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HUD Clarifies Changes to HECM Program, Updates FHA Loss Mitigation Home Retention Options
On September 25, HUD issued Mortgagee Letter 2013-33, which clarifies the recent changes HUD made to its HECM program earlier this month through Mortgagee Letter 2013-27. The new letter (i) defines mandatory obligation, (ii) adds additional mandatory obligations for traditional and refinance transactions, and for purchase transactions, (iii) identifies items that must be included in the first twelve-month disbursement limit and initial MIP calculation, (iv) states that the monthly increase to the principal limit must include the annual mortgage insurance rate as well as the mortgage note interest rate, (v) corrects the calculation of the life-expectancy set-aside, (vi) makes accommodations for mortgagors who entered into a bona fide sales contract and made an earnest money deposit on a property before the issuance of Mortgagee Letter 2013-27, and (vii) clarifies an exception to the general policy that a mortgagee increase the available principal limit if the mortgagor makes a partial payment. On September 20, HUD issued Mortgagee Letter 2013-32 to supersede its prior guidance regarding loss mitigation in Mortgagee Letter 2012-22. The letter, among other things, (i) defines “continuous income,” other than wages, for loss mitigation evaluations, and other terms, (ii) establishes the conditions required for a “special forbearance” to be used as a loss mitigation tool, (iii) provides guidance on capitalization of arrearages for modifications and partial claims, and (iv) discusses working with mortgagors in bankruptcy and those failing to complete trial payment plans. Mortgagees are required to implement the policies in Mortgagee Letter 2013-32 by December 1, 2013.
Fannie Mae Announces Numerous Selling Policy Changes
On September 24, Fannie Mae issued Selling Guide Announcement SEL-2013-07, which includes changes to various selling policies. The announcement states that the flood insurance coverage requirements have been updated to clarify existing policy, address common lender questions and align with prevalent industry practices, as well as to alter the requirements for flood insurance on attached condominium projects (requiring a master policy in effect at least equal to 80% of replacement cost or the maximum insurance available from the National Flood Insurance Program per unit, whichever is lower). Fannie Mae updated its maintenance fee (formerly known as inactivity fee) requirements, including, among other things, lowering the loan delivery threshold from $2 million in mortgage loans to one mortgage loan. The announcement also (i) revises the instructions for Form 360 (“Certificate of Authority, Incumbency, and Specimen Signatures”) to clarify that the form must be completed and signed by an officer of the lender or, if the lender is not a corporation, a member of senior management, (ii) enhances guidance on the allowable age of federal income tax returns and the tax-related documentation required by adding disbursement dates, and (iii) revises the temporary leave income policy to clearly state that documentation concerning the timing of the borrower’s return to work can be provided directly to the lender by the borrower or the employer. The announcement also includes several other selling policy changes, and describes selling guide updates based on previously announced policy changes related to ability to repay and qualified mortgages.
Freddie Mac Revises Numerous Selling, Servicing Requirements
On September 24, Freddie Mac issued Bulletin 2013-18, which updates and revises certain selling and servicing requirements. Effective October 1, 2013, Freddie Mac will require that seller/servicers (i) provide third-party vendors retained to perform functions relating to origination and servicing of mortgages with training on fraud prevention, detection, and reporting as outlined in the Seller/Servicer Guide, (ii) maintain written procedures for reporting fraud or possible fraud in connection with a mortgage sold to or serviced for Freddie Mac, and (iii) report to Freddie Mac when they first know or suspect an incident of fraud may have occurred in connection with a mortgage sold to or serviced for Freddie Mac, rather than when they have a reasonable belief of such an incident. With regard to selling requirements, the bulletin, among other things, (i) updates asset documentation requirements, including the requirements for verification of large deposits, (ii) updates requirements for underwriting borrowers on temporary leave, (iii) updates certain relief refinance requirements, and (iv) retires Investor Feature Identifiers for temporary subsidy buydown mortgages with special characteristics.
FHFA Launches HARP Education Campaign
On September 23, the FHFA launched a nationwide campaign to educate borrowers about HARP. The FHFA explains that the campaign is designed to encourage homeowners who have been making their mortgage payments, but who owe more than their home is worth, to contact their current lender or any other mortgage lender offering HARP refinances to review their refinancing options. As part of this campaign, FHFA has launched a new website and is working with mortgage companies across the U.S. to help reach homeowners who may qualify.
California Enacts Children's Online Privacy Legislation
On September 23, California Governor Jerry Brown signed SB 568, which prohibits an operator of a website, online service, online application, or mobile application from (i) marketing or advertising certain products or services to a minor and (ii) knowingly using, disclosing, compiling, or allowing a third-party to use, disclose, or compile, the personal information of a minor for the purpose of marketing or advertising specified types of products or services. The provisions apply to marketing provided by an advertising service if the operator notifies the service that the website, online service, or application is directed to minors. The bill also requires operators to permit a minor, who is a registered user of the operator’s website, online service, online application, or mobile application, to remove, or to request and obtain removal of, content or information posted on the operator’s website, service, or application by the minor. The law provides exceptions for content or information posted by a third-party, or if (i) any other provision of state or federal law requires the operator or third party to maintain the content or information or (ii) the operator anonymizes the content or information. The law is effective January 1, 2015.
Alabama Establishes Payday Loan Database
On September 18, Alabama Governor Robert Bentley announced new State Banking Department regulations that will create a state database of payday loans made to borrowers. Under the Alabama Deferred Presentment Services Act (DPSA), payday lenders are prohibited from making loans to borrowers with more than $500 in outstanding payday loan debt. According to the announcement, the Governor believes that the database is needed to enforce this restriction because lenders and borrowers can easily exceed the $500 limit by obtaining loans from multiple lenders. The regulations also implement other aspects of the DPSA, including a payday lender licensing regime. The database is expected to be operational by January 2014. Following the Governor’s announcement, a group of payday lenders reportedly filed suit in Montgomery County Circuit Court to prevent the state from implementing the database provisions. According to reports, the lenders argue that (i) the Banking Department is trying to create the database by regulation after it failed to obtain legislative authority to do so, (ii) the database is discriminatory because it does not apply to other lenders, such as banks and online lenders, and (iii) the state is unlawfully imposing a tax by charging payday lenders a fee to access the database.
Southern District of New York Again Endorses DOJ Mortgage Fraud Theory
On September 24, U.S. District Court Judge Jesse Furman largely denied a bank’s motion to dismiss a complaint filed by the U.S. Attorney’s Office for the Southern District of New York (SDNY) in which the government alleges that the bank falsely certified loans under the FHA’s Direct Endorsement Lender Program in violation of the False Claims Act (FCA) and the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA). U.S. v. Wells Fargo Bank, N.A., No. 12-7527, 2013 WL 5312564 (S.D.N.Y. Sept. 24, 2013). Addressing four primary arguments raised by the bank, the court held that the government sufficiently pleaded (i) that the bank falsely certified compliance with FHA regulations upon which payment was conditioned, (ii) that the bank fraudulently induced the government to insure loans it otherwise would not have, and (iii) that this alleged misconduct caused the FHA to pay insurance claims it otherwise would not have. It also held that the government’s claims were pleaded with sufficient particularity. Citing two recent decisions from other Southern District of New York courts, the court held that FIRREA allows the government to pursue claims against an institution for engaging in alleged fraud that “affects” itself. Further, relying in part on a recent holding by the Fourth Circuit, the court held that the government’s claims were timely because they were tolled by the Wartime Suspension of Limitations Act. Finally, relying on an order issued earlier this year by the U.S. District Court for the District of Columbia, the court rejected the bank’s argument that the release it executed as part of the National Mortgage Servicing Settlement specifically released liability arising under the FCA and FIRREA for the government’s claims. The court dismissed as untimely certain of the government’s common law and quasi-contract claims, but preserved the government’s breach of fiduciary duty claim, reasoning that whether such a duty existed is a question of fact.
FHFA Seeks to Clarify Relief from City of Chicago Vacant Property Ordinance
On September 20, the FHFA filed a motion requesting that the U.S. District Court for the Northern District of Illinois amend an order it issued after holding on August 23 that Fannie Mae and Freddie Mac are exempt from a 2011 City of Chicago ordinance that established new requirements for mortgagees and their agents regarding the maintenance of vacant property. The FHFA, as conservator of Fannie Mae and Freddie Mac, sued the city in December 2011 over the ordinance, which requires mortgagees to register vacant properties and pay a $500 registration fee per property. The FHFA asked the court “to specify the contents and persons” bound by its August 23 order. The motion was accompanied by a proposed order for declaratory and monetary relief, which would restate Fannie Mae’s and Freddie Mac’s immunity from the City’s ordinance and also would require the City to refund any payments that those the two enterprises, or any entities acting on their behalf, made pursuant to the ordinance.
Diligence Firm Objects to RMBS Working Group Subpoena
On September 24, a firm that handles due-diligence matters for financial institutions filed its opposition to a motion filed by the U.S. Attorney’s Office for the District of Connecticut, on behalf of the federal-state RMBS Working Group, to compel production of documents and information the group sought in a July subpoena. In its brief, the firm reviews its cooperation to respond to “six years of subpoenas, investigatory demands, and formal and informal requests for information,” and summarizes the volume and types of information it has provided to the DOJ and the Working Group to date as a third-party witness in connection with the 16 companies the Working Group has identified as subjects of its RMBS investigations. The firm notes the “substantial expense” it has incurred “to educate an ever-growing, and often-changing, number government attorneys and investigators.” The firm argues that the Working Group’s most recent subpoena, which seeks “every document and communication for all 193 clients and for almost 5,000 e-mail custodians,” constitutes a “fishing expedition” and violates the firm’s rights under the Fourth Amendment.
Ninth Circuit Judge Withdraws Fraud Characterization of Bank's HAMP Trial Plan
On September 23, in a brief order, a judge for the U.S. Court of Appeals for the Ninth Circuit withdrew his concurrence in a recent opinion in which the court held that HAMP Trial Period Plans (TPPs) create a contractual obligation for servicers to offer a permanent modification to borrowers who complete the TPP. Corvello v. Wells Fargo Bank, N.A., Nos. 11-16234, 11-16242 (9th Cir. Sept. 23, 2013). In the concurring opinion, the judge had argued that the bank created the trial plan document for “the fraudulent purpose of inducing [the borrower] to make the payments while the bank retained the option of modifying the loan or stiffing him.” The bank filed a motion for rehearing and asked the court to withdraw the concurrence because the Treasury Department, not the bank, drafted the trial plan document and required its use. Therefore, according to the bank, its actions should not be characterized as fraudulent because it adhered to its obligations by using the required HAMP documents.