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Fannie Mae Updates Delinquency Status Reporting Policies
On April 10, Fannie Mae issued Servicing Guide Announcement SVC-2013-08, which introduces a delinquency status code hierarchy and updates delinquency status code definitions. The hierarchy requires servicers to report the most appropriate delinquency status code based on priority level, using a six level priority hierarchy. The announcement explains that when multiple delinquency status codes are applicable to an individual loan, the servicer must use the appropriate delinquency status code in the highest priority, though Priority Level 1 through 3 status codes are mutually exclusive. The changes will take effect for the February 2014 delinquency status code reporting cycle (for January 2014 activity), though Fannie Mae encourages servicers to implement the new policies as soon as possible.
Massachusetts Warns Payday Loan Debt Collectors
On April 8, the Massachusetts Division of Banks sent a letter to state-licensed debt collectors advising them that it is illegal to collect on consumer loans that violate the Massachusetts small loan statute. The action follows a similar step taken by the New York Department of Financial Services last month. The Massachusetts letter reminds debt collectors that entities engaged, directly or indirectly, in the business of making loans of $6,000 or less with interest and expenses paid on the loan in excess of 12% annually must be licensed with the Division of Banks. Further, state law limits the annual interest rate that can be charged on small loans to 23%. The letter advises debt collectors that (i) loans made in violation of these rules are void, (ii) it is illegal to attempt to collect on debt that is void or unenforceable, and (iii) it is the responsibility of licensed debt collectors to ensure that they do not facilitate the creation or collection of illegal loans. The letter urges licensed debt collectors to review all client contracts and debtor accounts to ensure that all consumer, compliance, and reputational risks are appropriately evaluated and addressed on an ongoing basis.
Two Federal Courts Hold Government MBS Claims Were Untimely
On April 9, the U.S. District Court for the Central District of California dismissed claims brought by the FDIC as receiver for a failed bank against a financial institution related to 10 MBS certificates sold to the bank, holding that the FDIC’s claims were time-barred. Fed. Deposit Ins. Corp. v. Countrywide Secs. Corp., No. 12-6911, slip op. (C.D. Cal. Apr. 9, 2013). The court found that “a reasonably diligent plaintiff had enough information about false statements in the Offering Documents of [the firm’s] securities to file a well-pled complaint before” the statute of limitations expired on August 14, 2008. The court noted that deviations from stated underwriting guidelines and inflated appraisals had come to light prior to the expiration of the statute of limitations through “multiple lawsuits” and “numerous media sources.” The court found that it was irrelevant that the FDIC was named receiver for the bank because “[t]he FDIC [did] not have the power to revive expired claims.” Similarly, on April 8, the U.S. District Court for the District of Kansas granted, in part, a motion to dismiss federal and state claims brought by the NCUA on behalf of three failed credit unions against a financial institution related to certain MBS certificates sold to the credit unions, holding that certain NCUA claims were time-barred. Nat’l Credit Union Admin. Bd. v. Credit Suisse Secs. (USA) LLC, No. 12 Civ. 2648, 2013 WL 1411769 (D. Kan. Apr. 8, 2013). The court found that the applicable federal and state law statutes of limitations required claims to be filed within one or two years of discovery of the alleged misstatement or omission, and within three or five years of sale or violation, respectively. The judge dismissed the federal and state claims for 12 of the MBS certificates as untimely, but preserved federal claims as to eight certificates, determining that the statutes of limitations were tolled on those claims. In addition, the court found that (i) venue was proper because defendant engaged in activity that would constitute the transaction of business in the district for purposes of the applicable venue statute and (ii) plaintiff set forth plausible claims for relief.
Bank Regulators Announce First Foreclosure Review Payments
On April 9, the Federal Reserve Board and the OCC announced that payments to borrowers impacted by allegedly improper foreclosure practices would begin on April 12, 2013. The planned payments range from $300 to $125,000, and will be sent to certain borrowers whose mortgages were serviced by 11 of the 13 mortgage servicers subject to recently amended consent orders that replaced requirements related to the Independent Foreclosure Review process with $3.6 billion in cash payments and $5.7 billion in other assistance to 4.2 million borrowers. Payments to borrowers with mortgages serviced by two other servicers will be announced later. The payments will be sent in several waves, with the last wave expected to be sent in mid-July 2013. The announcement notes that the regulators categorized borrowers according to the stage of their foreclosure process and the type of possible servicer error. Then, amounts were determined for each category using the financial remediation matrix published in June 2012 as guidance, but also incorporating input from various consumer groups. The Board and the OCC also published a chart of payment amounts and the number of borrowers identified for each category.
State Law Update: Indiana Amends Lien Release Provisions
On April 1, Indiana enacted a bill to retroactively amend certain lien release provisions. The bill, HB 1079, provides that if the record of a mortgage or vendor's lien was created before July 1, 2012 and does not show the due date of the last installment, the mortgage or vendor's lien expires 20 years after the date of execution of the mortgage or vendor's lien. If the execution date is omitted, the lien expires 20 years after the lien is recorded. Prior to this change, all liens expired after 10 years. The bill also (i) makes exceptions to the expiration period if a foreclosure action is brought not later than the expiration period, and (ii) removes language that prohibits a person from maintaining an action to foreclose a mortgage or enforce a vendor's lien if the last installment of the debt secured by such lien has been due more than 10 years.
Second Circuit Allows FHFA MBS Suits to Proceed
On April 5, the U.S. Court of Appeals for the Second Circuit affirmed a district court’s partial denial of a financial institution’s motion to dismiss on standing and timeliness grounds a suit brought by the FHFA. Fed. Hous. Fin. Agency v. UBS Americas, Inc., No. 12-3207, 2013 WL 1352457 (2d Cir. Apr. 5, 2013) The FHFA brought multiple suits against numerous institutions alleging that the offering documents provided to Fannie Mae and Freddie Mac in connection with the sale of $6.4 billion in residential MBS included materially false statements or omitted material information, resulting in massive losses. The institutions moved to dismiss, contending that (i) the securities claims were time-barred, (ii) FHFA had no standing to pursue the action, and (iii) a negligent misrepresentation claim failed to state a claim upon which relief could be granted. The district court denied the motion to dismiss with respect to the statutory claims and granted it only with respect to the negligent misrepresentation claim. On appeal, the Second Circuit held that the action, filed within three years after the FHFA was appointed conservator of Freddie Mac and Fannie Mae, was timely under the relevant sections of Housing and Economic Recovery Act, and that the FHFA has standing to bring the action. The decision, on interlocutory appeal from the U.S. District Court for the Southern District of New York, holds implications for more than a dozen other similar actions the FHFA has filed.
FDIC Announces Teleconference Series on CFPB Mortgage Rules
On April 9, the FDIC announced a series of nationwide banker teleconferences focused on the CFPB’s final mortgage rules. The first teleconference call is scheduled for May 2, 2013 and will focus on the ability-to-repay/qualified mortgage rule, the new escrow requirements, and certain aspects of the loan originator compensation rule. The second call is scheduled for May 15, 2013 and will address the CFPB’s final rule on mortgage servicing. The final call is scheduled for June 6, 2013 and will focus on the loan originator compensation rule and HOEPA amendments. The sessions are free, but individuals are required to register.
Fannie Mae Announces Numerous Selling Guide Updates
On April 9, Fannie Mae issued Selling Guide Announcement SEL-2013-03, which updates numerous guide sections. According to the announcement, effective immediately, all lenders that wish to deliver eMortgages must obtain special approval evidenced by an addendum to their Mortgage Selling and Servicing Contract (MSCC), and not by a variance to their Master Agreement. Lenders that currently have variances by way of their Master Agreement will still be entitled to electronically deliver mortgages until the variance is converted to an MSCC addendum. The Selling Guide also has been updated to reflect previously announced policy changes regarding lender incentives for borrowers, private flood insurance policies, and the new selling representation and warranty framework. With regard to that new framework, the announcement includes a table summarizing the major updates. Fannie Mae also authorized changes to the last page of the note and security instrument to comply with the requirements of TILA and Regulation Z. Lenders are encouraged to implement the changes to the note and security instrument immediately and no later than January 10, 2014. Finally, the announcement includes numerous minor Guide changes and clarifications.
Federal Reserve Board Issues Final Retail Foreign Exchange Transactions Rule
On April 9, the Federal Reserve Board published a final rule that allows supervised entities to engage in off-exchange foreign currency transactions with retail customers. Covered transactions include foreign exchange transactions that are futures or options on futures, options on foreign currency not traded on a registered national securities exchange, and “rolling spot” transactions. The rule, which is substantially similar to the proposed version, establishes requirements for (i) risk disclosure statements to customers, (ii) recordkeeping, (iii) business conduct, (iv) customer confirmations, monthly statements, and notices of transfer, and (v) implementing internal rules and procedures to maintain trading and operational standards. The rule requires regulated institutions engaging in such transactions to (i) provide notice to the Federal Reserve Board, (ii) maintain capital requirements, and (iii) collect a certain margin amount for retail foreign exchange transactions. The rule takes effect on May 13, 2013.
State Law Update: North Dakota Amends Mortgage Late Payment Fee Restrictions
Last month, North Dakota enacted SB 2136, which altered provisions related to late mortgage payment fees. Effective August 1, 2013, a charge for a late payment penalty may be imposed only if the amount of the late charge or the method of calculation of the late charge has been agreed to by the parties in the loan documents that are signed by the borrower. Under current law, servicers can charge up to $15 or 15% of the late payment, whichever is less, unless otherwise agreed to in the real estate note or mortgage. The new law also removes language stating that any contract attempting to make the rate of interest higher after maturity is void as to the increase of interest. Instead, the new law will allow parties to agree in writing to a different rate of interest after maturity.