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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.
Eleventh Circuit Holds No Private Right of Action Under HAMP
On April 19, the U.S. Court of Appeals for the Eleventh Circuit held that there is no implied private right of action under the federal Home Affordable Modification Program (HAMP). Miller v. Chase Home Financing, LLC, No. 11-15166 (11th Cir. Apr. 19, 2012). In this case, the servicer agreed to enter into a temporary modification of the borrowers mortgage under HAMP, but later notified the borrower that it would not extend a permanent modification. The borrower alleged that the servicer failed to comply with its obligations under HAMP and sued the servicer claiming (i) breach of contract, (ii) breach of implied covenant of food faith and fair dealing, and (iii) promissory estoppel. The district court dismissed the case because (i) HAMP does not provide an express or implied private right of action and (ii) the claims otherwise fail as a matter of law. On appeal, the court upheld the district court dismissal, holding, without oral argument, that there is no discernable legislative intent to create a private right of action and noting that such a right would contravene the purpose of HAMP as servicers fearing litigation would limit their participation in the program. Last month, the Seventh Circuit held that a plaintiff bringing claims against a servicer based on similar fact pattern could maintain a suit against the servicer. That case is distinguishable, however, because while the borrower was not able to state a cause of action for a breach of HAMP directly, the borrower properly pled claims for breach of contract and promissory estoppel based on the servicers promise to offer a permanent modification. In that case the Seventh Circuit also held that the borrower sufficiently pled fraudulent misrepresentation and state statutory fraud claims, and that those claims were not preempted by federal law.
West Virginia Revises Mortgage and Consumer Lending Statutes
West Virginia recently enacted several bills to amend statutes related to mortgage licensing and servicing and consumer lender licensing. House Bill 4271 was enacted March 30 and takes effect June 8, 2012. It amends existing reporting requirements for licensed residential mortgage lenders and brokers to direct lenders and brokers to submit reports through the Nationwide Mortgage Licensing System and Registry (NMLS) for periods established by the NMLS. The law allows the Commissioner of the Division of Banking to require direct reporting, preserves the confidentiality of the reports, and alters certain public reporting obligations of the Commissioner. Also enacted on March 30, House Bill 4274, authorizes the Commissioner of the Division of Banking to fine regulated consumer lenders required to be licensed up to $2,000 for violating applicable statutory and regulatory requirements. Each day that a consumer lender engages in covered conduct without being licensed is considered a separate violation subject to a separate fine. This change takes effect June 7, 2012. On April 2, effectively retroactive to January 1, 2012, Senate Bill 551 creates an exemption to mortgage loan limitations to allow for modification or refinancing loans made between January 1, 2012 and January 15, 2015 as part of the federal Home Affordable Modification Program or any other federal or state program or litigation settlement.
Senators Offer FHFA Suggestions for HARP Program Adjustments
On March 30, Senate Banking Committee Democrats, led by Chairman Tim Johnson, sent a letter to Acting Director of the Federal Housing Finance Agency, Edward DeMarco, suggesting changes to the Home Affordable Refinance Program (HARP) to facilitate additional refinancings. In their letter, the Senators endorsed policy changes suggested in a January 2012 Federal Reserve Board white paper, including (i) reducing or eliminating remaining loan-level price adjustments for HARP refinances where Fannie Mae and Freddie Mac already carry the credit risk on the original mortgage, (ii) streamlining the financing process for borrowers with loan-to-value ratios below 80 percent, and (iii) more comprehensively reducing putback risk in order to remove disincentives for servicers to refinance. The letter was in response to a request for suggestions that Mr. DeMarco made during a February 28, 2012 Senate Banking Committee hearing.
Freddie Mac Updates Multiple Servicing Requirements
On March 13, Freddie Mac issued Bulletin 2012-7 providing several updates to its Single-Family Seller/Servicer Guide. Effective immediately, Freddie Mac has revised the definition of “REO rollback” to include additional circumstances beyond bankruptcy petition filings and is requiring servicers to communicate an “REO rollback” through a new REO Rollback Request mailbox. Freddie Mac also announced in the Bulletin that (i) new and revised compensatory fees related to research and construction, “REO rollback”, and reporting noncompliance will be instituted under the Servicing Success Program; (ii) submission of requested file documentation that a servicer initially failed to provide under the Servicer Success File Review does not constitute an appeal; and (iii) upcoming enhancements to the Servicing Success Program will treat standard modification mortgages in the same manner as HAMP mortgages.
Federal Appeals Court Holds Borrower Can Sue Servicer For Promised HAMP Modification
On March 7, the U.S. Court of Appeals for the Seventh Circuit held that a mortgage borrower could proceed with a class action suit against the servicer of her loan for its failure to offer a permanent loan modification under the federal Home Affordable Mortgage Program (HAMP). Wigod v. Wells Fargo Bank, N.A., No. 11-1423, 2012 WL 727646 (7th Cir. Mar. 7, 2012). In Wigod, the loan servicer and borrower entered into a Trial Period Plan (TPP) under HAMP; the servicer stated in the TPP that if the borrower complied with the TPP for four months, the servicer would offer the borrower a permanent HAMP modification. The borrower alleged that she complied with the TPP, but the servicer denied her a permanent HAMP modification. The borrower filed a class action on behalf of all similarly situated borrowers of the servicer who had entered into and complied with a TPP but were nevertheless denied a permanent modification. The District Court for the Northern District of Illinois granted the servicers motion for summary judgment, but the Seventh Circuit reversed on four of the seven counts. Judge Hamiltons opinion for the Circuit Court held thatwhile the borrower may not have been able to state a cause of action for a breach of HAMP directlythe borrower properly pled claims for breach of contract and promissory estoppel based on the servicers promise to offer a permanent modification in the TPP. The Circuit Court also held that the borrower sufficiently stated claims for fraudulent misrepresentation and for violation of the Illinois Consumer Fraud and Deceptive Business Practices Act. Finally, the Circuit Court held that these state law claims were not preempted by federal law.
Ninth Circuit Holds Nevada AG Suit Against Bank Not Removable Under CAFA
On March 2, the U.S. Court of Appeals for the Ninth Circuit held that a parens patriae suit brought by Nevada’s Attorney General (AG) related to mortgage modification and foreclosure practices could not be removed from state court under the Class Action Fairness Act (CAFA). Nevada v. Bank of America Corp., No 12-15005, 2012 WL 688552 (9th Cir. Mar. 2, 2012). The AG alleges that Bank of America Corp. (BAC) violated state law by misleading Nevada consumers about the terms and operation of its home mortgage modification and foreclosure processes, and that it violated a consent judgment entered between the state and several of its subsidiaries. BAC removed the case to federal court under CAFA. The district court denied the state’s motion to remand, finding that (i) it had jurisdiction over the suit as a CAFA “class action,” but not as a “mass action,” and (ii) it had federal question jurisdiction because the allegations require interpretation of the federal HAMP program and the Fair Debt Collections Practices Act. On appeal, the Ninth Circuit consistent with its opinion in Washington v. Chimei Innolux Corp., 659 F.3d 842 (9th Cir. 2011), which was issued after the district court ruled on Nevada’s motion, held that a parens patriae suit does not qualify as a class action removable under CAFA, and does not otherwise satisfy CAFA’s “mass action” requirements. The court reasoned that Nevada is the real party in interest and therefore held that the case could not qualify as a mass action removable under CAFA. The Ninth Circuit also held that, because only state law causes of action are alleged and there is no overriding federal interest, the district court does not have federal question jurisdiction.
Obama Administration Expands Housing Recovery Plans
On February 1, President Obama unveiled a plan to expand government support for the housing market, including a broad-based refinancing plan. The plan, announced during the President's State of the Union Address, combines changes to existing programs and creation of new initiatives, some of which will require congressional action. First, the President will ask Congress to enact legislation to allow the Federal Housing Administration (FHA) to provide government support for the refinancing of non-Fannie Mae and non-Freddie Mac mortgages. The $5 to $10 billion program would be funded by a fee imposed on the largest financial institutions. For borrowers with Fannie Mae or Freddie Mac loans, the legislation would further streamline existing refinance programs and create incentives for borrowers to accept shorter loan terms to build equity. Second, the administration will continue its work to create new mortgage origination and servicing standards in an effort to create a Homeowner Bill of Rights. Third, the Federal Housing Finance Agency (FHFA) will conduct a pilot program through which it will sell foreclosed properties to be transitioned into rental housing. Finally, the President's upcoming budget will include a national program to put unemployed construction workers back to work refurbishing vacant and foreclosed properties.
The President also highlighted the work of the recently-formed Residential Mortgage-Backed Securities Working Group, and reviewed the success of existing government efforts (e.g., those related to unemployment forbearance). Further, the announcement incorporated a Treasury Department move last week to enhance the Home Affordable Modification Program (HAMP) by (i) extending HAMP's deadline through December 31, 2013, (ii) expanding borrower eligibility for HAMP, and (iii) encouraging use of principal reduction for loans insured or owned by Freddie Mac or Fannie Mae. In response, the FHFA reiterated its opposition to use of principal reduction by Fannie Mae and Freddie Mac.