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Financial Services Law Insights and Observations


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  • HUD Clarifies Requirements Regarding Closing a Loan in the Name of an FHA-Approved Mortgagee Acting as a Sponsored Third Party Originator


    On February 10, HUD issued Mortgagee Letter 2012-2 to clarify the requirements for the origination, closing, and submission for FHA insurance endorsement of loans via the sponsored third-party origination process. The Letter states that all third-party originators must be sponsored by an FHA-approved Direct Endorsement lender, and that sponsoring lenders are responsible for ensuring that the originators they sponsor adhere to FHA requirements. Sponsored third-party originator compliance failures may result in administrative action against the sponsoring mortgagee. Moreover, compliance failures by an FHA-approved mortgagee acting as a third-party sponsored originator may result in administrative action against both the sponsoring mortgagee and the FHA-approved mortgagee.

    Mortgage Origination HUD

  • HUD Announces Multifamily Low Income Housing Tax Credit Pilot Program


    On February 3, HUD issued Mortgagee Letter 2012-1 to launch a new pilot program to streamline FHA mortgage insurance applications for projects with equity from the Low Income Housing Tax Credit program. The program utilizes a separate application and processing system and during its first phase will provide permanent financing for low risk transactions. The Letter outlines eligibility requirements and the application process for the program and notes that the three-year rule waiver set to expire this month is extended for an additional year for tax credit projects that participate in the pilot. According to HUD’s press release, the pilot program is being launched in Chicago, Detroit, Boston, and Los Angeles.


  • Freddie Mac Releases Detailed Procedures for Tracking Expenses


    On February 15, Freddie Mac published Single Family Seller/Servicer Guide Bulletin 2012-5 to implement new requirements related to the City of Chicago’s Vacant Property Ordinance. As previously reported, the FHFA sued Chicago over the ordinance, which requires lenders to register vacant properties and pay a $500 registration fee per property. Whether the property has been foreclosed upon or not, the ordinance also imposes maintenance and other obligations on lenders and their agents (including servicers, Fannie Mae, and Freddie Mac), and includes fines for non-compliance. The Bulletin, which follows up on a December 12 industry notice, establishes procedures for tracking and submitting expenses incurred pursuant to the ordinance and directs servicers to make required payments “under protest.” The Bulletin also eliminates the requirement for servicers to obtain prior consent from Freddie Mac to decline an application for a Mortgage assumption and reinforces the requirement that the servicer, for itself and on behalf of Freddie Mac, must waive all rights to seek deficiencies for short payoffs and deed-in-lieu of foreclosure transactions on Freddie Mac mortgages that have closed in accordance with the Guide.

    Foreclosure Freddie Mac Fannie Mae Mortgage Servicing

  • Fannie Mae Discontinues National Monthly Median Cost of Funds Index and Revises Delinquency Status Code Descriptions


    On February 15, Fannie Mae issued a notice to servicers advising that, effective March 15, 2012, servicers must use the Federal Cost of Funds Index published by Freddie Mac instead of the National Monthly Median Cost of Funds Index for adjustable rate mortgages. Also on February 15, Fannie Mae issued a servicing notice to clarify the descriptions of certain mandatory effective or completion date requirements for delinquency status codes announced in June 2011.

    Freddie Mac Mortgage Servicing

  • Freddie Mac Updates Selling Guide Regarding Guaranteed Rural Housing and Newly Constructed Homes, Advises Sellers Regarding SEC Disclosures


    On February 10, Freddie Mac issued Bulletin 2012-4 with updates to the Single Family Seller/Servicer Guide regarding mortgages for newly constructed homes and mortgages under the Rural Housing Service’s Guaranteed Rural Housing (GRH) loan program. Effective immediately, the terms “Newly Built Home Mortgage” and “Mortgages for Newly Constructed Homes” have been removed from the Guide as unnecessary in light of other changes.  With respect to nonassumable GRH mortgages, effective as to settlements on or after June 1, 2012, such loans must be sold to Freddie Mac with recourse and with Freddie Mac’s written approval in the Purchase Documents, but a minimum Indicator Score of 620 is no longer required.

    On the same day, Freddie Mac advised all sellers that it had filed its initial report pursuant to a new SEC rule requiring public disclosure of information regarding asset-backed securities loan repurchase requests, including the identity of the originator. It will continue to disclose such information in quarterly reports to the SEC beginning in May 2012.

    Freddie Mac Mortgage Servicing

  • Report Claims to Show Widespread Foreclosure Irregularities In San Francisco


    On February 15, the San Francisco Assessor-Recorder, Phil Ting, released an audit report conducted by Aequitas that found 84 percent of foreclosures sampled contained at least one violation of California’s foreclosure laws. The Assessor-Recorder argues that the results prove the need for state legislation to provide greater mortgage industry oversight, including legislation to address document recording transparency, dual tracking, and general foreclosure processes. The report sampled 382 foreclosures in San Francisco from 2009 through 2011, finding that 75 percent had a problem with the assignment of the deed of trust and 59 percent had assignments that were filed after the notice of default. The report also alleges findings of other unlawful foreclosure actions or “suspicious activity”, but Mr. Ting stressed that he is not asserting that “every distressed borrower is a victim and that the mortgage industry is collectively guilty of defrauding homeowners.”


  • New York's Chief Judge Outlines New Foreclosure Process, Announces Commercial Division Task Force


    On February 14, the Chief Judge of the New York Court of Appeals, Jonathan Lippman, announced a new state foreclosure process that will involve special court parts designed to facilitate settlement conferences. Conferences will be calendared based on the identity of the lender, and each week of the month will be dedicated to a different lender’s cases. Lenders will be required to assign a representative with full authority to enter into mortgage modifications for the entire week of cases, which should reduce delays in the foreclosure process. The new program, which was announced in Chief Judge Lippman’s annual State of the Judiciary address, is a partnership between legal service organizations and several major banks. It will start in New York City, but statewide application is planned. The Chief Judge also announced the formation of a new task force to consider possible reforms to the Commercial Division in order to “create an even more hospitable environment for business.” The task force will consider (i) the process by which judges are selected for that division, (ii) options for better controlling dockets, and (iii) policies to manage the flow of cases and leverage non-judicial personnel and alternative dispute resolution.


  • Federal Government Obtains Settlement of False Claims Act Claims Against CitiMortgage


    On February 15, HUD and the U.S. Attorney for the Southern District of New York announced that CitiMortgage, Inc. had agreed to settle the government’s claims that CitiMortgage violated the False Claims Act and the Financial Institutions Reform, Recovery, and Enforcement Act by failing to comply with certain requirements of the Fair Housing Administration’s Direct Endorsement Lender Program. According to the press release, the defendant submitted certifications stating that certain loans were eligible for FHA mortgage insurance when in fact they were not, causing HUD to unnecessarily incur losses when those loans defaulted. As part of the settlement, which was approved by the United States District Court for the Southern District of New York, CitiMortgage agreed to pay $158.3 million in damages to the United States.

    Mortgage Origination HUD False Claims Act / FIRREA

  • FTC Obtains Orders Banning Alleged Mortgage Relief Scammers


    On February 14, the FTC announced consent orders banning U.S. Mortgage Funding, Inc., and other related companies and individuals from conducting any mortgage relief business. The FTC had charged the defendants with violating the FTC Act and the FTC’s Telemarketing Sales Rule by using direct mail, the Internet, and telemarketing to target borrowers and falsely promise successful mortgage modification programs in exchange for an up-front fee.  In addition to the bans, the orders, which were approved by the United States District Court for the Southern District of Florida, require the defendants to pay monetary judgments and forfeit certain property.


  • Illinois Federal Court Holds That False-CMI Claims Fail Where the CMI is Not on the Same Webpage as the Copyrighted Text


    On February 8, the U.S. District Court for the Northern District of Illinois dismissed a false-copyright management information (CMI) claim because the allegedly false CMI was not on the same webpage as the text at issue. Personal Keepsakes, Inc. v., Inc., No. 1:11-cv-05177, 2012 WL 414803 (N.D. Ill. Feb. 8, 2012). The plaintiff used a website to sell keepsake items that incorporated poetry it had written and copyrighted. Competing websites later copied that poetry and incorporated it into their own products. The plaintiff sued these competitors after discovering that their website terms and conditions suggested that they, not the plaintiff, had copyrighted the poems. The plaintiff claimed that by doing so, its competitors violated the Digital Millennium Copyright Act’s prohibition on “conveying” false CMI. The court disagreed, however, and held that because plaintiff had not posted the CMI in close proximity to the poems, it was not “conveyed” with the poems and could not form the basis of a false-CMI claim as a matter of law.


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