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Fannie Mae, Freddie Mac Change Representations and Warranties Framework
On May 12, Fannie Mae and Freddie Mac announced numerous changes to the companies’ representations and warranties framework to expand repurchase relief for lenders. As detailed in Fannie Mae Selling Guide Announcement SEL-2014-05 and Freddie Mac Bulletin 2014-08, effective for whole loans purchase on and after July 1, 2014 and for loans delivered into MBS with pool issue dates on and after July 1, 2014, the companies will provide two separate paths for sellers to obtain relief from representations and warranties: (i) based on the borrower’s acceptable payment history; or (ii) based on a satisfactory conclusion of a quality control loan file review. Relief based on an acceptable payment history will be triggered upon the borrower’s 36th monthly payment, as opposed to the current 60th payment. The announcements also detail payment history relief triggers for each company’s refinance loan products. Relief based on a quality control review will be triggered when the company (i) completes the review of the loan file, which includes a review of the credit underwriting and eligibility of the borrower, the property (including its value), and the project in which the property is located, if applicable, and determines that the mortgage is acceptable; (ii) completes the review and determines the mortgage is not acceptable because of a specific, curable, selling deficiency and the lender cures such deficiency; or (iii) completes the quality control loan file review and determines the mortgage is not acceptable but may be eligible for a repurchase alternative which expires or terminates by its terms. In addition, the companies will no longer automatically require loan repurchase when notified that the primary mortgage insurance has been rescinded. Both announcements provide a chart comparing the new relief triggers to those announced in September 2012, and Fannie Mae and Freddie Mac will soon begin providing lenders with reports listing mortgage loans that met the eligibility requirements for relief. Finally, for certain mortgage loans acquired on and after July 1, 2014, the companies will allow lenders to avoid repurchase for termination of primary mortgage insurance by paying the full mortgage insurance claim amount that would have been payable under the original mortgage insurance policy if the mortgage loan liquidates.
Senate Banking Committee Approves Housing Finance Reform Bill
On May 15, the Senate Banking Committee voted 13-9 to approve S. 1217, the Housing Finance Reform and Taxpayer Protection Act. A draft version of the bill, which generally would end the government’s conservatorship of Fannie Mae and Freddie Mac and reform the housing finance system, was first released in March. That draft built off of legislation introduced last year by several committee members. The draft was subsequently amended in advance of the committee vote, and during the committee’s session, a package of additional amendments was approved. Committee members indicated they will engage in further efforts to build support for the bill and a potential vote by the full Senate, though at this time such a vote is unlikely.
FHA Previews Quality Assurance Process Changes
On May 13, the FHA released its Blueprint for Access, which previews changes to the agency’s quality assurance process and outlines new housing counseling measures. Following its request last year for input on potential improvements to its quality assurance process, the FHA states that it is developing a new methodology for evaluating underwriting defects, including new criteria that will identify a limited number of specific defects, their related causes, and levels of severity. The FHA also is planning to amend its quality assurance process by (i) expanding its evaluation of loans to include random sampling of performing loans closer to the time of endorsement; and (ii) introducing a supplemental performance metric that will assess lender performance by comparing default rates within three credit score bands to an FHA target rate for each band, rather than to a lender’s peers’ rates. The Blueprint also announced the Homeowners Armed with Knowledge (HAWK) pilot program, which will allow homebuyers to qualify for savings on their FHA-insured loans by completing HUD-approved housing counseling provided through independent nonprofit organizations. Comments on the proposed pilot program are due by July 14, 2014.
Fannie Mae Reminds Servicers Of Lender-Placed Insurance Certification Requirements, Updates Servicing Transfer Policies
On May 9, Fannie Mae issued Servicing Guide Announcement SVC-2014-06, which reminds servicers that no later than June 1, 2014 they must certify compliance with new requirements for acceptable lender-placed insurance costs and carriers under an interim process announced in SCV-2013-07. After that date servicers will complete the certification using a new form. The announcement also states that Fannie Mae is adding new definitions related to servicing transfers, and that effective August 1, 2014, Fannie Mae will require the transferor servicer or transferor subservicer to submit the Form 629 to Fannie Mae no earlier than 60 days prior to the proposed transfer date, and that the proposed transfer date must be the first business day of the month for which the transferee servicer will be responsible for reporting the loan-level detail activity to Fannie Mae.
Freddie Mac Updates Foreclosure, Expense Reimbursement Requirements
On May 15, Freddie Mac issued Bulletin 2014-09, which updates foreclosure requirements to (i) permit servicers to begin utilizing the New York Foreclosure Inquest Program as an alternative foreclosure process to accelerate foreclosure actions in New York; (ii) provide servicers with greater flexibility on when to refer a mortgage secured by a primary residence to foreclosure; and (iii) revise foreclosure sale bidding requirements in states with the right of redemption. In addition, the announcement updates expense reimbursement requirements by (i) adding six new income codes for submitting expense reimbursement claims in the Freddie Mac Reimbursement System; and (ii) allowing permitted vendors access to the Reimbursement System for the purpose of submitting claims for servicer reimbursement using the expense and income codes listed in Guide Exhibit 74, Expense and Income Codes for Expense Reimbursement Claims. The announcement also includes several miscellaneous servicing policy changes including (i) an updated submission requirement for multipurpose loan transmittals; (ii) an extended submission time frame for subsequent transfers of servicing requests; (iii) new contact information for reporting a proposed or confirmed reorganization plan that includes a bankruptcy cramdown; and (iv) adding the service loans application to the list of tools and applications that are available to assist servicers in the monitoring of loans.
Massachusetts AG Urges FHFA Action On REO Sale Restrictions And Principal Reduction Options
On May 14, Massachusetts Attorney General (AG) Martha Coakley sent a letter to FHFA Director Mel Watt threatening legal action if the FHFA does not direct Fannie Mae and Freddie Mac, when they sell a foreclosed property, to comply with a state law that prohibits a creditor from conditioning that sale on a requirement that the new owner cannot resell or rent the property back to the former homeowner. The letter explains that the law allows non-profits in the state to purchase REO and sell them back to the same borrower with more favorable financing terms and at a lower value. The AG states that her office is “considering all available legal avenues – including litigation – to ensure compliance” with the state law. The letter also reasserts the AG’s view that Fannie Mae and Freddie Mac should include principal reductions as a loan modification option. Under its former Acting Director Edward DeMarco, the FHFA decided in July 2012 not to direct Fannie Mae or Freddie Mac to offer principal reductions.
European Court of Justice Holds Individuals Have "Right To Be Forgotten"
On May 13, the European Court of Justice held that an internet search operator is responsible for the processing of personal data that appear on web pages published by third parties, and that an individual has a right to ask a search engine operator to remove from search results specific links to materials that include the individual’s personal information. The court considered the issue in response to questions referred from a Spanish court about the scope of a 1995 E.U. directive designed to, among other things, protect individual privacy rights when personal data are processed. The court determined that “by searching automatically, constantly and systematically for information published on the internet, the operator of a search engine ‘collects’ data within the meaning of the directive,” and further determined that the operator “processes” and “controls” individual personal data within the meaning of the directive. The court held that a search engine operator “must ensure, within the framework of its responsibilities, powers and capabilities, that its activity complies with the directive’s requirements,” including by, in certain circumstances, removing “links to web pages that are published by third parties and contain information relating to a person from the list of results displayed following a search made on the basis of that person’s name,” even when publication of that person’s information on those pages is lawful. Further, the court held that although the search engine operator’s processing operations take place outside of the E.U., the operator is covered by the directive because the operator also has operations in an E.U. member state that were “intended to promote and sell, in the Member State in question, advertising space offered by the search engine in order to make the service offered by the engine profitable.”
Senate Democrats Lobby CFPB On Forthcoming Payday Lending Proposal
On May 14, six Senate Democrats, including Senate Banking Committee Members Jeff Merkley (D-OR) and Elizabeth Warren (D-MA), sent a letter to CFPB Director Richard Cordray asking that the CFPB consider the proposals included in Senator Merkley’s SAFE Lending Act, S. 172, in developing the forthcoming payday lending proposed regulations. That legislation primarily attempts to address perceived gaps in the regulation of Internet and offshore small dollar lenders—including those lenders affiliated with Native American tribes—and lead generators. The letter also petitions the CFPB to adopt “strong” reforms—such as minimum loan terms, fee and renewal limitations, and a waiting period between loans—that cover all types of small dollar lending. The CFPB highlighted many of these potential reforms in a March 2014 report and field hearing.
Senator Durbin Presses Student Loan Servicers On SCRA; Consumer Group Wants More Student Borrower Information
On May 14, Senator Dick Durbin (D-IL) sent a letter to student loan servicers calling on them to voluntarily establish a liaison for servicemembers with student loan accounts to assist those servicemember with obtaining SCRA protections. On May 12, the National Consumer Law Center sent a letter to Education Secretary Arne Duncan complaining about the Department of Education’s alleged inadequate responses to NCLC inquiries seeking (i) information and data about why borrowers default and incidence of re-default; (ii) information about the Department’s commission and compensation system for servicers and collectors and performance evaluation metrics; (iii) copies of guidance to servicers and collectors; (iv) information about servicer performance broken down by percentage of loans in various stages of delinquency, percentage of borrowers enrolled in income-driven repayment (IDR), retention rates for those enrolled in IDR, re-default rates, and percentage of borrowers in deferments and forbearances; (v) information about collection and servicer complaint systems; and (vi) breakdown of accounts sent to the Department of Treasury for offset, including by type of benefit program and by demographic information including age. The letter also outlines NCLC’s operational concerns, including with regard to loan rehabilitation and affordable repayment, collection agency oversight, and servicing performance metrics.
Comptroller Curry Discusses Nonbank Supervision, Regulatory Capture
On May 14, Comptroller of the Currency Thomas Curry spoke to the Conference of State Bank Supervisors, urging state regulators to, among other things, avoid regulatory capture and ensure balanced supervision of nonbanks and banks. Mr. Curry stated that “[r]egulatory capture is a real threat” to federal and state banking agencies and the system more broadly, and that regulators should never employ chartering authority to compete for “market share.” He also cautioned about the potential rise of the “shadow banking system”—the shift of assets from regulated depository institutions to less-regulated, non-depository institutions—as bank regulators become more rigorous in pursuing enhanced safety and soundness and consumer protection at depository institutions. He specifically identified the transfer of mortgage servicing rights as an example of that shift of assets, which “could carry with it the seeds for the next financial crisis.” He called on state regulators to make nonbank supervision, including with regard to mortgage servicing, a top priority.