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Fannie Mae, Freddie Mac Extend Streamlined Modifications, Announce HAMP Changes, Increase Certain State Foreclosure Timelines
On September 16, Freddie Mac issued Bulletin 2013-17, and on September 18, Fannie Mae issued Servicing Guide Announcement SVC-2013-18, which extend those entities’ streamlined modification programs to include all streamlined modification trial period plans that become effective by December 1, 2015. Fannie Mae and Freddie Mac also extended the expiration date for HAMP such that Trial Period Plan Effective Dates must be on or before March 1, 2016 and Modification Effective Dates must be on or before September 1, 2016. Fannie Mae further applied these extended time frames to Second-Lien Modification Programs. In addition, Fannie Mae and Freddie Mac revised their eligibility requirements for proposed HAMP modifications that are submitted through the Treasury Net Present Value Model on or after January 1, 2014. Further, both Fannie Mae and Freddie Mac (i) retired the annual servicer “Pay for Success” incentive for HAMP-eligible mortgages, effective for modifications with effective dates on or after April 1, 2014 and (ii) updated requirements for repurchased loans subject to a HAMP permanent mortgage loan modification or trial plan. Finally, the Freddie Mac bulletin increased state foreclosure timelines by 30 days in Nevada, New Mexico, and Washington, for all foreclosure sales completed after September 1, 2013, while Fannie took the same action through a separate servicing notice.
Fannie Mae Announces Requirements for Foreclosure Sale Eliminations and Rescissions
On September 18, Fannie Mae issued Servicing Guide Announcement SVC-2013-19, which establishes requirements for eliminations and rescissions of foreclosure sales, effective immediately. The announcement states that when a servicer identifies an issue that requires an elimination and/or rescission, the servicer must submit a request for elimination and/or rescission within five days of that identification. When Fannie Mae identifies an issue that requires a property to be eliminated from its REO inventory or a foreclosure sale to be rescinded, Fannie Mae will initiate the elimination and/or rescission process through a report to the servicer, which will list Fannie Mae’s decision for each servicer-requested elimination or rescission, as well as those eliminations and/or rescissions that Fannie Mae has processed. The servicer must then (i) review the report for notification of servicer-requested elimination/rescission approvals and Fannie Mae-processed eliminations/rescissions, (ii) add each eliminated file back into its servicer system within 24 hours of notification of approval or notification that the file has been eliminated by Fannie Mae, and (iii) resume managing the eliminated/rescinded file pursuant to the Servicing Guide.
HUD Finalizes Streamlined FHA Reporting Rule
On September 17, HUD issued a final rule that streamlines the FHA financial statement reporting requirements for lenders and mortgagees who are supervised by federal banking agencies and whose consolidated assets do not meet the thresholds set by their supervising federal banking agencies for submission of audited financial statements—currently set at $500 million in consolidated assets. HUD’s regulations currently require all supervised lenders and mortgagees to submit annual audited financial statements as a condition of FHA lender approval and recertification. Effective October 17, 2013, in lieu of the annual audited financial statements, small supervised lenders and mortgagees will be required to submit their unaudited financial regulatory reports that align with their fiscal year ends and are required to be submitted to their supervising federal banking agencies. Only if HUD determines that the supervised lenders or mortgagees pose heightened risk to the FHA insurance fund would such lenders be required to submit audited financial statements. The final rule also makes technical changes to current regulations regarding reporting requirements for FHA-approved supervised lenders and mortgagees.
Comptroller Highlights Emerging Cybersecurity Risks, Discusses OCC and Financial Institution Responses
On September 18, in remarks before the Exchequer Club, Comptroller of the Currency Thomas Curry highlighted the emerging operational risks for financial institutions posed by cyberattacks, one of several risk areas identified by the OCC in its recent semiannual report. Comptroller Curry bank cyberattacks have lead to only minor disruptions so far, but are evolving and growing with the development and implementation of new technologies. The Comptroller identified the OCC’s and other federal banking agencies’ attempts to address these risks, including through an FFIEC working group created earlier this year. The Comptroller hopes the working group will address cyber issues through changes to examination policy and by supporting increased information sharing and communication between regulated institutions and their regulators, as well as among regulators and other government entities. According to the Comptroller, the OCC currently is engaged in outreach on this issue to all of its regulated institutions, but is especially focused on assisting community banks and thrifts. The Comptroller urged financial institutions, their boards, and senior level management to be aware of and engaged on the risks posed by cyber threats, including, for example, by considering the potential for new products or strategic business decisions to create new vulnerabilities. He also implored institutions and their leaders to effectively share information, such as through industry cyber threat sharing organizations.
FinCEN Provides Guidance Regarding Updated FATF Jurisdictions List
On September 17, FinCEN issued Advisory FIN-2013-A006, which provides considerations for financial institutions when reviewing their obligations and risk-based approaches with respect to certain jurisdictions. The Financial Action Task Force (FATF) recently updated its lists of jurisdictions that appear in two documents: (i) jurisdictions that are subject to the FATF’s call for countermeasures or are subject to Enhanced Due Diligence due to their Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) deficiencies and (ii) jurisdictions identified by the FATF to have AML/CFT deficiencies. The Advisory summarizes the changes made by the FATF, provides specific guidance regarding jurisdictions listed in each category, and reiterates general guidance that if a financial institution knows, suspects, or has reason to suspect that a transaction involves funds derived from illegal activity or that a customer has otherwise engaged in activities indicative of money laundering, terrorist financing, or other violation of federal law or regulation, the financial institution must file a Suspicious Activity Report.
President Obama Announces Nomination for DOJ Criminal Chief
On September 17, President Obama announced his intent to nominate Leslie R. Caldwell to serve as the DOJ’s Assistant Attorney General, Criminal Division. Ms. Caldwell currently is a partner at Morgan Lewis & Bockius LLP where she co-chairs the firm’s corporate investigations and white collar practice group. Prior to entering private practice, Ms. Caldwell served as Director of the DOJ’s Enron Task Force from 2002 to 2004. Prior to that she served as Chief of the Criminal Division and Securities Fraud Section at the U.S. Attorney’s Office for the Northern District of California and held several positions in the U.S. Attorney’s Office for the Eastern District of New York.
New York Proposes Regulations to Formalize Lender-Placed Insurance Rules
On September 19, the New York Department of Financial Services (DFS) proposed regulations for the rates for and placement of lender-placed insurance (LPI), and to prohibit certain LPI practices. The proposed regulations, which only would be applicable in New York, largely mirror the relief included in a series of agreements the DFS obtained earlier this year from all of the lender-placed insurers currently operating in New York. For example, the proposed regulations would prohibit insurers, producers, and/or affiliates from: (i) issuing LPI on mortgaged property serviced by an affiliate, (ii) paying commissions to a servicer or a person or entity affiliated with a servicer on LPI policies obtained by the servicer, (iii) paying contingent commissions on LPI based on underwriting profitability or loss ratios, (iv) making payments, including but not limited to the payment of expenses, to a servicer or a person or entity affiliated with a servicer in connection with securing LPI business, and (v) providing free or below cost outsources services to a servicer, person, or entity affiliated with a servicer other than practices associated with tracking functions that an insurer or its affiliate perform for the insurers’ own benefit. The regulations also would, among other things, (i) require insurers to file LPI premium rates with a permissible loss ratio of at least 62% with certain reporting and refiling requirements, (ii) establish requirements regarding the sufficiency of demonstrating voluntary coverage and provide for 15 days to make any associated refund, and (iii) establish requirements relating to the notifications sent to borrowers before issuing LPI. The proposed regulations are set to take effect 30 days after they are published in the State Register.
Massachusetts AG Announces RMBS Settlement
On September 9, Massachusetts Attorney General Martha Coakley (AG) announced the state’s fourth mortgage-securitization related enforcement action. The AG alleged that during 2006 and 2007 a U.K. bank financed, purchased, and securitized residential loans that were presumptively unfair under Massachusetts law. Under an Assurance of Discontinuance, the bank, without admitting the allegations, agreed to pay $36 million to resolve the state’s claims. Under the terms of the agreement over $25 million will be dedicated to principal reduction and related relief for more than 450 subprime borrowers, while approximately $2 million will compensate municipalities that claim to be impacted by foreclosures resulting from the allegedly faulty loans.
Texas Federal District Court Allows Government's FCA / FIRREA Mortgage Suit To Proceed
On September 10, the U.S. District Court for the Southern District of Texas denied a mortgage lender’s motion to dismiss the federal government’s claims that the lender and two of its executives knowingly made false statements in loan applications to HUD regarding the company’s compliance with FHA origination requirements. U.S. v. Americus Mortg. Corp., No. 12-2676, 2013 WL 4829271 (S.D. Tex. Sept. 10, 2013). The government claims the lender’s actions violated the False Claims Act (FCA) and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), and resulted in HUD incurring losses of over $150 million on loans that defaulted. The court held (i) that the government complaint sufficiently alleged that the lender, at the direction of the individual defendants, knowingly made false statements of fact to HUD while engaging in a fraudulent course of business that caused HUD to pay out money that it otherwise would not have paid, thereby sufficiently alleging a violation of the FCA, and (ii) that pleading proof of specific intent to defraud was unnecessary. The court also rejected the lender’s argument that allegations of materiality or scienter were vitiated because HUD was “on notice of, and conducting an investigation into” the conduct alleged to have violated the FCA, and allowed the lender to continue participating in the FHA-insurance program. Finally, the court held, among other things, that the three-year tolling period that applied to the FCA’s six-year statute of limitations resulted in the government’s complaint being timely. With respect to the FIRREA claim, the court rejected the lender’s argument that it was not an entity subject to FIRREA. The court reasoned that the plain language of Section 1006 in the FIRREA statute applies to “whoever” is connected to HUD, which included the lender. It further stated that the complaint established that the lender knowingly submitted false statements to influence HUD, in violation of FIRREA.
Federal Court Dismisses Challenge to California City's Eminent Domain Plan
On September 16, the U.S. District Court for the Northern District of California dismissed one of two suits filed recently by investors to preempt a California city’s plan to seize certain mortgages using the government’s eminent domain authority. Wells Fargo Bank, N.A. v. City of Richmond, No. 13-3663, slip op. (N.D. Cal. Sept. 16, 2013). The court restated its decision reported last week that the mortgage investors’ claims were not ripe for action and further held that the case must be dismissed, instead of stayed, because the “[r]ipeness of the[] claims does not rest on contingent future events certain to occur, but rather on events that may never occur”—i.e. the city may not ever move forward with its seizure plan. The decision only addressed the timing of the suit, and did not reach the merits of the investors’ claims that the city’s plan, among other things, will violate the U.S. Constitution’s Takings Clause, Commerce Clause, and Contract Clause, as well as the state’s statutory prohibitions against extraterritorial seizures. A second similar action filed by a separate group of investors remains pending.