Mae Announces New Document Custodian Requirements
On February 4, 2016, the SEC announced a settlement with the CEO of Chile-based LAN Airlines S.A. and its holding company Latam Airlines Group SA, Ignacio Cueto Plaza, regarding his approval of the payment of over $1.15 million to an Argentinian consultant in connection with LAN Airline’s attempts to settle disputes over wages and work conditions with employees in Argentina. According to the SEC, Cueto knew that a portion of these payments might be passed on to union officials in Argentina and that the actual services agreed to in the underlying consulting agreement would not be performed. Without admitting or denying the SEC’s findings, Cueto agreed to pay a $75,000 penalty and "certify his compliance with his airline’s policies and procedures by attending anti-corruption training among other undertakings." In its administrative cease and desist order, the SEC found that Cueto violated both the FCPA’s internal accounting controls and books and records provisions.
The company has said that this was an isolated matter, that it cooperated with the SEC’s investigation, and strengthened its accounting controls since the incident took place.
Fourth Circuit Reverses Dismissal of TILA Claim
On May 9, Fannie Mae announced new requirements for document custodians with respect to compliance audits and certification practices. In Servicing Guide Announcement SVC-2012-08, Fannie Mae states that document custodians must engage third-party auditors to conduct an annual assessment of eligibility and operational compliance. Custodians that had a Fannie Mae on-site review prior to August 1, 2011 must engage an independent third-party auditor and complete the first annual audit by July 31, 2013, while custodians that had or will have a Fannie Mae audit between August 1, 2011 and July 31, 2012 will have until December 31, 2013. All custodians must also develop and implement a monthly quality control review by September 30, 2012.
State Law Update: Oklahoma, Georgia, New York
Oklahoma Updates Uniform Consumer Credit Code. On May 1, Oklahoma enacted House Bill 2742, which amends the state’s Uniform Consumer Credit Code. The bill increases the dollar threshold for transactions exempt from the Code from $45,000 to $50,000 and requires that the threshold be adjusted annually henceforth. With regard to mortgages particularly, the bill (i) expands the language required to be included in the disclosure statement, (ii) requires that the creditor mail the disclosure statement at least seven business days before the transaction, and (iii) requires the creditor to send a new statement at least three days before closing if the interest rate changes. It further requires that (i) a consumer cannot be charged any fee prior to receipt of the statement, except for a fee to obtain a credit report; and (ii) a consumer can waive the disclosure statement timing requirements. The law also increases the penalties for violations of the mortgage disclosure statement or right to rescind rules and requires that, within 30 days of the sale or transfer of a mortgage loan, the new creditor must notify the borrower that the loan has been transferred and provide contact and other relevant information.
Georgia Enacts Mortgage-Related Bills. On May 1, Georgia enacted two mortgage-related bills. House Bill 110 permits local jurisdictions to create vacant and foreclosed property registries and establishes uniform requirements for such registries. The law takes effect July 1, 2012. House Bill 237 expands the state’s mortgage fraud law to cover the foreclosure process.
New York Extends Temporary Mortgage Servicer Rules. On May 2, the New York Department of Financial Services published an extension of its emergency rules to implement the 2008 Mortgage Lending Reform Law. The rules will remain in effect through July 11, 2012, unless further extended or permanently adopted.
State Law Update: Recent Changes in Maryland, Minnesota, and Mississippi
Maryland Adds Foreclosure Registration Requirement, Authorizes Pre-file Mediation, Amends Mortgage Licensing. On May 2, Maryland Governor O’Malley signed House Bill 1373, which establishes a state foreclosed property registry. Foreclosure purchasers are required to (i) file an initial registration and pay a $50 registration fee for each foreclosed property within 30 days after a foreclosure sale, and (ii) file a final registration, with no additional fee, within 30 days after a deed transferring the title has been recorded. The law allows local jurisdictions to (i) enact laws that impose a civil penalty for failure to register under the new state requirement and (ii) collect from the foreclosure purchaser, as a charge on the property’s property tax bill, any costs associated with abating a nuisance on a registered property. The Governor also signed on May 2, House Bill 1374, which authorizes a secured party to offer to participate in pre-file mediation with a mortgagor or grantor to whom the secured party has delivered a notice of intent to foreclose. If the mortgagor or granter elects to participate, an order to docket or complaint to foreclose cannot be filed until the completion of the mediation. The bill also establishes a process through which a person with a secured interest in residential property that is in default can seek from a local jurisdiction a certificate of vacancy. If a certificate is not challenged by the record owner or occupant of the property the secured party can expedite the foreclosure process.
Finally, on the same date, Maryland enacted Senate Bill 546, which (i) requires a mortgage lender licensee to provide the commissioner with proof satisfying specified minimum net worth requirements within 90 days after the last day of the licensee’s most recent fiscal year and (ii) establishes a nonactive license status and process for licensees that cease to be employed by an approved financial institution.
Minnesota Amends Debt Collector Requirements. On April 23, Minnesota enacted House Bill 2335, which amends requirements for individual debt collectors and collection agencies. The bill (i) provides individual collectors additional time to report a change of contact information, (ii) sets requirements for a personnel screening process that a debt collection agency must follow in hiring and retaining individual collectors, and (iii) revises the list of past events that disqualify a person from registration as a debt collector. The final bill did not include a proposed revision that would have allowed individual debt collectors to remedy violations of the statute.
Mississippi Adds Protections for Bank Self-Assessments. On April 19, Mississippi enacted House Bill 1460 to grant privileged treatment to certain bank reports. The law takes effect July 1, 2012. Under the new law, reports reflecting voluntary self-assessments by banks, which are submitted to a bank regulator but not otherwise provided to third parties, will be considered privileged and not admissible in any legal or investigative action and are not subject to discovery in such actions. The law sets forth exceptions and circumstances under which the protections do not apply, including if a court determines that a report shows that a bank was not in compliance with a material provision of banking law, the bank did not initiate good-faith efforts to achieve substantial compliance within a reasonable time after the noncompliance was discovered, and the bank's failure to comply caused material harm to a bank customer or consumer.
Federal Appeals Court Finds Plaintiff States FDCPA Claim Against Servicer, Creditor When Acquiring Debt Purportedly in Default
On April 30, the U.S. Court of Appeals for the Sixth Circuit held that a mortgage servicer and a creditor can be sued as a debt collector under the Fair Debt Collection Practices Act (FDCPA) when acquiring a debt in default at the time of acquisition. The plaintiffs, a borrower and her non-borrower husband, alleged that the servicer and creditor violated the FDCPA in attempting to collect from the borrower and her husband, notwithstanding that the mortgage was not in default and despite plaintiffs’ repeated requests the servicer cease further communication. The servicer argued that it could not be liable under the FDCPA based upon its status as a mortgage loan servicer and because the debt was not actually in default. Similarly, the creditor argued that as the purchaser of the debt it could not be a debt collector and that it was neither a debt collector nor a creditor under the circumstances of the case. The district court, assuming plaintiff’s allegations that the servicer was not a servicer and that the creditor was not a creditor for purposes of the motion to dismiss, granted the motion on the basis that neither the servicer nor owner was a debt collector under the FDCPA. On appeal, the court, relying on congressional intent and previous decisions from the Third and Seventh Circuits, held that an entity that acquires a debt it seeks to collect must be either a creditor or a debt collector, depending on the status of the debt at the time it was acquired. Similarly, the court held the servicer may be either a servicer or debt collector when acting on behalf of the debt-acquiring entity. To hold otherwise, the court reasoned, would frustrate the purpose of the FDCPA’s broad consumer protections. Further, the court held that after years of attempting to collect on the debt and acting as a debt collector, the servicer could not now attempt to defeat the broad protections of the FDCPA by relying on the borrower’s assertion that the loan was not actually in default. Finally, the court rejected the defendants’ claims that the plaintiff-husband failed to state a claim since he was not actually obligated on the debt in light of the FDCPA’s application to debt collectors when attempting to collect a debt “owed or due or asserted to be owed or due another.” The appellate court reversed and remanded the case for further proceedings.
Fannie Mae Alters Policies for Preforeclosure Sale Process, Delinquency Management, Default Prevention
On April 25, Fannie Mae issued Servicing Guide Announcement SVC-2012-06, which sets new policies and clarifies several delinquency management and default prevention requirements related to (i) electronic submission of borrower response package documents, (ii) income documentation for employed borrowers, (iii) determining monthly gross income, (iv) modifications of loans secured by leasehold estates, (v) property valuation, and (vi) executing and recording modification agreements. The majority of the changes are effective immediately. The new requirements for determining income are effective for loans evaluated on or after July 1, 2012.
On the same date, Fannie Mae also published Announcement SVC-2012-07 to establish new policies to expedite the preforeclosure sale process. For all conventional mortgage loans held in Fannie Mae's portfolio, those purchased for Fannie Mae's portfolio but subsequently securitized into Fannie Mae MBS pools, and those originally delivered as part of an MBS pool, the policies (i) establish maximum required response times for preforeclosure sale offers submitted for consideration, (ii) require servicers to provide borrowers with status updates during the evaluation process, and (iii) allow servicers to respond to unsolicited preforeclosure sale offers without first requiring an evaluation for a HAMP modification. Servicers are encouraged to adopt these policies immediately, but must do so no later than June 25, 2012. The Announcement reminds servicers that Fannie Mae may pursue any of its available remedies for failure to comply with these new policies.
Freddie Mac Adjusts Residential Loan Mitigation Options
On April 23, Freddie Mac issued Servicer Guide Bulletin 2012-10, which expands and adjusts certain loss mitigation options to offer additional assistance to struggling borrowers. With regard to state housing finance agency borrower assistance programs, the Bulletin provides requirements for servicer participation in programs funded by the Hardest Hit Fund, and consolidates all requirements related to participation in such programs. Among other things, the Bulletin also implements a previously announced extension of the HAMP and HAFA programs through December 2013, and revises HAMP eligibility requirements for permanent modifications.