InfoBytes Blog

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.

Fannie Mae Mortgage Servicing Force-placed Insurance Servicing Guide

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.

Foreclosure Freddie Mac Mortgage Servicing

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.

Freddie Mac Fannie Mae State Attorney General FHFA Mortgage Modification

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.”

Privacy/Cyber Risk & Data Security

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.

CFPB Payday Lending U.S. Senate Internet Lending Online Lending Elizabeth Warren

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.

Student Lending SCRA U.S. Senate

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.

Nonbank Supervision Mortgage Servicing OCC Bank Supervision

Connecticut Banking Regulator Issues Virtual Currency Warning

On May 12, the Connecticut Department of Banking issued a consumer advisory about risks associated with virtual currencies. The advisory provides background information and highlights benefits of virtual currency, but cautions that: (i) virtual currency is subject to minimal regulation and is susceptible to cyberattacks; (ii) virtual currency accounts are not backed by the FDIC; (iii) investments tied to virtual currency are volatile; (iv) investors in virtual currency reply upon “unregulated companies that may lack appropriate internal controls and may be more susceptible to fraud and theft than regulated financial institutions;” and (v) investors will have to rely upon the strength of their own computer security systems, as well as security systems provided by third parties to protect from cyberattacks.

Virtual Currency

Federal District Court Rejects Putative Class Challenge To Servicer's Compliance With IFR Order

On May 12, the U.S. District Court for the Western District of Kentucky held that it lacks jurisdiction to review allegations that a mortgage servicer operating under an OCC consent order was negligent in its maintenance of records related to the order. Harris v. Citimortgage, Inc., No. 13-783, slip op. (W.D. Ky. May 12, 2014). The case stems from an amended OCC consent order entered in 2013 as part of the government’s decision to halt the Independent Foreclosure Review Process. The borrower in this action claimed, on behalf of herself and a class of similarly situated borrowers, that one of the settling servicers failed to keep up-to-date records and failed to exercise reasonable care in the maintenance of those records, resulting in the borrower’s foreclosure status being incorrectly classified and the borrower being paid less money under the order than she would have been if she her status had been properly classified. The court explained that the consent order requires the OCC to validate the categorization of borrowers, and that the payments to borrowers are established by the OCC at its discretion. To assess the borrower’s negligence claim, the court would be required to review the OCC’s validation of the borrower’s categorization and payment, which the court is prohibited from doing under federal law. The court dismissed the borrower’s action.

Foreclosure Class Action OCC

Special Alert: VA Adopts Its QM Rule

On May 9, 2014, the Department of Veterans Affairs (VA) issued an interim final rule defining what constitutes a “qualified mortgage” (QM) for purposes of the loans it guarantees, insures, or originates. The VA stated that, to quell persistent uncertainty among lenders regarding the treatment of VA loans under the temporary QM definition established by the Consumer Financial Protection Bureau, it was adopting a rule designating all VA loans as QMs and all VA loans other than a subset of VA streamlined refinancings as safe harbor QMs.

Click here to view our special alert.

CFPB Mortgage Origination Qualified Mortgage