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Nevada Supreme Court Rules MERS Mortgage Assignments Are Valid
On February 24, the Nevada Supreme Court held, in two separate cases, that a Mortgage Electronic Registration System (MERS)-generated mortgage assignment did not invalidate a foreclosure. Davis v. U.S. Bank, N.A., No. 56306, 2012 WL 642544 (Nev. Feb. 24, 2012); Volkes v. BAC Home Loans Servicing, No. 57304, 2012 WL 642673 (Nev. Feb. 24, 2012). In both cases, the court upheld the lower courts’ decisions allowing foreclosure certificates to be issued following unsuccessful foreclosure mediation. Appellants had argued that MERS is a sham entity, and therefore any MERS-generated assignments are necessarily invalid. Noting that courts in Nevada and other states have “repeatedly” recognized that MERS serves a legitimate business purpose, the Nevada Supreme Court rejected appellants’ arguments that their assignments were invalid merely because they were generated by MERS.
CFPB Issues Draft Monthly Mortgage Statement, Outlines Future Mortgage Servicing Rules
On February 13, the CFPB released a draft model monthly mortgage statement designed to help implement Dodd-Frank Act amendments to the Truth in Lending Act that require such statements. The CFPB acknowledges that many financial institutions already provide monthly statements to borrowers. However, the Dodd-Frank Act requires specific information to be provided in regular statements, including (i) the principal amount, (ii) the current interest rate, (iii) the interest rate reset date, (iv) a description of late or prepayment fees, (v) housing counselor information, (vi) certain contact information, and (vii) other information prescribed by CFPB regulations. The CFPB has been testing the draft model statement with consumers and now is seeking broader public comment though its website. After this informal comment period ends, the CFPB will proceed to a formal rulemaking through which it will set the requirements for monthly statements and provide a model form for use in complying with the new rules. Institutions will have some flexibility to adjust the model. One day prior, CFPB Director Richard Cordray published an op-ed in which he outlined additional agency efforts regarding mortgage servicing, including future rules that would restrict the use of force-placed insurance and require additional disclosures relating to hybrid adjustable rate-mortgages.
Federal Reserve Releases Mortgage Servicing Monetary Sanction Orders
On February 13, the Federal Reserve Board (FRB) released the consent orders requiring five major mortgage servicing companies to pay a combined $766.5 million in monetary sanctions. The consent orders were entered in connection with the $25 billion multi-party mortgage servicing settlement announced on February 9, and that total settlement amount includes the FRB sanctions.
Freddie Mac Releases Detailed Procedures for Tracking Expenses
On February 15, Freddie Mac published Single Family Seller/Servicer Guide Bulletin 2012-5 to implement new requirements related to the City of Chicago’s Vacant Property Ordinance. As previously reported, the FHFA sued Chicago over the ordinance, which requires lenders to register vacant properties and pay a $500 registration fee per property. Whether the property has been foreclosed upon or not, the ordinance also imposes maintenance and other obligations on lenders and their agents (including servicers, Fannie Mae, and Freddie Mac), and includes fines for non-compliance. The Bulletin, which follows up on a December 12 industry notice, establishes procedures for tracking and submitting expenses incurred pursuant to the ordinance and directs servicers to make required payments “under protest.” The Bulletin also eliminates the requirement for servicers to obtain prior consent from Freddie Mac to decline an application for a Mortgage assumption and reinforces the requirement that the servicer, for itself and on behalf of Freddie Mac, must waive all rights to seek deficiencies for short payoffs and deed-in-lieu of foreclosure transactions on Freddie Mac mortgages that have closed in accordance with the Guide.
Fannie Mae Discontinues National Monthly Median Cost of Funds Index and Revises Delinquency Status Code Descriptions
On February 15, Fannie Mae issued a notice to servicers advising that, effective March 15, 2012, servicers must use the Federal Cost of Funds Index published by Freddie Mac instead of the National Monthly Median Cost of Funds Index for adjustable rate mortgages. Also on February 15, Fannie Mae issued a servicing notice to clarify the descriptions of certain mandatory effective or completion date requirements for delinquency status codes announced in June 2011.
Freddie Mac Updates Selling Guide Regarding Guaranteed Rural Housing and Newly Constructed Homes, Advises Sellers Regarding SEC Disclosures
On February 10, Freddie Mac issued Bulletin 2012-4 with updates to the Single Family Seller/Servicer Guide regarding mortgages for newly constructed homes and mortgages under the Rural Housing Service’s Guaranteed Rural Housing (GRH) loan program. Effective immediately, the terms “Newly Built Home Mortgage” and “Mortgages for Newly Constructed Homes” have been removed from the Guide as unnecessary in light of other changes. With respect to nonassumable GRH mortgages, effective as to settlements on or after June 1, 2012, such loans must be sold to Freddie Mac with recourse and with Freddie Mac’s written approval in the Purchase Documents, but a minimum Indicator Score of 620 is no longer required.
On the same day, Freddie Mac advised all sellers that it had filed its initial report pursuant to a new SEC rule requiring public disclosure of information regarding asset-backed securities loan repurchase requests, including the identity of the originator. It will continue to disclose such information in quarterly reports to the SEC beginning in May 2012.
Missouri AG Announces "Robosigning" Indictment
On February 7, Missouri Attorney General Chris Koster announced that a grand jury had returned a 136-count indictment against DOCX, LLC, and its founder, for alleged “robosigning” by forgery and false declarations with regard to mortgage documents. The indictment alleges that the signatures on 68 notarized deeds of release submitted to one county recorder were forged and constituted false declarations. If convicted, the founder could face up to seven years in prison per count, and the company could be fined up $10,000 for each forgery and $2,000 for each false declaration.
Federal and State Officials Announce Mortgage Servicing Settlement
On February 9, U.S. Attorney General Eric Holder, HUD Secretary Shaun Donovan, Iowa Attorney General Tom Miller, and several other state and federal officials jointly announced an approximately $25 billion agreement in principle between the federal government, 49 state attorneys general and the five largest mortgage servicers to settle various mortgage servicing and foreclosure related issues. Oklahoma Attorney General E. Scott Pruitt later announced an "independent mortgage settlement" between Oklahoma and the five servicers. The national-level agreement - with Bank of America, JP Morgan Chase, Wells Fargo, Citigroup, and Ally Financial (the servicers) - was the culmination of several state and federal investigations and extended negotiations between the parties. The settlement's terms require a commitment of approximately $20 billion in financial relief for homeowners. In addition, the servicers will pay $5 billion in cash to the state and federal governments, including $1.5 billion to establish a Borrower Payment Fund that will provide payments to qualifying borrowers whose homes were sold or foreclosed on between January 1, 2008 and December 31, 2011. The $25 billion agreement includes more than $766.5 million in monetary sanctions assessed by the Federal Reserve Board. An additional $394 million of penalties from the Office of Comptroller of the Currency are held in abeyance provided four of the servicers make payments and take other actions under the settlement with a value equal to at least the penalty amounts assessed for each servicer by the OCC. In addition to the financial compensation offered in the settlement, the servicers will conduct future business under new servicing standards, which include (i) restrictions on the default management process known as "dual tracking", (ii) a requirement for the institutions to provide a single point of contact for borrowers, (iii) specific protections for military service members beyond those provided by the federal Servicemembers Civil Relief Act, (iv) obligations concerning disclosures and practices related to force-placed insurance, and (v) limitations on servicing fees. The standards also require the servicers to establish (i) updated foreclosure and bankruptcy documentation processes, (ii) enhanced servicer oversight of third party vendors, and (iii) adherence to a new set of loan modification timelines. The terms of the agreement will be filed as a consent judgment in the U.S. District Court for the District of Columbia. Their fulfillment, over the three-year term of the settlement, will be overseen by an independent monitor, North Carolina Commissioner of Banks Joseph A. Smith. In order to ensure timely dissemination of the settlement's terms to those who may be eligible for financial relief, the parties have established a "National Mortgage Settlement" web site, which provides "Servicing Standards Highlights" and outlines key aspects of the servicing settlement. The materials provided by the federal and state officials in announcing the settlement agreement note that the agreement left numerous issues unresolved and does not preclude (i) criminal claims, (ii) securities claims and claims related to the use of an electronic mortgage registry, (iii) loan origination claims in connection with FHA-insured loans, except those covered specifically by this settlement, and (iv) borrower claims. For additional information concerning some of the state-level recoveries and issues the state attorneys general have reserved for potential future action please see California's announcement here and New York's announcement here. Buckley LLP advises clients regarding mortgage servicing issues and conducted a webinar on servicing developments, including a review of the OCC's April, 2011 Consent Orders and related servicing guidance. If you have any questions about the settlement or servicing issues in general please contact a member of our Mortgage Servicing Team.
FinCEN Finalizes New Anti-Money Laundering Rules for Nonbank Mortgage Lenders and Originators
On February 7, the Financial Crimes Enforcement Network (FinCEN) released a final rule that subjects nonbank residential mortgage lenders and originators to certain anti-money laundering (AML) regulations already applicable to other types of financial institutions. Under the new regulations, nonbank lenders and originators will be required to establish anti-money laundering programs and file suspicious activity reports (SARs). This final rule follows a proposed rule issued in December 2010. FinCEN noted that this requirement will close a regulatory gap, as well as mitigate some of the money laundering risks and vulnerabilities that have been exploited in the nonbank residential mortgage sector.
The Bank Secrecy Act (BSA) requires FinCEN to promulgate AML rules for “financial institutions,” including “loan or finance companies.” While the BSA does not define “loan or finance company” and the legislative history is silent, FinCEN believes the term should be construed to extend to nonbanks. Based on that interpretation, the final rule, which is substantially similar to the definition included in the proposed rule, alters the existing regulatory definition of “financial institution” to include nonbank residential mortgage lenders and originators. The final rule is intended to cover initial purchase money loans and traditional refinancing transactions facilitated by nonbank lenders and originators. Mortgage servicers are not categorically excluded from the rule and may be covered if they engage in these types of transactions. Notably, this expanded definition is the first step in an incremental approach through which FinCEN eventually will extend the BSA-required AML regulations to other nonbank consumer and commercial loan finance companies.
Under this final rule, a covered nonbank will be required to develop an AML program that includes (i) internal policies, procedures, and controls; (ii) a designated compliance officer; (iii) ongoing employee training; and (iv) a process for independent audits. A covered firm also will have to file a SAR within thirty days of becoming aware of a transaction that (i) involves funds derived from illegal activity or are conducted to hide funds or assets derived from illegal activity; (ii) is designed to evade BSA requirements, (iii) has no business or apparent lawful purpose; or (iv) involves the use of the company to facilitate criminal activity. The rule does not require covered nonbanks to comply with certain other BSA requirements, including currency transaction reports.
The regulations take effect sixty days after being published in the Federal Register. Covered firms will have 180 days after publication to comply. FinCEN now will turn to finalizing a similar proposed rule applicable to Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.
If you have questions about the final rule and its implications for your organization, or if you would like help implementing compliance programs to meet the new requirements, please contact a member of our Anti-Money Laundering & Bank Secrecy Act practice group.
New York AG Files Suit Against MERS and Servicers Alleging Deceptive and Fraudulent Foreclosure Practices
On February 3, New York Attorney General Eric Schneiderman filed a lawsuit against MERS and several major banks, challenging the MERS system and alleging that the defendants engaged in fraudulent and deceptive foreclosure practices in violation of state law. Among the allegedly illegal practices, the New York Attorney General claims that the defendants (i) initiated thousands of foreclosure proceedings without proper standing, (ii) submitted in court deceptive and invalid mortgage assignments, (iii) misled borrowers by submitting in court defective mortgage assignments executed by untrained and unsupervised certifying officers and assignments that were automatically generated (i.e. "robosigned"), (iv) created a system that deliberately obscures the chain of title for a loan or hides the current note-holder. The Attorney General is seeking (i) an injunction to stop the practices recited in the complaint, (ii) disgorgement of all profits obtained in connection with those practices, and (iii) payment of other damages and civil penalties.